Aviva Investors
Strong progress in the development of our global infrastructure
Aviva Investors is the globally integrated asset management business of the Aviva Group. We manage funds for Aviva and a growing range of third-party clients. We enjoy a close and mutually beneficial relationship with Aviva, supported by the financial strength and global brand presence of the Group, and in return, delivering investment know-how, strong and sustainable returns and supporting financial risk management initiatives.
Strategy
Aviva Investors’ strategy is to leverage our Aviva parentage and insurance heritage to grow third-party sales, maintain and, where possible, increase the assets we manage on behalf of Aviva, and through these actions materially increase our contribution to Group profitability. Our nine key strategic imperatives are:
- Focusing on external sales and revenues.
- Establishing the right product and solution offering – including development of our fixed income proposition.
- Enhancing investment performance.
- Driving innovation by developing and implementing a new way of working.
- Expanding our global footprint and centres of excellence.
- Developing strong client service for a scaleable business.
- Integrating globally to provide a scaleable platform.
- Creating a robust risk-managed operating platform.
- Driving capability development by attracting, developing, motivating and retaining the talent that the business needs to meet its strategic aims.
Market environment
Investors continued to take a more cautious view on investment opportunities in 2010. Pension funds in particular, the biggest source of global assets following the financial crisis, have increased attention to risk management. Aviva Investors has worked to adapt its products to meet this growing demand. We also see opportunities arising from increased regulation in developed markets, as this creates barriers for new entrants and opportunities for some existing firms.
Growth in external sales
We made strong progress in the development of our global business development infrastructure during 2010 and saw encouraging signs of traction consistent with our primary objective of delivering strong growth in external fund sales. Net funded external sales (excluding liquidity funds) rose from an outflow of £236 million in 2009 to inflows of £2,364 million in 2010, gross external sales were £8,320 million offset by higher than expected redemptions of £5,956 million. Net liquidity fund sales were an outflow of £745 million (2009: inflows of £2,593 million). During 2010, we re-oriented our business towards more durable, higher margin funds, which resulted in an increased average fee rate on gross external sales, excluding liquidity funds. Assets under management of £260 billion (at 31 December 2010) were up 4% on 2009’s figure of £250 billion, with assets managed for external clients increasing 13% to £51 billion (2009: £45 billion).
Strong investment performance and further improvements in client service
At the end of 2010, 73% of institutional funds where a benchmark is specified, performed above benchmark over the one year and three year horizon (equally weighted). For portfolios measured against a relevant peer group, 70% performed above median over one and three years at the end of December 2010, with 33% in the top quartile over one year and 42% in the top quartile over the three year period. Our focus on client-centricity enabled us to deliver further improvements in client service rankings for Aviva UK, UK institutional and for UK/European financial institutions in 2010 according to independent surveys undertaken by Investit. Rankings in UK pensions, measured by Greenwich Associates, slipped slightly in comparison with 2009 from 1st quartile to 2nd, but we remain in a strong position competitively.
Continuing investment in the business leads to a fall in operating profit
Operating profit fell from £115 million in 2009 to £100 million in 2010 as a result of higher than expected redemptions and ongoing investment in the business which is starting to bear fruit as we see an increase in higher margin external assets. The £100 million profit in 2010 comprises £97 million (2009: £115 million) in respect of fund management operations and £3 million (2009: nil) from our pooled pensions business, which is reported within the long-term business segment.
Strengthening our mutually beneficial position within Aviva
Our growth is focused on leveraging our Aviva parentage and insurance heritage to increase external assets under management. Our Guaranteed Managed Solutions (GMS) product in the US for example, brought in over £500 million of mandates in the last four months of the year. GMS was developed in partnership with Aviva USA and is an important product for both companies.
Outlook
We have made considerable progress developing the infrastructure necessary to meet our objectives and are seeing the benefits of this through improved sales performance. In 2011 we will continue to focus on our core investment strategies to deliver added-value investment solutions to clients in our established markets of the UK, Europe and the US, as well as actively pursuing market share in potential high-growth markets in the Asia Pacific region.
