In what is thought to be the first adoption of such a structure by an insurance company, Morley Fund Management (“Morley”) announced today that it is implementing a new index core, long short overlay and active satellite strategy approach for the management of all the Norwich Union UK With Profits Funds. These funds together total circa £57 billion and include £24 billion of UK equities which represents some 1.6% of the total capitalisation of the UK market.
In what is thought to be the first adoption of such a structure by an insurance company, Morley Fund Management (“Morley”) announced today that it is implementing a new index core, long short overlay and active satellite strategy approach for the management of all the NU UK With Profits Funds. These funds together total circa Ł57 billion and include Ł24 billion of UK equities which represents some 1.6% of the total capitalisation of the UK market.
This new Life Fund structure develops from a core satellite strategy that was adopted for the NU Life Fund in March 2000. This has proved to be highly successful and the concept will now be taken a stage further and will be applied to other Life funds within CGNU Group to enable more policyholders to benefit from the expectation of better returns. The new structure consists of the following components:
- A Core Index Fund. This accounts for the largest portion of the UK Equity funds. It will be managed passively to track the FTSE All-Share Index ex IT.
- A Long/Short Overlay on the Core. This allows the fund manager to take positive and negative positions in several stocks. Short selling within the fund is limited to the value of the stock holding within the passive fund, which means that any short positions would always be covered by the holdings in the core fund. In effect the overlay fund has to borrow any stock it sells and then use the proceeds to take long positions.
- The Balanced Satellite. These account for 20% of the fund. The satellites are divided into four sector funds (cyclicals, consumption, financials and growth) benchmarked against the FTSE 350 sector indices and a smaller companies fund benchmarked against the HGSCI ex IT. Subdividing the UK equity funds into smaller portfolios will enable the fund to benefit from a broad range of specialist fund manager skills and experience.
- The High Performance Satellites. These account for 3% of the fund. They are divided into three individual high performance portfolios with high risk profiles; Growth, Value benchmarked against the FTSE 350 ex IT and Small Cap benchmarked against the HGSCI. Although volatility will be high for these satellites the contribution to the risk of the overall equity fund will be small because of their small size.
Commenting on the Core Satellite approach Gerald Holtham, CIO at Morley Fund Management, said: "This year, Morley was rated best all-round Insurance Fund Manager in the 2001 Standard and Poor’s awards. We also had the two top rated corporate analysts in the Reuters awards and came seventh overall for research. But we cannot rest on our laurels and we are striving to continuously upgrade our investment process. With over Ł100 billion under management we are one of the largest investment management companies in the UK and have one of the largest UK equity holdings. We must minimise any potential problems of nimbleness and liquidity associated with such a large holding. We believe we are doing so by implementing an innovative investment strategy.
"This structure combines the risk limitation of a passive core, with the added performance of hedge fund techniques without leverage using some of the techniques already employed by us in our investment management of MAGIC (the recently launched investment company which incorporates a hedge fund element). This is complemented by two groups of satellites: a balanced satellite organised into sectors each with its own fund manager, and high performance themed satellites covering specific styles and asset classes."
Commenting on the changes to the management of the funds, Mike Urmston, Norwich Union’s Chief Actuary, said: "We are pleased to announce this innovative approach to the management of our UK With Profits Funds. We have worked with Morley in agreeing a strategy that will benefit our investors, giving them access to the expertise of specialist fund management within a framework that delivers a low risk strategy. This new fund management approach also brings consistency across our three with profits funds. Norwich Union is committed to achieving the best performance possible for its investors and we are constantly looking for ways to improve returns.”
For further information please contact
Morley Fund Management
Gerald Holtham 020 7809 8700
Penrose Financial (on behalf of Morley)
Gay Collins 020 7786 4882
Caroline Deutsch 020 7786 4871
Norwich Union Press Office
James Evans 08703 66 68 78
Notes to Editors
- Morley Fund Management is an independently managed, London based, asset management business with Ł106 billion under management. It has investment management operations in London, Boston, Tokyo and Singapore.
- Morley is a wholly owned subsidiary of the CGNU Group and manages institutional funds under the Morley brand. It also acts as investment manager for a range of retail investment funds, marketed under the Norwich Union brand.
- CGU plc and Norwich Union plc merged on 30 May 2000 to create CGNU plc, the UK’s largest insurance group and one of the top-five insurers in Europe with substantial positions in other markets around the world, making it the world’s sixth largest insurer based on gross worldwide premiums.
Morley Fund Management is a business name of Morley Fund Management Limited (incorporated in England with Registered No. 1151805 and Registered Office 1 Poultry London EC2R 8EJ) and Norwich Union Investment Management Limited (incorporated in England with Registered No. 2152949 and Registered Office 8 Surrey Street Norwich NR1 3NG) both regulated by IMRO and members of the CGNU Group