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Phil Wagstaff, global head of distribution at Gartmore Investment Management, was hired last June with a brief to “rebuild” the firm’s UK retail business, which had posted flat sales for three years. The former head of UK retail and marketing at New Star Asset Management arrived with a strong track record, having built New Star’s UK retail funds under management from £6.4bn in mid 2005, to £11.1bn when he left two years later, just before the credit crunch.

Progress is likely to be slower at Gartmore, however. According to Mr Wagstaff, the UK retail division has been shrinking as a share of Gartmore’s £27bn of assets under management for some years. Now it only represents 25 per cent of the pie, with European retail, institutional and alternatives each taking further quarters.

Mr Wagstaff’s strategy to counter this trend involves getting three things right – people, branding, and product.

The first is now in place. In March, Gartmore hired Richard Pursglove from Cazenove Capital Management as head of UK retail. “I’ve known Richard for 20 years and he has a fantastic track record building UK retail businesses,” Mr Wagstaff says.

Marketing is a longer-term project. “We need to get the branding right. Eventually that will mean new advertising campaigns,” he adds.

But the greatest of these is product. “We haven’t done much in the way of product development for a number of years. You have to have products which are right for today’s market. There’s a big and growing market for the funds we’ve got,” he says, citing the £2.1bn European Selected Opportunities fund, the £636m China Opportunities fund and the £687m Cautious Managed fund, “but there are gaps.”

Mr Wagstaff, identifies three major product lines which need to be launched, expanded or improved. The first is absolute returns.

“It is inevitable Gartmore would want to be in the absolute returns space,” he says, drawing attention to the firm’s flourishing hedge fund business – the eighth largest in Europe, according to Mr Wagstaff.

Gartmore’s involvement in alternative strategies dates back to 1999, when a client mandated Roger Guy, who manages the flagship European Selected Opportunities fund, to run a portfolio with both long and short positions. Unusually, the company has not built a dedicated alternatives team, but runs long/short vehicles at each of its core equity desks. The largest hedge fund, AlphaGen Capella, for example, is still run by Mr Guy and his European equity team.

Given this set-up, the absence of alternatives from Gartmore’s retail range is a glaring gap. But Mr Wagstaff is not to be hurried. “We’ve no interest in being the first off the block with products that don’t work for clients,” he says, confirming the firm has no immediate launch plans.

Yet his long-term vision is very ambitious indeed. “I’m not talking about one fund. In the fullness of time, I can see us moving into this space across all our markets,” he says.

Mr Wagstaff is less enthusiastic about last year’s vogue long/short product, 130/30. “It’s more institutional than retail,” he says, noting Gartmore already offers 130/30 strategies to institutional clients. But he has not yet ruled it out of his retail strategy map.

The main reason for Gartmore’s poor sales record in the UK retail segment, however, is not so much these gaps, as the disappointing performance of its UK equity range – still the mainstay of British retail investors.

“We have to rejuvenate the UK long-only record,” Mr Wagstaff admits. With the exception of one tracker fund, all eight Gartmore UK equity funds have delivered third or fourth-quartile returns over three years.

Mr Wagstaff attributes this poor performance to high-conviction overweights in financials and housebuilders. “The financial position in particular has hurt us over the last 18 months to two years.

“But the desk is convinced this is not the time to change that conviction. They’re uncomfortable with their performance – nobody wants to deliver third and fourth-quartile returns to their investors – but they’re confident their positions will pay back in the long term,” he explains.

The final product line due for development is equity income. Gartmore currently has only one equity income product in the Oeic range, the £227m Gartmore UK Equity Income fund, which ranked in the third quartile of the IMA sector over three years to 16 June.

“Because of the high-alpha way we run money, we don’t have much in the way of income products. If the demographic is such that income will grow, it’s important we develop our range,” he says.

Although Gartmore is clearly serious about transforming its UK retail division, the company’s diversification into alternatives and its global sales footprint – Gartmore even runs £1bn for Chilean investors – are protecting it in the current downturn. Mr Wagstaff does not give any figures away, but says the institutional and hedge fund businesses are “mostly international”.

“We’ve held our own against a falling asset base across the market,” he says. Mr Wagstaff projects AUM for 2008 will be similar to the 2007 level, which he labels “a result”, given the difficult trading conditions.