Tom Finke, the new man in charge of the combined group, is candid on all three. He believes the move will help spur a resurgence in the group’s multi-asset business by fostering greater collaboration between the firm’s fund managers. Cuts are inevitable, but minor. And the Barings brand was by far the best known.
To unveil the new brand and confirm the firm’s new leadership team, Finke came to London. He told Financial News his rationale for bringing them together is that in straitened times investors are less keen on having many different specialist managers. “Clients will say I want one, two, three, four really core strategic fund managers that are delivering all my needs,” he said.
The four firms have distinctive styles; Babson was renowned as a specialist in credit and loans management; Baring AM had strengths in equities and multi-asset funds, Cornerstone was a Connecticut-based real estate manager and Wood Creek, a manager of niche alternatives strategies.
So far, the merger has largely been about marketing and operations; the four firms’ sales teams have been brought together under Duncan Robertson, formerly sales chief at Babson, and a new website set up. Next on the agenda is putting the firms’ tech platforms together. Finke says there is minimal overlap among investment teams; cross-asset partnership between them is his plan.
But some attrition is inevitable. Robertson’s choice as top salesman was accompanied by the exit of Angus Woolhouse, who held the role at Baring AM. The firm said he left of his own accord, rather than being pushed out by the merger.
And in July, four fixed-income managers departed the UK firm, including Ece Ugurtas, head of specialist fixed income, and Thanasis Petronikolos, head of emerging market debt. They all worked in areas that are specialisms of Babson.
Finke said: “There is very little overlap, but there was a little on the fixed income side. That was a decision we took in high-yield strategies.
“Whenever you bring entities together there is a little bit of integrating management teams. There will be some people that move on: we had that. Clearly David Brennan [Baring AM chief executive] was intending to retire. In company integrations the biggest clashes are usually at the top, so that wasn’t an issue here.
“All our critical investment people and professionals are engaged and in place, and quite frankly it’s business as usual. That said, when you start managing things, redundancies may arise. At the same time, you try to create the opportunities for others. I think we have done a good job of managing this. The morale here has been positive.”
The fact that Finke spent the big day in London seems significant. The $ 275 billion fund manager’s global HQ is in Charlotte, North Carolina, where Babson Capital was based. Finke was formerly chief executive of Babson, and eight of Barings’ 11 new top execs hail from the firm. By assets it was by far the largest of the four.
The London office on Bishopsgate is the HQ of the old Baring Asset Management, a £25 billion UK fund manager that was the last remaining chunk of Barings Bank, a 254-year-old City institution brought down by rogue trader Nick Leeson in 1995.
Acquired by the US insurer MassMutual in 2005, Baring Asset Management had grown into a successful mid-sized funds firm specialising in equities and multi-asset funds, with a strong presence in Asia.
But it was knocked hard by the departure of multi-asset chief Percival Stanion in 2014. Assets in his flagship Dynamic Asset Allocation fund dropped from a high of £9.1 billion in August of that year, to a low of £1.7 billion by March this year. That was the main reason behind a collapse in profits from £41 million in 2014, to £4.5 million last year.
The old Baring Asset Management may be the part of Finke’s new ship that needs steadying; but it is also the part with the history and the name. When Finke began discussing the merger with former Baring AM chief executive David Brennan and MassMutual chief executive Roger Crandall in 2015, the choice of brand was obvious, he said.
Finke said: “Barings, for good and for bad, for 250 years it has been one of those names that lives on, like the House of Morgan. Babson was not a bad brand, but it wasn’t as well known as it could have been, outside of people who really knew its asset class.”
The firm’s global ambitions also played a role in the selection of the name, Finke said. “Barings has been in the funds business in Asia for 40 years, and one thing we want to do, for example, we want to bring Babson’s high-yield product to that market, and rebranding in that market would be difficult.”
Despite the difficulties caused by the exit of Stanion and team, Finke regards Barings’ multi-asset capability as a core capability of the merged firm.
Led by Marino Valensise, who stepped into Stanion’s shoes in September 2014, the fund has been performing in line with its benchmark. It has made 4.62% a year since then, annualised, against a target benchmark, which made 4.61%. But assets have stuck at around £1.8 billion.
Finke thinks the merger offers the chance to add to the strategy. He said: “For the strategies that Marino runs, yes there have been outflows and some challenges, but we end those issues by putting the companies together.
“Bringing the firms together allows us to bring some new capabilities to this team… not only the equity strategies of Baring Asset Management, but to partner and leverage the high-yield business [of the former Babson], it will make these strategies more rich and robust. We will be bringing these together.”
Finke offered little detail on how this might work, but added: “Certainly the goal for Marino and for Mike Freno [head of high-yield, and another Babson alumnus] is to work together with their teams to see how they can improve these strategies.”
Fixed income has been Babson’s motor over the years, with high-yield a big part of its operations. Freno’s team manages around $ 45 billion and has almost 70 fund managers. Finke said inflows in this area had been unaffected by the integration. The Global High Yield Bond Fund, launched in 2012, has swelled by $ 500 million to $ 660 million since the start of 2016.
Owned by a mutual parent, Barings does not have to release much in the way of financial results publicly. But Finke said: “This year, we are ahead of plan. On profitability… if you look at the costs of the integration, core earnings should be in line with last year once you adjust for those costs.
“Flows, based on Babson’s plan for flows, are on plan or slightly ahead, even with this project going on. The big drivers have been global high-yield, private credit and real estate. Given the run that the [high-yield] market has been on, that is not a surprise. Private credit has been doing really well as well. The institutional marketplace has really pivoted to this.”
And the old Babson business had established a sturdy European beachhead, with a London office managing £12 billion at the end of 2015 in CLOs, mutual funds and segregated mandates. According to accounts filed at Companies House, the UK-based arm grew profits by 28% in 2015.
This Babson London office accounts for around 100 of the 450 London staff in the newly merged Barings. For the present, the firm has three offices in London – along with two in both Hong Kong and Tokyo. Finke said there would clearly have to be some consolidation.
He said: “The goal is to get everyone under one roof, London real estate being what it is. We will do our homework and consider the impact on commuting for our associates.”