Invista players join Schroders’ team in £600m transfer deal

Schroders sees potential in property investment trusts to broaden offering, writes Jane Roberts

After 12 months of twists and turns, including a late potential rival bid, Schroders finally landed the management of two former Invista REIM mandates last month.

The listed Invista Foundation Property Trust and Equitable Life Assurance Society mandates transferred on 16 January, along with eight staff. They included former Invista chief executive Duncan Owen, who will have a senior role at Schroders and will remain named fund manager of IFPT, reporting to head of property William Hill.

The move adds £600m of assets under management to Schroders, but Owen will also play a key role in expanding the property business as head of property funds. Schroders’ chief executive, Mike Dobson, is said to have taken a detailed interest in the acquisition of the Invista mandates and in Owen’s pedigree building up Invista REIM.

Schroders’ property assets under management have grown in value from £3.8bn in 2002 to £9bn last September, with Hill pulling off a big deal in 2006 when the investment manager acquired Aareal Bank’s German asset management business.

Since then the market for property investment managers has been, to say the least, difficult. Yet Dobson believes the property arm is under-powered compared to the £173bn in other asset classes; the equities business, for example, also took a pasting, but has been growing again.

Some say that Owen kept expanding Invista REIM when he should have been focusing on existing mandates; Wellcome Trust, Invista’s second-largest shareholder after HBOS, believed that buying an Asian business in early 2009 was a step too far.

Owen is said to believe that Invista’s biggest mistake was not using around £80m of balance sheet cash to buy out HBOS in November 2008, when the bank was clearly going to be sold to Lloyds in order to save it. The 55% stake went to Lloyds, which then called the shots, leading to Invista’s wind down after Lloyds transferred £2.3bn of in-house mandates from Invista to Scottish Widows.

Hill says Owen’s first priority at Schroders is to bed in the two new mandates and visit shareholders. Shareholder approval is being sought to rename the Invista Foundation Property Trust as the Schroder Real Estate Investment Trust.

Other priorities are to improve IFPT’s dividend cover and cut debt. “The dividend isn’t covered by recurring earnings but we are getting there and it is three-quarters covered now,” Owen says.

The trust’s net asset value at the end of December was £169m and it owns £350m of properties. “We will sell assets to cut gearing from 42.7% to 25% ahead of a refinancing in two and a half years’ time,” Owen adds.

Invista’s main attractions

Hill says Schroders was first attracted to Invista by the UK listed trust and European listed trust – although the latter eventually appointed Internos as manager and is to be wound down. Schroders manages invest-ment trusts in other asset classes, which are marketed to discretionary money managers, but didn’t have one in property.

“I think investment trusts have got a very interesting future in terms of producing an income-driven savings product for wealth managers and other intermediaries,” Hill says. “Buying IFPT was strategically a very good fit and opens up our property business, which has been based on defined benefit pension fund and other institutional clients.”

Hill says it was also important that there was a proper “long-term role for the Invista team within Schroders and that we weren’t just hiring them to get the business”.

As head of property funds, Owen will manage existing products and business development within the property distribution function, which comes under Hill’s management as well as the investment function.

London and Frankfurt-based product managers Tom Dovey and Philipp Ellebracht report to Owen, so “In reality, Duncan will spend more time on building new products,” Hill says. Product development manager Andrew Thompson also reports to Owen and his remit includes the global property securities business.

The bricks-and-mortar investment structure is unchanged, with Neil Turner, head of direct property investment, Graeme Rutter, head of property multi-manager and Joe Froud, who runs value-added business Columbus Capital, reporting to Hill.

Hill has effectively been two down in the senior management team since Mike Clarke and Jenny Buck left in 2010 and Owen’s arrival helps redress the balance. The detailed work on launching new products will start after MIPIM.

The rise and fall of a £10bn investment manager

At its peak, Invista REIM managed £10bn of assets; at the end of last year, a rump of assets worth just £185m remained, including the Big Orange self-storage business in Singapore and Hong Kong. Douglas Ferrans switched from nonexecutive to executive chairman a year ago to run it down, assisted by Philip Gadsden. The latest mandate to transfer was the €90m Celsius portfolio, to Internos, which took on the Invista Paris team (see News).

Nick Montgomery moved to Schroders and will continue to be handle the day-to-day management of the IFPT and Equitable Life portfolios, reporting to Neil Turner. But there were no roles for Tony Smedley, who was fund manager of Invista European Property Trust, also now at Internos, or Chris Ludlam, formerly Invista’s head of business development.