Aviva Investors Disappointed With 2013 Performance, Takes £132 Million Hit For "Improper" Bond Trades

Stephen Little

7 March 2014

Despite a 74 per cent increase in funds under management last year, the group chief executive of Aviva Investors, the asset management arm of insurance group Aviva, has described performance as "inadequate". Meanwhile, the firm has taken a £132 million profit hit from "improper" bond trades by two former employees.

In its annual statement, Aviva said that its fund management arm had assets under management in 2013 of £241 billion with net outflows of £5 billion. The group said that turnaround at Aviva Investors was likely to take time.

Group chief executive officer Mark Wilson said that plans were in place to "address these issues over the coming years" and that new Aviva group chief executive Euan Munro would bring "much needed leadership and impetus" to the fund manager.

"Aviva Investors grew its fund management contribution 74 per cent, but at around 3 per cent of group operating profit and with assets under management of £241 billion, this remains inadequate," said Wilson.

Bond trades

Aviva also revealed that the improper allocation of trades in fixed income securities in Aviva Investors by two former employees had cost the firm £132 million.

"Measures to improve controls have been implemented. There is a total adverse impact on operating profit from this activity of £132 million. We are taking steps to ensure that customers will not ultimately be disadvantaged as a result of these breaches of the dealing policy. The above costs are included in other operations and the impact of this cost is offset by a gain from the curtailment of the Irish pension scheme," the firm said.

The relevant regulatory authorities have been notified and a review of internal control processes relating to the dealing policy has been carried out, the firm said.

Overall, the group reported net income of £2.2 billion, compared with a loss of £2.9 billion in 2012. Operating profit rose 6 per cent to £2 million, up from £1.9 million in 2012, while the firm also saw a 7 per cent drop in operating expenses.

“The turnaround at Aviva is intensifying. We have focused the business on ‘cash flow plus growth’ and the benefits are starting to be reflected in our performance. Cash flows to the group are up 40 per cent, operating expenses are down 7 per cent, operating profit is up 6 per cent and value of new business is up 13 per cent," said Wilson.

“Following our exit from a number of low margin, underperforming or non-strategic businesses, Aviva is simpler, more focused and better managed. We have significantly improved our capital surplus, increased our liquidity and have a stronger leadership team," he added.