GLOBAL - Barclays Global Investors (BGI) posted record gains in 2004 with profit before tax up 82% to £374m, despite adverse currency movements.
BGI’s significant investment in technology, deepening of the active product range and development of the ETFs business in the late 90s paid off in 2005, and saw the cost to income ratio drop to 61%, from over 80% four years ago.
“The revenue uplift has been significant,” said Andrew Skirton, global co-CEO, BGI. “On the cost side our investment in technology has enabled us in our scalable businesses, like indexing, securities lending and ETFs, to take on much greater asset volumes whilst leveraging the human expertise that we have, by giving them better tools.”
BGI has grown its ETFs business from $4bn in 2000 to $130bn in 2004. These products charge fees around the 30bp mark.
Active assets under management grew from £125bn in 2003 to £147bn last year. As for capacity issues, Skirton said that the house was committed to researching new sources of alpha as markets evolve, but in most product lines was not near the ceiling.
“By design a lot of our investment strategies have a higher capacity than many traditional managers because one of the main causes of capacity being limited is trading costs and traditional active strategies that polarise around 50-70 stock portfolios are going to be trading larger amounts in a smaller number of stocks and that impact in the market is going to be greater than trading baskets of securities.”
Skirton emphasised that BGI would not take on additional business if it believed that returns would be eroded below client expectations. US small caps and some market neutral strategies have been closed.
As for 2005, BGI is to make LDI (Liability Driven Investment) its focus and hopes to be able to port expertise developing in the UK and Netherlands into markets like the US and Japan.
The house is to launch its suite of 20 LDI funds in the first quarter for sterling investors.
A suite of liability driven investment (LDI) indices has been launched by STOXX and RiskFirst to aid trustees and consultants select, monitor and challenge managers.
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