Scottish Widows Investment Partnership chief vows to improve after funds lag rivals

Published on Friday 4 February 2011 16:54

THE head of UK equities at Scottish Widows Investment Partnership has pledged improvement after admitting its funds have persistently underperformed.

The Lloyds Banking Group-owned investment manager has come under heavy fire in recent years from investors frustrated at the failure of several of its biggest funds to meet their benchmarks.

Peter Cockburn, head of UK equities at Swip, told Scotland on Sunday that the Edinburgh-based firm had been to slow to address well-publicised performance problems.

Swip features regularly in the bi-annual "Spot the Dog" report by Bestinvest, which names and shames the worst-performing funds over three-year periods. The Swip funds highlighted in the most recent update in November included its UK Smaller Companies and UK Income products.

The group was similarly prominent in the latest "Relegation Zone" report by broker Chelsea Financial Services, which, like Bestinvest, picks out funds that have failed to produce the goods for investors. Seven Swip funds appear in the report, including the 1.1 billion Multi-Manager UK Equity Income fund.

Cockburn admitted that the performance of the group's income funds had been an "issue". Investors have paid the price for the failure of Swip's income funds to reduce their exposure to banks quickly enough when the sector was rocked by crisis in 2008, he said.

Cockburn pointed in particular to the problems at Royal Bank of Scotland ahead of its rights issue that year. "We bought more exposure to RBS, having had three back-to-back meetings with management and getting very strong reassurances that balance sheet issues were being addressed," he said.

"Banks made up a big chunk of our income, but in 2008 there was a lot of capital destruction in the banking sector and dividends were cut. We have underperformed our peer group, which itself has underperformed the market."

The group continues to avoid significant exposure to UK banks. "There are still risks in the sector But it's not a great consolation for people who have suffered as a result of that underperformance." The indications so far are of an improvement in the income and growth funds, Cockburn claimed. And with BP announcing last week that it would resume paying dividends, the outlook for income funds is more positive, he said.

"In 2008 the market paid 82bn of income, and that fell last year to just over 50bn. We estimate the market will deliver income of 59bn this year. There are very strong corporate balance sheets, with the net cash on balance sheets at an all-time high."

from the Banking Commission and in the levels of capital that will be required in the future. Banks remain difficult, and the refinancing picture continues to be fragile," he added.

Cockburn, who took on the role permanently last May, said he had responded to concerns over performance by making changes to its roster of fund managers. One of his first moves was hiring Jeremy Charles from Aviva as investment director of the UK equities team, while he hopes to bring in another manager on the UK income fund over the next two weeks.

"The first thing I did last summer when I took the job was to make changes of fund manager where we had persistent problems," Cockburn said. "There is no getting away from that. We have done things that arguably should have been done earlier.

"But it's not a great consolation for people who have suffered as a result of that underperformance."

The indications so far are of an improvement in the income and growth funds, Cockburn claimed. And with BP announcing last week that it would resume paying dividends, the outlook for income funds is more positive, he said.

"In 2008 the market paid 82bn of income, and that fell last year to just over 50bn. We estimate the market will deliver income of 59bn this year. There are very strong corporate balance sheets, with the net cash on balance sheets at an all-time high."