Old firm has new ideas for finance; Witan Investment Trust has

0 Comments | Sunday Herald, The, May 2, 2004 | by Ian Fraser

BEING named after the council of the Anglo-Saxon kings can have the curious side-effect of making a business sound extremely old. But this has not barred the giant Witan Investment Trust from being at the forefront of change in the investment trust sector in a move which has got some of Scotland's fund management group's expectantly hoping for some additional funds to manage.

Founded in 1909 as a vehicle to manage the private wealth of the first Lord Faringdon, the (pounds) 1.4bn Witan is a relative newcomer to its "global growth" category. Other investment trusts in its peer group - including Foreign & Colonial (founded 1868), Scottish Investment Trust (1887) and the Alliance Trust (1888) - are decades older.

But Witan, whose assets are currently managed by Henderson Global Investors from London, is leading a breakthrough in investment trust management and marketing that is likely to blaze a trail for many of the Scottish-based investment trusts.

James Budden, marketing manager of Witan who was on a visit to Edinburgh last week, added: "Other investment trusts are taking the line that 'this looks interesting but we'll wait and see what happens'. If it works, I would imagine their shareholders will tell them this is obviously a model you should be following."

Witan's first innovation came in February, when the investment trust, a quoted company in its own right, hired an outsider as its first chief executive.

Jim Horsburgh, a former UK managing director of Schroder Investment Management, joined on February 2 with a brief to shake things up. This may not sound too radical, but in the somewhat creaky world of investment trusts it was positively pioneering. Most investment trust boards are entirely non-executive, and only occasionally do they have a fund manager (usually from their retained asset management supplier) as a token executive representative.

Second came Horsburgh's decision to divide Witan's money into a series of specialist mandates, in a structure sometimes known as "the manager of manager" or "open architecture" approach. Traditionally all the assets are handed to a single investment management group to look after.

Witan also said it would diversify into a range of new asset classes, over and above traditional global equities. Horsburgh is working on internal systems to decide on asset allocation and distribution.

By this autumn, the trust intends to have a new team of specialist fund management groups in place to oversee its investments in bonds, property, private equity and hedge funds, in addition to its traditional equities.

The trust's former benchmark (60% FTSE All-Share and 40% FTSE World ex-UK) will be scrapped "reflecting a move away from large mature Western stock markets."

One reason for adopting the multi-manager route is to permit Witan to spread the risk of short-term underperformance in any particular market, something that afflicted returns over the past three years.

Horsburgh, who spent 17 years at Schroders, will be scrutinising potential investment management groups from across the industry, conducting what is termed a "beauty parade" during the summer.

Budden says they will be looking for "hungry, younger, fund management boutiques" to run different parts of the (pounds) 1.4bn portfolio.

Budden added: "We have had quite a busy mailbag. We had Martin Currie on the phone the other day. This way we are spreading manager risk as well. If you are with just one house you are more or less at their mercy."

The decision to go down the multi-manager approach clearly came as a severe blow to Henderson Global Investors, which is expected to lose most if not all of its contract to run Witan. This was worth around (pounds) 4 million in fees in 2003, down from a high point of (pounds) 10m per annum when the trust had a 0.3% three-year rolling fee.

The loss of the management contract will also come as an emotional wrench for Henderson, which has run Witan's assets since it was launched 95 years ago. Henderson Global Investors, part of the London- quoted HHG group, was demerged from Australian insurer AMP earler this year.

In marketing terms, Witan is unusual for an investment trust in that it has consistently invested in press advertising - it spent (pounds) 1.46m on marketing during 2003. It also makes itself more accessible to a range of individual investors by making itself available in a range of "wrappers" to draw in what it terms "more cerebral investors".

One of the most successful has been Jump, a savings plan for children.

Overall 60% of Witan's shares are now held by private investors, with 40% being spoken for by institutional investors - the opposite of a decade ago.

But occasionally the advertising misfires. When the trust ran one of its cartoon-based, ads using the "Witan Wisdom" line on the inside cover of Private Eye in February 2003, there was an unfortunate juxtaposition.

The same edition of the magazine also carried a piece which said that in these troubled economic times "the personal finance press parties on."