Aviva 2005 Annual Report Download - page 32

Fund management
2005 2004
IFRS EEV IFRS EEV
profit before operating profit before operating
tax profit tax profit
£m £m £m £m
Morley 49 26 18 9
UK (excluding Morley) 88(2) (2)
France 26 8 15 5
Other Europe 2221
International 7777
Fund management total 92 51 40 20
Morley
Morley is the largest UK-based active fund manager, with total
funds under management of £154 billion (2004: £134 billion).
We have offices in London, Melbourne, Dublin, Warsaw, Boston,
Milan and Madrid. Our clients include Aviva group companies,
leading UK financial services companies, external pension funds,
public sector organisations and public companies and specialist
distributors of retail financial products in the UK and Europe.
Our distribution capabilities, in this highly intermediated industry,
are focused on the UK and a small number of pan-European
markets. We are recognised as a provider of fund management
solutions to third party distributors, and we hold key relationships
with pension fund consultants, third-party life companies and
discretionary fund managers.
We aim to compete against the best in the areas of investment
management and client service, with a focus on repeatable
outperformance in our core areas of fixed income, pan-European
equities, property and tactical asset allocation. We are also
developing a small number of specialist asset classes. By increasing
the level of specialist, higher-margin business and actively managing
our cost base, we aim to deliver sustainable and profitable growth.
Our strategy is primarily one of organic growth, while considering
acquisitions where synergies and strategic alignment are
compelling. Developing innovative products to meet the needs
of our clients remains a priority. We continue to work actively
with our distribution partners to identify such opportunities.
During 2005, we launched a number of new institutional and retail
funds, sold under the Morley and Norwich Union brand names in
the UK, and under the Aviva Funds brand name overseas. To meet
high demand for new property-related investments, we launched
a number of new funds, including the £800 million Airport Property
Partnership (a joint initiative with BAA), the Central European
Industrial Fund and the Central European Property Fund. Other
fund launches included the Central European Long Short Fund and
the Norwich Active Protector Fund, a fund that offers protection
against adverse equity market movements. Together with Barclays
Capital, we launched the Woolwich Global Distribution Bond,
which uses derivatives to deliver higher income than could normally
be expected from a standard investment portfolio.
The achievements of our property team were recognised when
Morley was named property manager of the year at the UK
Pension Awards 2005. Other award-winning funds include the
Aviva Emerging Countries Equity Fund (Lipper Fund Award),
Morley Sustainable Future Corporate Bond Fund (Standard & Poor’s
Award) and Aviva Funds Long-Term European Bond (Standard &
Poor’s Award).
Corporate social responsibility is integral to the way Morley runs
its business. We are an acknowledged leader in socially responsible
investment (SRI) and were named SRI provider of the year at the
Global Pension Awards 2006. We continue to build on Morley's
reputation as a responsible investor.
We are regulated by the FSA and maintain a constructive
working relationship. We have responded to a number of
consultation papers during 2005 and anticipate further
engagement in 2006, particularly in respect of the Markets in
Financial Instruments Directive.
We have achieved strong growth in 2005. Operating profit rose to
£49 million (2004: £18 million), reflecting increased investment fee
revenue, increased profit from higher performance fees (recognised
in the second half of the year) of £9 million (2004: £4 million) and
ongoing cost control. Of the total profit, £36 million was in respect
of the UK (2004: £10 million) while overseas businesses, including
Hibernian Investment Managers (HIM), accounted for £13 million
(2004: £8 million). Our fee income benefited from new business
mandates, revenue enhancing initiatives and strongly performing
investment markets. Management of our expense base delivered
an improved cost/income ratio of 77% (2004: 88%) bringing it
into line with the industry average.
In 2005, our new business wins included £2.8 billion of new
funded external mandates from UK retail and institutional investors,
£1.8 billion in property partnership vehicles and £1.0 billion through
overseas operations.
Following the decision to outsource our fund administration to
JPMorgan in 2004, all staff and systems have now transferred and
the new platform and service are operating effectively. We will
seek opportunities to develop this strategic relationship further.
The joint venture in Ireland between Aviva and Allied Irish Banks
will result in the transfer of the investment management of
Ark Life's policyholder funds (a3 billion at 30 September 2005)
to HIM in 2006.
UK (excluding Morley)
In addition to sales under the Morley brand in the UK, we sell retail
Isas, unit trusts, open-ended investment companies (Oeics) and
structured products under the Norwich Union and The Royal Bank
of Scotland Group (RBSG) brands.
Operating profit from Norwich Union's retail investment business
amounted to £9 million (2004: £4 million), while our collective
investment business with RBSG benefited from lower new business
strain from sales of regular premium investment products to report
a loss of £1 million (2004: loss of £6 million).
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Aviva plc 2005 Business review
Business review continued
Business segment performance: Long-term savings
and fund management continued