Interview: RLAM's Jonathan Platt on bond market disruption

“When I started fixed income investing within Royal London 25 years ago, I was probably responsible for managing one other person and £1bn. [That] was a lot of money then, but it was a very small amount in the context of global assets,” he recalls. 

“Now I’m responsible for a team of 30 people, and we manage £50bn of sterling assets.”

The comparison underlines how far fixed income as a sector has developed over the past two-and-a-half decades, spurred on by a bull market that has spanned the whole of that period. 

By contrast, when Mr Platt joined RLAM in 1985 as an equity analyst, he recollects that the asset base was around 80 per cent invested in equities. 

“I started as an analyst, and then managed a high income unit trust that combined equities with an element of fixed income, which propelled me to get more involved in fixed income.”

He says the year 2000 was a “turning point”, following a series of mergers and acquisitions at the firm. Mr Platt’s fixed income team began to grow and he acknowledges he went from being solely a manager of money to a manager of people.

“I’ve had to adapt to that, in terms of I’m a fund manager at heart. I like markets; [they]are what interests me,” he says. 

“It’s about challenging yourself against other people, delivering to your clients and making them central to what you do.”

For Mr Platt, the right kind of motivation is extremely important and that means motivating people as a team. “We’re seen at times as just being there to benefit from the remuneration that’s available in a well-paid industry,” he says, recognising the perception some people have of the financial rewards available to star fund managers.

“If you’re leading a team that is just focused on ‘how much I’m going to get out of it’, you’re not going to succeed. You’ve got to create a team environment in which people like working with each other – they’re not looking to see one person’s success, it’s actually the team working together.” 

He adds: “At times, when you get your views on markets wrong, you feel that’s the hardest part. But it’s about how you structure a team, how you inspire and lead that team, and how you get people thinking in a team environment when naturally financial services/asset management tends to be quite ego-driven and individualistic.”

The salaries commanded by portfolio managers are likely to face increasing scrutiny in the wake of the FCA’s review of the asset management industry, which has flagged up concerns on costs and charges among active managers.

Mr Platt believes the industry is currently facing one of its toughest challenges.

“One of the big issues is how asset managers cope in the environment in which the returns their clients earn are going to be a lot lower, and their compensation for managing those assets will also be lower when you put in place sales infrastructures and remuneration structures that are based on the continuation of what we’ve got,” he explains.

He remembers the last time the asset management industry faced a challenging period back in 2008-09. RLAM’s fixed income strategies were tested, although Mr Platt notes: “We came through it quite well in terms of defaults. I felt at the time that because we were upfront with our clients, told them our philosophy and explained what we did, the retention of our client base at that time was really good. 

“If you can explain to your client why you’ve done something, what the rationale for a particular strategy is, and what the implications are and what the results have been in terms of performance, [then] I think clients can accept that. They don’t expect you to be perfect in all conditions, but what they expect you to be is accountable.”

We can’t compete with the scale of the BlackRocks, the Legal & Generals and the Insights of this world, but we can offer a more bespoke product in that area

Mr Platt believes there is currently a move to model-based investments in equity and fixed income, leaving investors unwilling to question the underlying strategies of the products they are invested in.

“Too much in this industry is shrouded in technology, where I think the managers take comfort in the fact that this is a very technical area and perhaps don’t want their clients to ask these questions,” he says. 

But he thinks the regulator has “raised the bar” for retail investors in general.

“We are at the simpler end of the spectrum, but I look at some of the charges that have been out there in the industry and I believe they are very difficult to maintain: certainly in the low-yield environment we’re in at present where I think some of the longer-term returns expected from financial assets won’t be realised,” he says.

Mr Platt also begs to differ with the liquidity review paper published by the FCA in 2016 that concluded there had been no significant change in credit market liquidity.

“As a practitioner in the markets I feel liquidity is lower and I think it’s one of the challenges. If you look at the period since the financial crisis, the relative size of the credit market compared with the government market has shifted dramatically,” he points out.

“Perhaps 10 years ago the credit market and the government bond market in the UK were about the same size, but now the [gilts] market is twice the size of the credit market. That’s primarily because of government deficits and the issuance of [gilts] post the financial crisis.

“Banks aren’t as active in providing secondary market liquidity as they were. I think asset managers will have to get used to operating in an environment in which liquidity isn’t taken as a given in credit markets, and that will change the way in which credit bonds are traded, as well as the habits of asset managers.”

These challenges have not prevented RLAM from expanding its business. It made four hires in August 2016, enlarging its high-yield credit team ahead of the launch of its Multi-Asset Credit fund. Khuram Sharih joined from Newton Investment Management as a fund manager, focusing on leveraged loans and alternative credit.

Mr Platt has other plans for the fixed income business. He intends to develop sustainable and ethical bond investment at the firm, as he believes this sits well with the business’s values. 

He adds there are also plans to further develop the absolute return offering.

But Mr Platt believes his fixed income team now has enough resources following last year’s recruitment drive.

“We can’t compete with the scale of the BlackRocks, the Legal & Generals and the Insights of this world, but we can offer a more bespoke product in that area,” he says.

“I think that really sums up what Royal London is about. We have got to offer our clients differentiated products; we can’t play on other people’s turf because they are bigger than we are. 

“We’ve got to be able to offer something that’s different, well priced, and easy to understand. That’s really how I want to see the fixed income business perceived and how we will develop that business.”