Uncertainty over F&C sees investors pull out billions

The London headquarters of F&C Asset Management, a group rooted in Scottish financial services

UNCERTAINTY over the future of F&C Asset Management – the respected fund manager steeped in Scottish financial services history – has prompted institutional investors to move up to £4 billion out of the company.

Figures released by the firm yesterday revealed that in the first half of this year F&C's funds under management slumped 7 per cent, more than £7bn, to £96.5bn.

According to the company, as much as £4bn is a result of "net outflows" while the fall in the value of investments such as property and equities also brought the total down.

The fall comes amid continued uncertainty over the future of the firm, which was formed in 2004 from the merger of Foreign & Colonial with Isis Asset Management, the successor of renowned Scottish fund manager Ivory & Sime.

F&C's largest shareholder, troubled insurance group Friends Provident, put its 52 per cent stake in F&C up for sale in January, throwing the future of the fund manager into doubt.

Yesterday, Alain Grisay, chief executive of F&C, which has 130 staff in Edinburgh, denied rumours that Friends planned to shelve the sale, saying there was "no change in strategy".

But despite his reassurance, the credit crunch and lingering fears over the state of the economy have increased the likelihood of a sale in the latter half of the year. And this has resulted in investors deciding to place funds elsewhere.

Bryan Johnson, director of stockbroker Bell Lawrie, said finding a buyer for F&C would help the company end at least some it its financial problems.

Johnson said: "This is the old Ivory & Sime company, which had an honourable history and at one time was a major force in Scotland."

He said the firm had been the source of a large number of "satellite companies" including Noble Grossart and Walter Scott & Partners

Grisay yesterday blamed consultants responsible for placing more than 95 per cent of institutional assets in the UK for putting F&C on a "hold" rating rather than a "buy" rating. He shrugged off the group's fall in assets, arguing it was in line with the group's three-year strategy to cut costs and drive up revenues by bringing in higher value business.

Grisay said: "I don't think we have too much problem with the outflows. It is consistent with everything we have said in previous months. We are focusing on winning new business in high fees areas."

While outflows had gone up, this was mainly a loss of low-margin institutional investors, he claimed. Grisay said the group's continental wholesale business had more than doubled to £274m, and it gained market share in the UK retail business.

In its results for the half-year to the end of June, F&C said it had cut 40 jobs in an effort to cut costs by £12m. Underlying profits fell by 13 per cent £27.8m, although earnings per share remained flat at 4.2p.

Stuart Duncan, small equities analyst for RBS Equity Research, said uncertainty over who will own F&C made consultants "far more cautious". He said: "It is bad for the consultant if they tell the client to invest in F&C and two months later F&C is sold and the whole business changes."