Sometimes the nuance is the story…

When the FT ran the announcement from St James Place that it was moving into passive fund management , it was under the headline ‘

St James’Place to launch first passive funds.

It got the retweet from Jo Cumbo under its original title

But this wasn’t the story that St James’ Place wanted at all and subsequent versions  of the story contained an addendum

* The article has been amended since publication to remove a statement suggesting this was the first time SJP had launched passive funds

The article now runs under the title

St James’s Place to make passive funds push

– Britain’s largest wealth manager attempts to stave off competition from cheaper rivals

So why the retraction – what is the nuance?

What was SJP’s concern?

I suspect the message that is being managed is very complex and it is aimed as much as SJP’s advisers as their customers. SJP has worshipped at the table of active fund management for long enough for it to matter when it changes tack. The introduction of passive fund management into the SJP portfolios is not a climbdown but an acknowledgement that St James Place is a victim of its own success. This at least is the implication of Rob Gardner’s comments.

“The feature of passive I like is that it’s low cost, while what I like about active is that you can be an active owner,”

I’m not quite sure I get this , Hermes and latterly LGIM have always argued that passive funds must vote their shares despite being primarily passive managers. But I do get the idea of “passive plus” if you are launching a brand new ESG friendly product

And I totally get this

“The bigger you get, the more you have to move to a core-satellite approach using passive building blocks combined with active exposure,” (Robert Gardner)  said. “Active management doesn’t scale infinitely. We might reach £250bn in assets in the next few years, so adding capacity is important.”

There comes a point that SJP , as its forerunner Allied Dunbar found, when a managed fund becomes a closet tracker and that is what SJP are facing.

There’s no doubt that top down pressure from the FCA and bottom up pressure from customers will drive SJP costs down. We have seen public statements distancing the organisation from the conferences and rewards which are a direct inheritance of where SJP came from and now we are seeing a distancing from the mantra of active management being a value add.

The important thing for SJP is that this is spun to the market as an evolution of a strategy not a climbdown from a strategy. I am quite sure that there have always been passive funds in the salesman’s toolkit so the amendment can be argued to be a factual correction.

But the appointment of Rob Gardner to be SJP’s Director of Investments was more than spin. Gardner is a high-conviction kind of guy who has been involved in some major changes in the investment strategies of corporate defined benefit schemes as co-founder of Redington. More recently he has worked on the strategy for LGIM’s ESG tilted funds and now he is baring his teeth at SJP.

SJP’s nuance of this story is that SJP is changing not as a defensive strategy to counter the rise of Vanguard but to deliver value as it passes from fledgeling to behemoth. SJP’s approach to ESG will replicate the best of breed  and not be a token offering designed to keep the salesmen happy.

This is a tough trick to pull off and will require more than a pro-active PR department working weekends. Even with the amendment, the FT are still running smart beta as a defensive play against Vanguard and SJP need to be seen to be on the front not the back foot.

For SJP to progress beyond where it is today, it is going to have to shed its past and accept that the mass-affluent market needs cheaper products that deliver more predictable outcomes. Taking bets on star managers like Neil Woodford is not the mark of a credible financial titan and Robert Gardner knows it.

I take the announcement that SJP is moving into smart beta as a serious step in the right direction. The FT report it

 ” in talks with asset managers about launching a range of “passive plus” funds, strategies that benefit from the same low price tag as tracker funds but do not replicate the entire index”.

This is a strategy that makes sense; but it needs to be used to make sense not just of the investment proposition but of the product pricing proposition too.

The current lock-in structure is an insult to its wealthy clients – a gating that is neither fair or reasonable. Now that SJP is taking steps to offer an investment strategy that is grown up, perhaps they will remove the gating and trust their clients to keep their money with them..

For Robert Gardner’s grown up investment story to make sense- it needs to be backed up with a grown up way of treating its customers