Colin McLean's Edinburgh investment boutique SVM agrees to takeover by AssetCo

SVM Asset Management, the Edinburgh investment house founded in 1990 by Colin McLean and partner Margaret Lawson, is being acquired by the AssetCo business chaired by fellow industry veteran Martin Gilbert for £10.7 million.

Mr McLean and Ms Lawson, together with a family trust, own about 99 per cent of SVM, with staff holding the remainder.

SVM has around £586 million of assets under management.

Mr McLean, managing director and chief investment officer of SVM, told The Herald: “We have had approaches over the years and I suppose have given more thought to these over the past three or four years, and given more thought to what we were looking for…in terms of scaling up and growth and marketing.”

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Referring to Mr Gilbert, who built up Aberdeen Asset Management, Mr McLean said: “Martin in particular I think has got a great record. When I heard more about what he was planning to do with AssetCo [it was] quite a good fit with that.”

On the timing of the deal, Mr McLean said: “No...particular reason for now other than it seems a good fit and it is the first thing that has come along that seemed to fit well with us.”

Asked if he had any retirement plans, he replied: “Nothing at present. I will be here for a while hopefully to help this transition and I think Martin sees the potential for the businesses in Scotland to help the growth in AssetCo.”

Mr McLean, who will become a director of AssetCo’s Scottish business, said there was a commitment on both sides of the deal that he would remain for two years, with an “option to be here a bit longer”.

He noted he spends one day a week on his role as a non-executive director of Public Health Scotland, a post which has another four years to run.

Ms Lawson, who is UK investment director at SVM, will continue in her role managing UK equity portfolios. Neil Veitch, SVM’s global and UK investment director, and Hugh Cuthbert, European investment manager at the Edinburgh funds house, will also continue in their roles.

AssetCo noted that all of SVM’s existing 21 staff will continue to be employed by the investment house under its new ownership.

Mr McLean said of the workforce: “We obviously hope in time it will grow.”

He drew a contrast between the takeover of SVM and the purchase of some fund management boutiques by private equity-type players.

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Mr McLean said: “This is definitely about buying track records and growth potential. There is not an intention to force things together that don’t need to be together.”

He emphasised the deal was not about an intention to cost-cut.

SVM made pre-tax profits of £2m on turnover of £4.3m in the year to December 31, 2021.

Earlier this year, AssetCo announced its £2.8m purchase of Edinburgh-based Revera Asset Management. This followed its acquisition last year of Saracen Fund Managers, which is also based in the Scottish capital.

Mr Gilbert, AssetCo deputy chairman Peter McKellar, and Alex Hoctor-Duncan, chief executive officer of AssetCo’s listed equity platform and its River and Mercantile asset management business, will join the board of SVM on completion of the acquisition.

AssetCo said this would “support the continued growth of SVM and AssetCo’s Scottish business”.

SVM’s clients include Glasgow-based Scottish Friendly.

Mr McLean said: “When I set up SVM our aim was to leverage quality research and strong fundamentals to underpin our independent thinking and deliver great investor value. I believe that our performance over the years demonstrates that we have been able to achieve this. I am pleased that with the backing of AssetCo we will be able to continue to build our focus on, and relationships with, existing clients, creating greater value for them, whilst also broadening our client base and growing assets.”

Mr Gilbert said: “We are immensely proud to be building an asset management hub in Edinburgh that, over time, will broaden its client base across the UK and beyond. SVM is a well-regarded fund management firm, with a recognised investment style and a very strong investment track record. Its business model, people and product offering are its key assets, and it is core to AssetCo’s ambitions.

“I have known Colin and Margaret for over 30 years, and I am delighted that both have agreed to remain with SVM. Both have built phenomenal reputations as investment managers over many decades in the industry. The experience and expertise they will bring to AssetCo will be invaluable. I am also heartened that fund managers of the calibre of Hugh and Neil have committed to the business, as they have important roles to play. We are looking forward to working with the four of them, and the rest of the SVM team, as we develop a business to meet the evolving long-term financial needs of investors.”

Noting the deal had not been structured as an earn-out, as sometimes seen in such transactions, Mr McLean said: “It has been done as a friendly or more tailored deal to what both sides want.”

Declaring SVM had “a good business in Europe”, he added: “I think it is the first approach that came along to us that seemed to value all of the business we have got.”

He highlighted his view that, given the move to hybrid working triggered by the pandemic, more people would want to work from Edinburgh for London-based fund managers.

Mr McLean said: “With more hybrid working…with people not having to be in the City of London every day, they are willing to work further afield.”

SVM manages five open-ended funds: UK Growth, UK Opportunities, Continental Europe, All Europe SRI (socially responsible investment) and World Equity. It also runs SVM UK Emerging Fund, a £6.8m investment trust listed on the London Stock Exchange.

AssetCo noted SVM had net assets of £14m at December 31, 2021.

It added: “Post a restructuring that is currently being undertaken by SVM it is anticipated that, at completion of the acquisition, SVM will have net assets and net cash reserves of approximately £4 million each.”

Mr McLean noted that this restructuring would involve transferring excess capital into a “separate asset pool”, which would probably be within SVM Ireland. He noted this Irish subsidiary, the vast bulk of which is owned by himself and Ms Lawson, is essentially a non-trading entity post-Brexit.

He said of the restructuring: “We were working with excess capital before.”

AssetCo noted SVM had, in the three months to March 31, generated turnover of £945,451 and an operating profit of £139,726.

It said the consideration for SVM would be satisfied by the issue of up to £9 million of 1% fixed rate unsecured convertible loan notes in AssetCo and, subject to balance-sheet adjustments, approximately £1.7m in cash. The loan notes may, at the option of the company or a majority of the holders of the loan notes, be converted into fully-paid Ordinary shares in AssetCo. This would be at an effective issue price of £14.50 per Ordinary share. Unless converted, the loan notes will be repaid on December 31, 2023. AssetCo shares rose 35p or 5% to 715p yesterday.

The deal is conditional on Financial Conduct Authority approval of a “change in controller", which AssetCo said was expected to occur by the end of September.