PA ANALYSIS: Changes for the ‘changemaker’ as investors price up Old Mutual Wealth

The four-way split of Old Mutual may be big news globally, though for UK observers – and potential acquirers – the more remarkable story is its growing Wealth business.

PA ANALYSIS: Changes for the ‘changemaker’ as investors price up Old Mutual Wealth

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While investors may be sweating on how the South African giant’s “managed separation” will impact its share price, Old Mutual Wealth had made huge strides on the back of its acquisitive growth drive.

Chief executive Paul Feeney often talks up the benefits of its “vertically integrated” business strategy.

In practice this means that with discretionary business Quilter Cheviot in tow, alongside OMGI and adviser network Intrinsic, Old Mutual Wealth is in strong position to take a healthy chunk of new business in the coming years.

“Our aim is to be a changemaker, creating prosperity for today’s generation and those of tomorrow,” he said today.  

“Our vertically integrated business strategy is now delivering results for our customers and shareholders.  It is this strategy which truly differentiates us from our industry peers.”

Funds under management increased by 27% to £104.4bn in 2015, a healthy sign in uncertain markets. Its gross sales increased by 30% to £20.8bn.

“For modern vertical integration to be successful, each constituent part must be competitive against its peers in a ‘horizontal’ model as a standalone service,” Richard Freeman, Old Mutual Wealth’s chief distribution officer told Portfolio Adviser.

“That is why our asset and investment management businesses, Old Mutual Global Investors and Quilter Cheviot, stand on their own two feet against their peers. We then look at how we can integrate that expertise to create something exceptional.”

Easier said than done though, of course, and it is important to remember that this relatively early stage vertical integration is yet to prove its real worth.

In terms of asset management in particular, some of the boutique houses still punch way above their weight and are a big threat to the larger players, especially in fragmented equity markets.

Meanwhile, despite consolidation, the discretionary management space arguably looks ever closer to saturation.

“Putting vertical integration into practice in today’s market is not without its challenges and the potential for conflicts of interest has not been entirely eradicated,” says Mike Webb, chief executive at Rathbones.

“Very large firms that are offering services at different stages of the value chain will naturally fall subject to various parts of the regulatory regime. This, in turn, creates a tendency for the parent company to control businesses along the chain in order to reduce risk, allowing the potential for conflicts of interest and cultural divides to creep in.”

In-depth arguments around vertical integration will feature in our next issue, but with some already weighing up Old Mutual Wealth’s value as a target for private equity it seems its corporate metamorphosis will continue to dominate discussion for some time yet.

 

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