Buxton denies shift from fixed income in OMGI spin out

Old Mutual Global Investors CEO Richard Buxton has denied staff exits, lacklustre performance and pressure to cut costs ahead of the single strategy spinout signal a shift in focus away from fixed income when the firm launches mid-year.

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In an interview with Portfolio Adviser, Buxton stressed that TA Associates, the private equity firm that bought OMGI, do not intend to “slash and burn the business and flip it in three years”.

“This is supporting growing companies and taking them to the next stage as they clearly did with Jupiter.”

It has been suggested to Portfolio Adviser that departures from OMGI’s fixed income team could be linked to additional cost pressures as it readies itself to split from parent company Old Mutual.

Performance from the team has been described as “messy”, while others have noted Buxton’s strength in equities.

Staff changes

OMGI’s fixed income team has undergone a series of major changes and revisions within the last year, months before news broke that Buxton was planning a management buyout of Old Mutual’s single strategy business.

In March 2017, former fixed income head Christine Johnson oversaw a spate of new hires and re-structured the desk into three separate groups – strategic government bond, credit and emerging market debt. Mark Nash, Tim Barker and John Peta, respectively. The re-shuffle triggered Johnson’s own departure from OMGI.

In September, Nash was made fixed income head.

Then, at the start of this year, OMGI informed clients that it was reversing its decision to segregate the team by specialism “in order to promote the highest level of collaboration,” at which point Barker and Peta exited the firm.

Now that the dust has settled, the team stands 10-person strong, including five fund managers. It previously included 13 people.

The team currently oversees £1.7bn in assets under management.

Committed

Buxton told Portfolio Adviser the reversal of the fixed income restructure was not related to the managed buyout (MBO). Instead he said the previous structure was impeding performance.

“We are fully committed to supporting this desk,” the star manager said.

“It is small in AUM by fixed income standards but from the moment we recruited Mark, we were fully committed to supporting and building and growing the fixed income side of the business, even in an environment where the bond bull market is over and yields will be rising from here.”

Buxton added OMGI is a lean business that “doesn’t have any fat to cut”.

OMGI doubled its operating profits last year from £60m in 2016 to £152m in 2017.

When asked about Peta’s and Barker’s abrupt exits, Nash said: “The two portfolio leads I have now were the main contributors to performance within their funds and contribution to the process within their areas.”

Delphine Arrighi, one of Johnson’s hires, joined from Threadneedle Investments in 2015.  In February 2018 she was appointed fund manager of the Old Mutual Local Currency Emerging Market Debt Fund and of the Old Mutual Emerging Market Debt Fund, having been their co-manager since January 2016.

Lloyd Harris became lead manager on the £466m Old Mutual Corporate Bond fund in November 2015.

Messy performance

Ben Yearsley, director of Shore Financial Planning, described the bond team’s performance over the last five-to-six year period plus as “messy”.

Over the last three years, the team’s two emerging debt products are the only funds out of the 11-strong range to outperform their sector average.

Yearsley said: “On the equity side, they have been spot-on most of the time, but in the bond space, they have been poor overall.”

Adrian Lowcock similarly remarked that OMGI’s fixed income “profile has dipped in recent months and years”.

“Obviously Buxton is not a fixed income guy. With fixed income you do need to make a commitment to it and there is a certain scale that does benefit.”

Performance pickup

Performance over one-year has picked up. Four out of 11 of the team’s funds have outperformed the sector average.

The Old Mutual Global Strategic Bond fund co-managed by Nash and Nick Wall, who also left Invesco Perpetual to join OMGI, has gone from fourth quartile over three years, when it returned 2.09%, to second quartile over one-year.

Buxton said there has been an uptick in demand for the Old Mutual Emerging Market Debt fund run by Arrighi. The fund saw £60m in net flows over the first quarter of 2018 alone, nearly half of the £150m in flows its brought in for 2017.

Yearsley agreed that personnel changes “probably proves they had the wrong people in there”.

“Buxton is performance driven. Now as chief executive of the business, it’s his role to ensure they have got the best people in the roles for the jobs and if they haven’t they have to sack them.”

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