The Royal Bank of Scotland (RBOS) Fund Management Profile
The Royal Bank of Scotland (RBOS)
Fund Management Profile
Today, commercially speaking, RBOS is virtually ubiquitous. Its Royal Bank,
NatWest and Bank of Ulster branches cover the whole of the UK and Ireland. If you
take out insurance with Direct Line or Churchill you are dealing with the company. If
you open a savings account at Tesco supermarket, or ask them for a loan, you are
ultimately an RBOS customer. Even the Queen cannot escape, with Coutts, the
traditional bank of the Royal Family, just another RBOS subsidiary.
When it comes to fund management, however, RBOS is far from ubiquitous, with
most of its activity in this area left to its private banking subsidiaries or outsourced
altogether. As the following profile will demonstrate, though, this is not a story of a
bank failing in its attempt to make an impact in a new commercial area. In the case of
RBOS it could easily have established itself as one of the UK’s dominant fund
managers. Moreover, it could have done so on a number of different occasions. The
fact that has refrained from doing so has been grounded in its own decisions about its
appropriate strategic direction.
In the late 1980s and early 1990s, RBOS’ investment management activities were
conducted principally by its subsidiary, Capital House. This was established at the
rather inauspicious point in time of October 1987 (with the “Black Monday” stock
market crash taking place on 19/10/87). Indeed, it would be possible to speculate that
this baptism of fire is perhaps related to the general reticence shown by RBOS to
commit itself to the fund management sector. Certainly after a few yeas of operations,
RBOS seemed to be less than fully committed to this particular subsidiary. This was
picked up on by the financial press, with one comment being that “There has been
considerable speculation that the bank did not wish to be involved in fund
management…”(The Scotsman, May 7, 1994).
At the time of its creation Capital House had £1.7 billion of funds under management.
By 1994 this had reportedly risen to £5 billion (The Scotsman, May 7, 1994). In the
course of this rapid expansion the company had opened offices in Hong Kong and
Boston. These supplemented its existing offices in Edinburgh, London, Jersey,
Guernsey, the Isle of Man and Singapore.
With £5 billion in assets, Capital House was a significant player within the Scottish
fund management industry. Baillie Gifford, for example, was not much further ahead
around this time, with around £7.9 billion under management (CA Magazine,
December 1993). If RBOS had chosen to enlarge the subsidiary, it could have
conceivably established itself as one of the dominant Scottish fund managers. In the
early 1990s, though, the company was denying that it had any plans to acquire further
investment businesses. At the same time, however, it also denied that it had any plans
to sell Capital House (The Scotsman, May 7, 1994).
These mixed signals were becoming particularly apparent around 1994. In that year
Capital House was taking major steps in strengthening its investment team. Early in
that year, for instance, it appointed Gary Steinberg from the Universities
Superannuation Scheme (USS) to the new position of global investment strategist.
The company had the appearance of one that was preparing for future growth. The
new confidence was expressed by the company’s Corporate Affairs Director, John
Ellwood, who seemed to break with RBOS tradition by stating that “Capital House is
a company which is determined to grow by acquisition…” (The Scotsman, May 7,
At the same time, though, there was a growing suspicion that Capital House was not
regarded as a core operation within the wider RBOS empire. Its MD, Paul Field, for
example, who took over from Norman Riddell in 1993, did not sit on the main RBOS
board, although most of the bank’s other areas of activity were represented. The view
that the company was being sidelined by RBOS was expressed by the Scotsman (May
7, 1994) through the following comment:
“…Capital has never appeared to figure highly in its banking parent’s plans,
hardly receiving a mention in the annual review of the most recent financial
year, compared with other areas of activity like Direct Line”
In the end, the two opposing views that Capital House was about to be strengthened
and/or ditched by RBOS were effectively reconciled through a deal with Newton
Investment Management. The prospect of a deal certainly seemed to please those who
had ambitions for Capital House, with Corporate Affairs Director, John Ellwood
stating that “I would see it as extremely exciting and extremely positive were we to
get into bed with Newton Management” (The Scotsman, May 7, 1994).
Newton Investment Management
Newton was established in 1977 as a joint venture between Stewart Newton (formerly
with Ivory & Sime) and the international broker, Reed Stenhouse. Initially the new
company specialised in pension fund management. After the takeover of Reed
Stenhouse by Alexander and Alexander, Newton and his colleagues acquired a
controlling stake in the company in 1986, buying out the rest of the shares in 1992.
(The Scotsman, September 17, 1994, Scotland on Sunday, April 19, 1998).
In September 1994 RBOS merged its investment management subsidiary, Capital
House, with Newton Investment Management. This created a broadly based group
with funds under management of around £8 billion (The Scotsman, September 17,
1994). Under the terms of the merger RBOS offered to inject Capital House into the
Newton business and, in addition, pay £25 million. In return, the bank would take a
33 percent stake in the new group, with a right to board representation. As part of the
deal Newton also retained a three-year capital raising option, obliging RBOS to
subscribe for up to £10 million in cumulative redeemable preference shares.
Dr George Mathewson, CEO of RBOS, said that the deal would enhance the range
and performance of fund management products offered by the bank. It was announced
that a new range of unit trusts and PEP products were to be introduced by RBOS
following the merger. These would be marketed under the RBOS name from early
1995. Thereafter RBOS customers would only be offered products managed by
Newton and marketed using the RBOS name.
At the time of the merger Capital House looked to be the slightly larger player. It
employed 230 staff, for example, compared to Newton’s 225 (The Scotsman,
September 17, 1994). Going by the £5 billion of funds held by Capital House, it
would also seemed to have outranked Newton in this department.1 As a result of the
deal some job losses were predicted. Perhaps more significantly, RBOS effectively
lost direct control of its fund management activities. These activities had pretty much
now been outsourced to an investment group in which RBOS held only a minority
By 1998 RBOS seemed to have lost all interest in its former investment subsidiary
and was seen to be open to offers for its share of Newton. This was noted in the
Scottish financial press, where it was stated that “The Royal Bank is understood to be
keen to exit Newton altogether” (Scotland on Sunday, April 19, 1998).
At this juncture, in addition to the 33 percent of the company held by RBOS, an equal
amount of equity was under the control of Stewart Newton, with the remainder being
held by other senior staff. The company now managed more than £10 billion of funds
and was expected to fetch a price of around £200 million (Scotland on Sunday, April
19, 1998). The previous year Newton Investment Management had been approached
by Merrill Lynch with a view to striking a deal. In the end, though, Merrill Lynch
went for the much larger Mercury Asset Management, for which it paid £3.1 billion in
the course of 1997.
With the Merrill Lynch talks coming to nothing, senior executives at Newton were
said to be looking for a strategic partnership that would allow them to keep overall
control of the business. In the end they struck a deal with US based Mellon Financial
Corporation, which took a 75 percent stake in the company.2 Newton management
retained the remaining 25 percent, with RBOS exiting the company altogether.
As of the end of 2001 Newton had around £23 billion of funds under management,
with the bulk of this amount (just under £11 billion) coming from pension funds. In
Scotland it employed 222 people and managed around £700 million of funds (CA
Magazine, December 2001).
As the involvement a large global players such as Mellon and Merrill Lynch would
indicate, in the late 1990s there was considerable interest in the UK fund management
sector. During this period stock markets were fairly strong and there was a view that,
According to different figures from the The Scotsman (September 17, 1994) Capital House only
contributed £3 billion of funds to the new venture
This had increased to 93 percent by 2001 (CA Magazine, December 2001)
given the investment needs of an ageing UK population, fund management was a
growth area. Such arguments did not, however, seem to convince RBOS. Even with
fund management enjoying a growth phase, it seemed happy to turn its back on the
Tilney Investment Management
Tilney traces its 160-year history back to Liverpool in the 1800's. In 1986 Tilney
joined the RBOS-owned Charterhouse Group to form Charterhouse Tilney
(http://www.tilney.com/aboutus/history.asp). In 1993 there was a Management buyout
of the private client and fund management divisions and a return to independence
under the name of Tilney & Co. In April 1998 the official name for the operating
company changed to Tilney Investment Management. In May 2000 the Tilney Group
joined Refco (Ibid). During 2003 it bought the private client arm of EFM for £5
million (The Herald 3/6/03). Today, the company has over £4 billion of funds under
Looking at the experience of RBOS with Tilney, certain parallels emerge with its
involvement with Capital House and Newton Investment Management. As with
Capital House, the interest in Tilney could be traced back to the mid 1980’s. Again, as
with Capital House, that interest seemed to wane from the early 1990s with RBOS
losing control of Tilney altogether. At this juncture RBOS could conceivably have
combined its fund management interests (Capital House, Tilney and even Adam & Co
which was bought in 1993 – see below) to form a dedicated fund management
operation on a significant scale. This was not, however, the strategic direction that it
Adam & Company
As alluded to above, the involvement of RBOS in the fund management sector was
increased through its purchase of the private bank, Adam & Co, in September 1993.
This brought a further £115 million worth of funds into the RBOS Group (figures for
December 1993 – CA Magazine, December 1993).
At the time of the take-over Adam and Co had only been in existence for 10 years. Its
first decade, though, proved to be quite eventful. The company was launched in
Edinburgh in June 1983 (www.rbs.co.uk). The two men responsible for its formation
were Sir Charles Fraser (subsequently its Chairman) and Sir Ian Noble (also co-
founder of the merchant bank, Noble Grossart) (The Scotsman, June 14, 2001).
In many ways the move to create the bank was a defensive one. At the time the future
independence of Scotland’s two principal banks, RBOS itself and Bank of Scotland
(BOS), looked far from assured. RBOS was then being courted by both Standard
Chartered and the Hong Kong and Shanghai bank (HKSB). As for BOS, it was then
30 percent owned by Barclays, with its future prospects unclear. In order to safeguard
Scotland’s independent banking traditions, albeit on a fairly modest scale, Adam &
Co was created, basing itself in traditional style, at Charlotte Square, Edinburgh. It
was Scotland’s first new bank since 1840 (The Herald, July 20, 1993). The name
Adam & Co was decided upon in honour of the Scottish economist, Adam Smith. For
a new bank designed to safeguard Scotland’s future banking independence, Adam &
Co drew heavily upon traditional values. As MD, Ray Entwistle, put it in 2003 “we
have turned the clock back to the 1940s” (The Scotsman, March 7, 2003). Expanding
upon the theme he gave the following flavour of the bank’s traditional ethos:
“…when clients come into the foyer, we know most people by their first
name. We’re more like a club than a bank” (The Scotsman, March 7, 2003)
The bank’s original institutional backers included Selective Assets Trust and Standard
Life. It also counted with the involvement of M&G, CU, Abtrust and the Life
Association of Scotland (The Herald, July 20, 1993). Apart from this rather prosaic
list of institutional investors, the bank also counted with the backing of the wealthy
French Schlumberger family (an involvement which was to prove crucial for the
bank’s survival – see below).3 In addition, the bank also sold equity to its growing
client-base. By 1992 around a third of its shares were held by some 900 private
individuals, mainly clients (The Herald, October 19, 1992). As this would suggest, its
average client was an individual with considerable wealth. While the bank might have
emerged in order to safeguard Scotland’s banking traditions it very much aimed its
services at the country’s elite, rather than at the wider population. As one comment in
the financial press put it
“… the bank had a fearful arrogance, making it generally known that its
facilities were restricted to individuals of high net worth. Inevitably it became
colloquially known as the toff’s bank” (The Herald, December 19, 1992)
Or, to draw from a competing publication: “Adam & Co….to be blunt, does not
manage cash for any old riff-raff” (Scotland on Sunday, August 25, 2002).
In September 1986 the young bank absorbed Continental Trust Ltd, thereby acquiring
a base in London. In early 1987 there was a restructuring which saw the creation of
the new subsidiary Adam & Company Investment Management Ltd (www.rbs.co.uk).
By the end of the decade the bank was looking relatively secure, even managing to
become more profitable than one of the Big Four English banks. As the financial
press put it (with one eye on that impressive Adam & Co client list) “The future
looked plush” (The Herald, December 19, 1992). The solid performance continued
into the early 1990s. In 1992 the bank announced a record £722,000 pre-tax profit and
its first-ever interim dividend. In response, The Herald (February 29, 1992) stated that
“It is becoming a habit to look for good results from Adam & Company, the plushy
private bank…”. The bank, which included among its senior management former
amateur jockey, Sandy Dudgeon (assistant MD), seemed to be racing ahead.4
Keeping his feet on the ground, though, Chairman, Sir Charles Fraser, while
optimistic about the bank’s prospects, cautioned that this was “a time for continued
vigilance and control” (The Herald, February 29, 1992).
As it turned out these words were both prophetic and somewhat ironic. The following
year the bank suffered a huge single loss of £21 million on unauthorised foreign
In some reports e.g. The Herald (December 19, 1992) the Schlumberger family are said to have
become involved with Adam & Co at a later stage when the bank took over an investment trust.
For a profile of Dudgeon, see The Herald (October 19, 1992).
exchange dealings (The Herald, August 17, 1993). The bank with the former jockey in
its team had been devastated by a piece of ill-advised gambling. At the time Adams &
Co was on course for record profits, boosted, not least, by the same treasury
operations that eventually threw it into crisis (The Herald, September 16, 1992). The
extent of the crisis was not to be under-stated with the £21 million figure representing
around twice the bank’s own share capital.
At this point panic could easily have set in and the bank could have suffered a run on
its reserves. Fortunately, though, Adams & Co enjoyed the support of its own clearing
bank, RBOS, which effectively acted as guarantor. This was acknowledged by Adams
& Co Chairman, Sir Charles Fraser, who, in assuring that the bank was still a going
concern, stated that:
“the Royal Bank of Scotland, banker to the group companies, continues to
provide all support to the bank that its board believes to be necessary and has
agreed terms for committed banking facilities” (The Herald, September 16,
In offering to guarantee the financial issuances of Adam & Co, RBOS was seen by
some commentators, to be acting “bravely”, giving the uncertainty surrounding the
bank’s future (The Herald, July 20, 1993). In time RBOS would be rewarded for its
good faith when it came to take over the bank entirely. For now, though, it was left to
others to construct a rescue package for Adam & Co.
Initially, it was widely thought that help might be offered from across Charlotte
Square, in the form of Ivory & Sime. This fund manager had an interest in the bank’s
shares, while the Chairman of Adam & Co, Sir Charles Fraser, also had close
connections with Ivory & Sime. Once an injection of cash from a shareholder had
been announced by Adams & Co, though, Ivory & Sime MD Allan Munro denied any
involvement, stating that “We are not the shareholder who had provided a safety net”.
He went on to articulate the extent of Adams & Co’s good fortune that it had found
such a saviour, commenting that “To have a shareholder make that sort of financial
investment has to be the coup of all time” (The Herald, September 17, 1992).
In fact the proud Scottish bank’s saviour took the form of a 75-year-old French
widow, Madame Schlumberger Primat. At the time she was the bank’s largest
shareholder with 1,775,000 shares (The Herald, September 25, 1992). With the bank
in deep trouble she agreed to subscribe completely to a £21 million Special Preference
Share issue that would ensure the continuance of the bank. In pure business terms the
move made little sense. Rather, it seemed that Madame Schlumberger Primat had
developed a liking for the bank and its principles. As one report at the time put it, in
the case of Adam & Co, “Only the philanthropy of its principal shareholder and
director Mme F. Schlumberger Primat saved it” (The Herald, July 20, 1993).
Despite the good faith shown by the influential French family in the bank, though,
their involvement in 1992 proved far from profitable. The following year the bank
was sold to RBOS for £10.5 million leaving Madame Schlumberger Primat with a
loss of £12 million (The Herald, July 20, 1993) (The Herald, September 7, 1993).
Far from being bitter, though, she agreed to continue serving on the bank’s board
following the RBOS takeover (The Herald, July 24, 1993). ). Today the French
family’s legacy is preserved at the bank, through the presence of Madame
Schlumberger Primat’s son, D Primat, on the board of Directors (Adam & Co, Report
and Accounts 2002).
The actual purchase offer from RBOS amounted to 15p per ordinary Adams & Co
share. A the time of the bank’s launch some 10 years previously these had been
valued at 100p (The Herald, July 20, 1993). This meant some serious losses for the
bank’s original shareholders. The Abtrust Investment Trust, for example, lost an
estimated £400,000 through its exposure to Adam & Co (The Herald, August 4,
1993). Given the extent of the bank’s one-off currency loss, though, most
shareholders were probably relieved to receive any form of payout. To a large extent
they had avoided losing everything through the generous involvement of Madame
In pure business terms RBOS came out of the deal well. It had effectively allowed a
major shareholder to save the bank, before stepping in and picking it up at a price well
below the cost of rescue. In some ways this could be seen as a reward for the good
faith shown by RBOS when it acted a guarantor to Adams & Co at the height of its
crisis. It had now managed to add another private bank to its range of interests, with
Adams & Co now sitting alongside Child & Co (the oldest bank in Britain,
established in 1580) in RBOS’ private banking stable. Despite its growing influence
in private banking, RBOS still managed to have the takeover cleared by the DTI
which decided there was no need for a monopolies or mergers enquiry (The Herald,
August 14, 1993).
As for Adams & Co itself, it seemed content to be joining forces with RBOS.
Following the bank’s troubles in 1992 it had hired advisors from Lazards to consider
its strategic options. Their advice seemed to involve striking a deal with a larger,
financially secure, institution. In the words of Sir Charles “The preference was to find
a big brother…” (The Herald, July 20, 1993). Given its previous dealings with Adams
& Co, RBOS fitted this role perfectly. In the end, a bank which was created partly in
response to the threats to RBOS’ own independence, now found itself within the
Interestingly, another potential “big brother” for Adam & Co was thought to be
Coutts, the English bank with links to the Royal family. At the time it formed part of
the NatWest Group. In another strange twist of fate the two private banks would end
up as “sister” organisations within the RBOS family upon its takeover of NatWest in
2000 (see below).
At the time of the RBOS deal Adams & Co had a blue chip list of current accounts
totalling around 4000 and managed funds of around £120 million (The Herald, July
Adams & Co as Part of RBOS
After the takeover by RBOS in September 1993 Adam & Co continued operating
independently with a separate board of directors. In 1995 it bought Carolina Trust
(Guernsey) Ltd from the American Nations Bank, thereby strengthening its offshore
Since the takeover in 1993, Adams & Co has expanded significantly. In 2002 it
recorded its eighth consecutive year of profit growth. Over the previous five years it
had recorded profits growth averaging around 40 percent. For its financial year
leading up to 2002 it reported net earnings up 23 percent to £10.1 million, with.
lending up £57 million to over £250 million. To mark its continued success it
announced the opening of a new office in Aberdeen, adding to its bases in Edinburgh,
London, Manchester and Guernsey (The Scotsman, March 22, 2002).
In the period from the end of 1993 to the end of 2001 the bank’s funds under
management increased from £115 million to £456 million. During this period it
became more focussed upon managing its private clients’ funds. As of December
1993, 70 percent of its funds were in the form of private clients, with pension funds
making up 16 percent and just under 14 percent coming form charities, overseas and
trusts. By December 2001 the private client sector accounted for 80 percent of funds,
with pension funds down to 8 percent and charities at 12 percent (CA Magazine,
December 1993, December 2001).
As the above figures would suggest, private banking enjoyed a period of strong
growth from the mid 1990s. In the case of Scotland other private banks such as Coutts
and Rathbones were becoming more active during this time. The growing interest in
the Scottish private banking scene was shown in 1998 when Merrill Lynch opened an
office in Edinburgh. This formed part of its strategy of establishing a network of
private banks in order to compliment the strong corporate and institutional presence it
had gained through its purchase of Mercury (as mentioned above) and the
stockbrokers Smith New Court.
The vibrancy within the sector was recognised by Adam & Co MD Entwistle who
stated that “Private banking is the fastest growing sector in financial services today
and just about everybody wants to get into it” (The Sunday Herald, July 30, 2000).
Research at the time by HSBC showed that more than four million people in the UK
had more than £50,000 of free assets (The Scotsman, March 22, 2001). Many of these
had enjoyed the fruits of the long running stock market boom and were becoming the
type of client sought by the private banks such as Adam & Co. By mid-2000 the bank
serviced the investment needs of 8500 clients, among them many of Scotland’s top
sporting and entertainment celebrities (The Sunday Herald, July 30, 2000).
Around this time it effectively became a “sister” operation to competitor Coutts & Co,
following the £21 billion takeover of NatWest by RBOS in February 2000.
At the time Coutts was a far larger operation than Adams & Co, employing 5,000
people in 16 countries. Adam & Co, for its part employed around 250 people (The
Scotsman, August 24, 2002). Coutts was also far more profitable than its Scottish
competitor. In the previous calendar year it had made profits of around £200 million
(The Scotsman, June 1, 2000). Coutts also provided investment management services
for its clients and, at the time, was one of Europe’s largest hedge fund managers with
around US$1.2 billion invested (with the actual hedge fund management outsourced
to external managers) (The Scotsman, June 1, 2000).
With two such similar banks in its organisation, it was thought that RBOS might
consider bringing Coutts and Adams & Co together in a single company. This was,
however, denied by RBOS which rejected the idea that it was contemplating a merger
of the two banks. Indeed even the bringing together of their back office operations
was explicitly ruled out. Today the two banks coexist within the RBOS Group and
target separate geographical and national markets. Coutts focuses on English high
earners, including those living in Scotland. Adams & Co, for its part, concentrates on
its predominantly Scottish clientele. To complicate things further RBOS itself has its
own high-net-worth private client team. (The Scotsman, March 13, 2002). Until now,
though, the three separate parts of the organisation seem to have coexisted amicably
and there has been no indication that any merger is being considered.
The fact that even the back-office activities of Coutts and Adam & Co were kept
separate is interesting, given that the Scottish bank was increasingly taking over these
activities for external firms. This area covers consolidated banking, custody and
administration services. By 2001 Adams & Co was providing back office services for
12 other investment houses. In the course of that year Adams & Co took on a contract
to manage the back office activities of First State (the new owner of Stewart Ivory).
This brought Adams & Co’s funds under administration to around £3 billion (The
Scotsman, November 7, 2001). The deal raised a few eyebrows in international
banking circles in that it linked RBOS with First State’s owner, the Commonwealth
Bank of Australia (CBA).
In fact the speculation that further deals could be in the pipeline proved accurate,
although they were restricted to Adam & Co and First State rather than their
respective parent companies. The deal in question took place in mid-2002 and
involved the purchase by Adams & Co of Stewart Ivory Wealth Management (SIWM)
owned by First State Investments. The purchase price was not disclosed. Based upon
the tendency for such outfits to fetch one to five percent of assets, though, this would
have valued the deal at between £4.5 million and £23 million (Scotland on Sunday,
August 25, 2002).
At the time Stewart Ivory had around 750 individual accounts worth more than £450
million. The purchase would double Adams & Co’s funds under management,
bringing them to close to £1 billion. Thanks to the deal the company was transformed
into the largest private wealth manager in Scotland. Speaking after the purchase, Ray
Entwistle MD at Adam & Co stated that “This acquisition is strategically important
for Adam and places us at the absolute forefront of private client businesses in
Scotland” (The Scotsman, August 24, 2002). With this deal Adams & Co saw its fund
base even more heavily skewed towards private clients.
With Adams & Co showing its capacity to be acquisitive, there was speculation that it
may be tempted to go for the private client business of Martin Currie (MCPC) or even
EFM or Friends Ivory & Sime (Scotland on Sunday, August 25, 2002). As it turned
out this particular speculation came to nothing, with former RBOS company, Tilney,
buying the EFM business in 2003 (see above) and MCPC merging with the private
investment arm of Thornhill in late 2002 (see Martin Currie profile).
An indication of this growing willingness of Adam & Co to actively seek out new
business had, in fact, been given the previous year, 2001. In June of that year it
attracted four fund managers from the Clydesdale Bank to strengthen its Glasgow
office. This piece of corporate poaching resulted in a boost of £50 million in new
funds under management. As for Clydesdale, the defections left its fund management
operations severely depleted. At this point it was thought that it had only around £1
billion under management (The Scotsman, June 14, 2001, The Scotsman, March 22,
On the subject of defections, it is worth mentioning those suffered by Merrill Lynch,
which effectively brought to a close its attempt to establish a private clients office in
Edinburgh (see above). In July 2000 it had lost five key staff and around £150 million
of clients’ money to city rival, Rathbones. Then, in the course of 2000 UBS Warburg
poached two of its remaining three fund managers, to set up its own wealth
management operation in Edinburgh. Soon after Merrill Lynch announced it was
closing the Edinburgh office (Scotland on Sunday, August 18, 2002).
Returning to Adam & Co, at the end of 2002 it established a property partnership to
cater for clients wanting to invest directly in property rather than stocks and shares.
By this stage many private investors were wary of the stock market due to the long
running bear phase. This shift in attitude was acknowledged by Entwistle who stated
“Our clients have been keen to look at property as they ask what else they can
do with their money as equities fall. The particularly noticeable trend has been
buying on the continent” (The Scotsman, March 26, 2003)
The partnership’s first purchase consisted of a business park in Preston. This was
followed by the purchase of five shopping centres for more than £25 million (The
Scotsman, June 23, 2003). New ventures such as this helped the bank to a solid
performance for the 2002 financial year, with profits up to £10.6 million – a 5 percent
increase over the previous year. In the course of the year the bank had loaned more
than £300 million (a new record) to its client-base that now numbered around 10,000
(The Scotsman, March 26, 2003).
In addition to new ventures, such as its property business, Adam & Co retains a link
with perhaps the most traditional form of investment management; namely investment
trusts. The company is a member of the Association of Investment Trust Companies
(AITC) and controls the Private Investors Capital investment trust which has around
£22.5 of total assets (www.aitc.co.uk). The actual management of the trust, however,
is outsourced to First State Investment Management (UK) Ltd (formerly known as
Stewart Ivory). This is another example of the links between Adam & Co and First
Like most financial institutions Adams & Co had suffered a decline in fund
management business from 2000, due to falling markets. This was, however,
compensated for by the banks other activities, such as deposits and lending. This
demonstrated that Adams & Co was first and foremost a traditional bank rather than a
fund manger. The point was picked up on by Entwistle who stated that:
“We must be one of very few private banks in Europe to increase our profits in
2002. Most of our rivals are highly geared towards investment-related
activity” (The Scotsman, March 26, 2003)
Today Adams & Co continues to see itself as a “discretionary fund manager” (CA
Magazine, December 2001) with its activities described as “…that of providing
banking, investment management and other financial services” (Adam & Company
Group Plc, reports and Accounts to 31st December 2002). Given the wide-ranging
nature of its activities, it is clearly very far removed from being a “pure” fund
manager such as Baillie Gifford. This diversity had helped it survive a difficult period
for fund mangers. With stock markets declining form the early 2000s the once
fashionable fund management sector suffered a decline in its fortunes. A seller’s
market quickly changed into one where buyers could pick up a bargain. In 2002, for
example, Rothschild Asset Management was bought “for a virtual song” (£61 million)
by HBOS (The Scotsman, December 5, 2002). Similarly, the admittedly much
troubled, EFM, was sold to AAM in 2003 for a fraction of its previous market
capitalisation (see EFM profile).
By operating first and foremost as a multi-service bank, Adam & Co have been able
to avoid many of the problems of the pure fund managers. In the process it has
retained its position within the RBOS group, at a time when, true to its traditions, the
parent bank has been purging itself of its dedicated fund management subsidiaries.
This has taken the form of the disposal of Gartmore and the investment arm of Ulster
Bank, both of which came RBOS’ way after its takeover of NatWest.
In 2000 Gartmore was an international fund management business with around £60
billion of funds under management (The Scotsman, March 9, 2000: article b). It was
based in London with offices in Scotland, Jersey, Germany, Japan and the USA. The
Scottish operation of Gartmore, based in Glasgow, accounted for around £800 million
of funds (Ibid). The company had been merged with NatWest’s existing fund
management operation upon acquisition by the English bank in 1996.
With NatWest being pursued by both RBOS and BOS during 2000, it put Gartmore
up for sale as part of its defence strategy. No takers were immediately found,
however, with the defence strategy itself ultimately proving unsuccessful. With the
takeover of NatWest by RBOS in 2000 Gartmore joined the Scottish banking group. It
was not to remain there for long, though, with Fred Goodwin, Group Chief Executive
of RBOS stating that "The Royal Bank of Scotland Group recognised in its bid for
NatWest that it was not the best owner of Gartmore” (RBOS Press Release, 30 March
Initially, Gartmore was expected to fetch a price of around £550 million, with UK
insurance company, CGU, being seen as the front-runner (The Scotsman, March 31,
2000). Gradually, though, it became apparent that there were various potential buyers
and that the company would fetch a much greater sum. This was recognised by the
Scotsman (March 9, 2000: article a) which stated that as far as RBOS was concerned
“Far from being a forced seller, the queue for Gartmore has made it a sit-back-relax-
In the end the company was sold to surprise bidder, Nationwide Mutual, an American
insurer for £1.03 billion. Nationwide was founded in Columbus Ohio in 1925 and at
the time was ranked the 30th largest insurance and finance company in the world. The
American company was highly active in the 401k pension market in the US. These
pensions are similar to the stakeholder pensions which were due to be launched in the
UK in April 2002. This led to speculation that Gartmore could become a major player
in the UK stakeholder market (The Scotsman, March 31, 2000).
Under the terms of the deal Gartmore Scotland would retain its Glasgow base and
existing management team (The Scotsman, March 31, 2000). RBOS, however, would
have no future role to play. With this sale, it was shown that RBOS did not have any
ambitions to continue with fund management on any large scale. In many ways the
company could consider itself fortunate to have sold Gartmore for such a high price.
A few years on, with the stock market uncertainty taking its toll, it would have been
lucky to have got anywhere near the agreed price.
Ulster Bank Investment Managers (UBIM) Limited
Soon after the Gartmore sale RBOS also disposed of the investment side of Ulster
Bank, another company from the NatWest Group. UBIM was Ireland’s fourth largest
fund management company with approximately £4.6 billion (Euro 8 billion) in assets
under management at 31 March 2000. It employed a staff of 73, all of who were to be
retained by the new owner. The buyer was the KBC Group, a diversified banking and
insurance group headquartered in Brussels (RBOS Press Release, 5 May 2000).
Speaking about the deal, Ulster Bank’s Chief Executive Martin Wilson commented:
“Royal Bank Group is delighted to announce that KBC will be the new
owners of UBIM. UBIM has been a highly successful operation within Ulster
Bank but having recognised that this business required a new owner to bring it
to the next stage of development, I believe today’s announcement is good
news for UBIM clients and employees”(RBOS Press Release, 5 May 2000).
Once again RBOS had acted quickly to dispose of a fund management business which
it regarded as non-core.
Royal Scottish Assurance and NatWest Life
Both Royal Scottish Assurance and NatWest Life are subsidiaries within the RBOS
Group. In the case of both subsidiaries RBOS has a 50/50 joint venture partner
agreement with Aviva, the parent group of Norwich Union (The Scotsman, February
The two subsidiaries were responsible for the stakeholder pension products sold
within RBOS. The actual fund management side of the business, though, was farmed
out to Norwich Union. In early 2004 RBOS announced that it was pulling out of the
stakeholder pensions market altogether. Following the move RBOS stakeholder
customers would be moved to Norwich Union. This strategic withdrawal heightened
suspicion that RBOS would eventually close Royal Scottish Assurance and/or
NatWest Life (The Scotsman, February 10, 2004).
Whatever the future of these subsidiaries, RBOS again seemed to be demonstrating an
arms length attitude to fund management. Its withdrawal from the stakeholder market
is of additional interest in that it followed on from its disposal of Gartmore, the
company tipped to be one of the dominant players in the new market.
Fund Management within RBOS Today
So far this profile has consisted primarily of examples of RBOS distancing itself from
fund management activities. This begs the question: where does the bank stand in
relation to fund management today? Principally its involvement with the sector
would seem to take place through its Adams & Co and Coutts subsidiaries, with the
former concentrating on the Scottish market. As already discussed, though, both of
these companies are essentially private banks with an element of asset management
thrown in. Even then, both banks outsource much of their fund management activity
(e.g. Coutts’ hedge funds and Adams & Co’s investment trust activity). In the case of
Adams & Co it does at least demonstrate some fund management credentials by
belonging to the Association of Investment Trust Companies (AITC)
(www.aitc.co.uk). RBOS, itself, is not listed as a member.
Moving on to the other significant trade body; The Investment Managers Association,
neither Adams & Co nor RBOS are mentioned in the members’ section. The closest
RBOS comes to being acknowledged is through its Direct Line subsidiary (more
specifically Direct Lines Unit Trusts Ltd which is listed as a member)
(www.investmentuk.org). This subsidiary offers two separate funds. As of January
2004 Direct Line had just under £109 million under management in the UK. This put
it in 93rd place amongst managers with UK funds (including unit trusts, OEICs, PEPs
and ISAs) (www.investmentuk.org).
As of 2001 the NatWest subsidiary offered its clients a portfolio of six investment
funds, outsourced to six external fund managers (Scotland on Sunday, May 6, 2001)
RBOS itself also offers its customers six unit trusts under its own name (Growth,
Income, High Yield, Balanced, International Growth and Cash) (www.rbs.co.uk).
On two separate occasions in its recent history RBOS could have established itself as
a significant fund manager. Firstly it could have combined its Capital House and
Tilney interests in the early 1990s and then conceivably added Adams & Co into the
fund management mix. Then, with the takeover of NatWest in 2000 it could have
brought together the fund management functions of Adams & Co with those of
Coutts. These could have then been added to the activities of the more dedicated asset
managers; Gartmore and Ulster Bank Investment Managers. Had the latter course of
action been followed RBOS would have been a highly significant player within the
Scottish fund management sector. This, it chose not to do, seeing its strategic future
elsewhere. Given the success of the bank over the last decade who is to say that it did
not make absolutely the correct decision? Certainly in selling Gartmore the bank
seemed to achieve an exceptional price.
As discussed in the description of Adams & Co’s formation, it was not so long ago
that the long-term independence of RBOS looked highly questionable. Today it is one
of the UK’s top companies and very much in the premier league of global banks.
Again to turn to Adams & Co this company’s one-time close links with fund manager
Ivory & Sime were alluded to when discussing its own fight for survival. This
particular fund manager is famous on the Scottish scene for the number of spin-offs
which it has created (see profile). In the case of RBOS a similar picture has emerged,
although instead of spinning-off such companies, the bank has sought to extract itself
from numerous fund manager operations. Today RBOS uses the corporate slogan.
“Make it Happen” (www.rbs.co.uk). When it has come to getting involved in fund
management, though, that slogan would seem to read “Make Sure it does not