In the UK’s list of mid-sized asset managers, most could be forgiven for overlooking NFU Mutual.
The National Farmers Union Mutual Insurance Society – to give the firm its full name – started out in 1910. It was the brainchild of seven Midlands-based farmers and offered pure insurance.
Today, its asset management arm runs more than £16 billion – around the same as more familiar sounding names such as JO Hambro Capital Management or Skagen Funds.
Around £9 billion of the current assets under management are in equities and a further £5.5 billion of that is in fixed income – mostly UK government and corporate bonds. The remainder is in commercial property and cash.
Most of the trading is in equities although the business likes to underline its commitment to low turnover of portfolios of between 10 and 20% per annum across all equity strategies.
In charge of fund management and trading is chief investment officer Paul Glover. In an age when senior directors boast of switching companies several times during their career climb, Glover is something of a rarity.
He graduated Birmingham University in 1986 and joined NFU Mutual as an investment analyst. He has been there ever since, heading up the international equities desk between 1992 and 2010. He landed the CIO job in January 2011 after 18 months as acting chief investment manager.
At NFU Mutual, the fund managers are responsible for their own trades. There are 11 fund managers including Glover, apart from those working in real estate, seven work on equities and three on fixed income.
And while, the trading setup maybe different to many other investment management houses who have separate, centralised, dealing desks, the problems and regulatory concerns are the same.
Quality control
As far as trading is concerned, top of Glover’s priority list is research. He says for an organisation like NFU Mutual, the quality and value of research is the most important thing for them to assess.
He explains: “The biggest debate for us is paying for research and how we are going to source it. There are a lot of changes in the world of unbundling and we are in that ‘in-between’ period.
“We are still dealing with investment banks and getting their research and notionally allocating the trading commission party to cover research but we are starting to move to some bespoke research.”
Glover says the company has formed a discussion group led by him, which includes senior investment managers and members of the compliance team to assess how best the business should adapt to the new regulations.
He says: “We ask do you value the research? Do you want to trade that way? How are you going to pay for the research and how are we going to pass that on to customers?
“At the moment, we don’t have a significant pot of money to go out and pay for it. All the research used to come out from brokerage commissions.”
However, Glover explains that there is currently a separate fund for overseas research and this has proven to be useful in recent years.
He says: “In emerging markets, we have more money there than we ever had before and we have been a bit disappointed in the quality of the research. We have decided to [separately] pay for that.”
When asked whether NFU Mutual would follow some of the larger asset managers by expanding its in-house research team still further, Glover says “it’s a possibility” but says a decision on this has not yet been made.
He says: “We visit companies so we have a team of CFA-qualified people with experience. We do have in-house capabilities alongside some of the funds and we are considering whether to expand that.
“We are not overly happy with the quality of research we get from brokers and investment banks. It is a live discussion.”
Broker preferences
In a market where trustees are showing a greater interest in the fundamentals and costs of trading than ever before, NFU Mutual has beefed up its broker options in recent months.
It has long been a user of Bloomberg Tradebook, but recently added to its list of preferred brokers, opting for platforms from Merrill Lynch and Citi to be integrated into its own system.
Glover explains that the decision was made after a long-term project to analyse the best way to achieve lower-cost execution.
He says: “We monitor the effectiveness in-house of our dealing and even though we are managing a lot of money, we want to ensure we are still able to do that in house.”
Glover says he is quite trusting with the brokers that he works with. He says the business’s strong relationship with brokers means his team are usually happy to allow their brokers to access the liquidity as best they see fit.