Regional overviews: UK
One Aviva triangle
Dear Shareholder,
Morley is entering an exciting phase as it forms a key component in Aviva’s global asset management business. In line with this strategic priority, Morley will be combined with Aviva’s other asset managers worldwide to create Aviva Investors, a global investor capability. We start this transformation from a position of strength. Morley is one of the UK’s largest active fund managers with more than £165 billion of funds under management and a broad range of specialist investment expertise, experience and performance.
We made good progress in 2007 in expanding our global reach. We opened new offices in Spain and Germany, agreed a joint venture in China and established a property presence in the Asia Pacific region. All this was achieved while maintaining our focus of operating a client-centric business based on a suite of high quality products that are differentiated by performance.
Our challenge now is to move fast to draw these strengths together with the fantastic potential elsewhere in the group’s asset management businesses and create a truly global Aviva investment operation.
Fund managers across the group currently manage £316 billion in funds across a broad range of asset classes. Bringing the separate operations together allows us to bring the best capabilities and performance from around the world to all our clients.
Alain Dromer
CEO, Morley Fund Management and Aviva Investors
UK – Fund management
| Operating profit IFRS basis |
Operating profit EEV basis |
|||
| 12 months 2007 £m |
12 months 2006 £m |
12 months 2007 £m |
12 months 2006 £m |
|
| Morley | 87 | 76 | 51 | 44 |
| The Royal Bank of Scotland | (9) | (7) | (9) | (7) |
| Norwich Union investment funds | (1) | 1 | (1) | 1 |
| Total | 77 | 70 | 41 | 38 |
IFRS Operating profit
Funds under management (Morley)
Our primary fund management business in the UK is Morley Fund Management. Morley also has operations in Europe and Asia Pacific regions which are reported in the numbers above as they fall under the management of Morley in the UK rather than the other regional offices.
Morley
Morley is one of the UK’s largest active fund managers and the largest fund management business in the Aviva group, with £165 billion (2006: £166 billion) of total funds under management.
Our aim at Morley is to build a client-centric business that is among the best in our chosen asset classes and markets and in line with the One Aviva strategic priority to build a global asset management operation.
Morley’s strategy is to optimise client satisfaction and service by offering a suite of high quality products differentiated by performance and focused on our core areas of fixed income, pan-European equities, property and asset allocation. We continue to develop products in specialist areas such as alternatives, strengthen our infrastructure and maintain our focus on developing the talent and skills of all our people.
Our commitment to excellence was recognised several times in 2007. Morley was named Best Property Manager at the Financial News Excellence in Institutional Management Awards and also Property Manager of the Year at the 2007 UK Pensions Awards, the G7 Fixed Income Fund also retained its title as Fixed Income Hedge Fund of the Year at the EuroHedge Awards. Our convertibles team was recognised with a AA / V4 rating by Standard & Poor’s for the Aviva Morley Global Convertibles Fund. The Fund, one of the largest global convertibles SICAVs, continued to grow strongly throughout the year, reaching the US$1 billion mark in September.
In July, Morley was ranked number one for the third year running for its understanding of socially responsible investing (SRI) and extra-financial issues in the annual Thomson Extel SRI and Extra-Financial survey. Corporate and social responsibility remains a key business driver and the SRI team has done outstanding work in building Morley’s reputation as a responsible investor.
The strength of our existing product range was augmented throughout the year as Morley continued to launch new products, responding to demand from our clients. The Aviva Morley Emerging Markets Local Currency Bond Fund, the Morley Private Equity Programme fund of funds product and the Diversified Strategy Fund are all testament to the innovation within the Morley group and all have seen strong early fund flows.
Our property business performed well, despite returns from UK commercial property falling during the year from recent historic highs. Our Lime Property Fund in particular experienced an increase in fund inflows, raising £225 million in the first eight months of the year and signing its 40th institutional client.
Morley announcing an asset management JV with COFCO in October
Morley is working to form a fund management joint venture in China with COFCO. We plan to use this as a platform for developing a substantial asset management business in China and have already opened an office in Shanghai. The Chinese sector has grown rapidly in recent years with cUS$440 billion of assets under management and is expected to increase dramatically over the next decade. This joint venture strengthens the close relationship the Aviva group has had with COFCO since 2003 and marks the next step in Morley's expansion in the Asia Pacific region.
For more information visit
www.aviva-cofco.com.cn or
www.morleyfm.com
Morley is one of the largest managers in European commercial property assets and in a move to try to replicate that kind of success we announced in April plans to expand Morley’s property investments across Japan and the rest of Asia. Morley will work with multiple property partners throughout Asia to develop partnerships in the same way it has done across Europe. The first of these joint ventures is with Mitsubishi UFJ Trust and Banking Corporation (MUTB) of Japan.
Our geographical expansion hasn’t been confined to our property business. In February, we opened our Frankfurt office to increase our presence in that part of Europe. Our ambitions in the fast-growing Chinese market were boosted by the opening of Morley’s Shanghai Representative Office in November when we also announced that we had signed a memorandum of understanding to form a fund management joint venture with China National Oils, Foodstuffs and Cereals Corporation (COFCO). COFCO is also Aviva’s partner in the life business in China and both the relationship with COFCO and the new office should provide us with an excellent platform to grow in this exciting market.
Both in the UK and overseas, our people remain our core asset and we continue to invest in the talent at Morley and to strive to attract the best talent from elsewhere in the industry. We hired extensively throughout the year, bringing new expertise to all our teams and deepening the pool of talent available for our clients.
In September, Alain Dromer took on the leadership of Morley. Alain brings with him the skills and experience of working in large international organisations and as such he is also charged with building Aviva’s global asset management business. Previously global head of group investment businesses at HSBC, and with a seat on the group executive committee, Alain is well placed to fast develop Aviva’s plans in the investment area.
The Morley group overall performed strongly in 2007 against a background of volatility in financial markets and concern about the collapse of the US sub-prime mortgage market, with operating profit increasing to £91 million (2006: £79 million). Operating profit from fund management rose to £87 million (2006: £76 million), with £70 million being generated by our UK business (2006: £62 million) and £17 million from Morley’s overseas units (2006: £14 million). Our pooled pensions business contributed £4 million (2006: £3 million) to operating profit which is reported in the UK long-term savings segment. Our cost to income ratio remained broadly in line with its 2006 comparative at 73% (2006: 72%).
Sales were strong to third-party distributors and we won a number of institutional mandates across our key asset classes.
The strength of our individual teams and our innovative new products are expected to sustain growth into 2008 and we will continue to explore new ways of adding value for our client base moving forward.
UK fund management
In addition to sales under the Morley brand, we sell ISAs, unit trusts, open-ended investment companies (Oeics) and structured products under the Norwich Union and The Royal Bank of Scotland brands.
