Aviva 2006 Annual Report Download - page 52

Aviva plc
Annual Report and Accounts 2006 48
International and Morley continued
Morley
Morley is one of the largest UK-based active fund managers, with
total funds under management of £166 billion (2005: £154 billion)
and offices in London, Melbourne, Dublin, Luxembourg, Warsaw,
Boston, Milan and Madrid.
We are recognised as a provider of a broad range of specialist fund
management solutions to our clients, which include Aviva group
companies, many of the UK’s largest financial services companies,
external pension funds, public sector organisations and public and
private companies.
We seek to compete against the best in our industry, by offering
high quality products with repeatable out performance in our core
areas of fixed income, pan-European equities, property and tactical
asset allocation. We also continue to provide and develop a small
number of specialist asset classes in areas such as sustainable and
responsible investment (SRI) and alternatives.
Our strategy is primarily one of organic growth; however, we
actively consider acquisitions wheresynergies and strategic
alignment arecompelling. Weaim to deliver sustainable and
profitable growth through a focus on increasing our revenue by
offering higher-margin products in our areas of strength while
carefully managing our cost base.
During the year, Morley and our UK long-term savings business,
Norwich Union Life, agreed to establish a single team, operating
within a joint venture approach, responsible for the sale of collective
investment products to consolidate and strengthen our participation
in both the retail and wholesale UK sales channels over the
long term* .
During 2006, we launched a number of new institutional and
retail funds, sold under either the Morley or Norwich Union brand
names in the UK, and under the new Aviva Morley Funds brand
name overseas.
We also set up new specialist funds to satisfy increasing client
demand for absolute return products: the Convertible Arbitrage
Hedge Fund, the Absolute Bond Fund and the Absolute Tactical
Asset Allocation Fund. Together with Barclays Capital, we launched
the Global Balanced and Global Cautious funds, which use
derivatives to deliver higher income than could normally be
expected from a standard investment portfolio. Our innovative
management of these products was recognised by Institutional
Investor awarding our fund managers the “ equity derivatives end
user of the year’” award, and we have seen strong early sales flows.
In June, we completed the purchase of a 56% stake in hedge fund
management company ORN Capital as part of our strategy to
accelerate our alternatives business, adding one multi-strategy and
anumber of single-strategy hedge funds to our range of absolute
return products.
Tomeet high demand for new property-related investments, we
launched new specialist funds, including the European institutional
fund Encore+ and a global real estate investment trust product in
conjunction with property company CB Richard Ellis Global Real
Estate Securities.
The growth of our property funds under management continues
apace with strong fund inflows. Our leading property team
continues to be recognised by the industry, winning property
fund manager of the year from both Property Week and
Pensions Management.
People are our core asset and the competition for talent in fund
management is particularly intense; hence, we are pleased to have
been successful in attracting a number of high quality managers as
part of a continuous programme of development and growth.
We have been particularly successful in recruiting into our UK
equity team during the year.
Corporate responsibility is integral to the way Morley runs its
business. Through SRI and our corporate governance activity,we
continue to build on Morley’s reputation as a responsible investor.
Our SRI team continues to be highly regarded in the market and
was the only UK-based team to win a UK equities mandate from
France’s state pensions reserve fund. It was also recognised as
“ SRI Provider of the Year” by Global Pensions 2006.
Our funds under management increased by £12 billion.
We achieved strong sales to third-party life companies and
discretionary fund managers and also won a number of institutional
mandates across our core asset classes of fixed income, UK equities,
property, including specialist partnership vehicles, and asset
allocation. Growth in funds under management also resulted from
generally positive global investment returns. Finally, in M ay, we
completed the take-on of b3.3 billion of funds from the Ark Life
Assurance company resulting from Aviva’s bancassurance joint
venturewith AIB.
The Morley group as a whole achieved strong profit
growth in 2006 as operating profit increased to £79 million
(2005: £52 million),including a £3 million contribution
(2005: £3 million) from our pooled pension business which
is reported in the UK long-term savings segment. Our fund
management operating profit grew significantly to £76 million
(2005: £49 million),reflecting increased investment management
fee revenue and higher performance fees, which contributed
£14 million (2005: £10 million) to profit and weremainly
recognised in the second half of the year. £62 million of the profit
was in respect of the UK (2005: £36 million) while overseas
businesses, including Hibernian Investment M anagers, accounted
for £14 million (2005: £13 million).Our fee income benefited from
new business mandates and strongly performing investment
markets that, coupled with our management of our expense base,
delivered a further improvement in our cost/income ratio to 72%
(2005: 77%).
Wecontinue to position our business to work with our clients to
develop tailored investment solutions and capitalise on the growing
demand for specialist investment products.
Business review continued
*Collective investment sales are reported in our UK long-term savings segment.