Euan Munro: Growing up in a mining village drives my ESG outlook

Munro was at that time well into his stint as chief executive at Aviva Investors, a business he joined having previously been the fund manager who launched the Global Absolute Return Strategy (GARS) fund at Standard Life, and by his own admission an ambitious person.

He has not lost those traits, but says his perspective was altered in 2019 when a mine, operated by multi-national company Vale, collapsed in Brazil and 270 workers died. 

Munro says: "With the rise in popularity of sustainable investing now, there are lots of people around the industry claiming to have cared about it since they were in nappies. I am not going to make that claim about myself.

"But when I read that Vale paid $7bn (£5.3bn) compensation to workers' families for that disaster, but were still able to do a share buyback that year, it really reminded me. I am from a mining village in Fife [Scotland], and my father was one of four siblings. Three of them, including him, died prematurely from cancers caused, in my view, by the environment of slag heaps and mines where we lived.

"My father died in his 50s, and that was because the mining company did not care about indigenous workers in Scotland or anywhere else that they employed. And I suddenly realised, as an industry, we have to hold these firms to account for how they are treating people.

"I find it very empowering to be at Newton, which is a firm that has been doing sustainable investing for many years.”  

The journey that has taken Munro to the top role at Newton, a subsidiary of the Wall Street giant BNY Mellon Investment Management, began in the less than auspicious surrounds of Scottish engineering factories.

He says: “I did a physics degree because I didn’t know what I wanted to do. Engineering seemed like the obvious thing, and I worked summer jobs soldering for engineering firms.

"But I realised that while engineers are respected for their technical skill, they don’t really ever get to run the firms, and I always thought I had it in me to run firms, if the industry was right. In truth, I was a terrible engineer anyway, I could pass the exams, but whatever I built in the lab never worked.

"I also saw how passionate the other engineers were about what they do, some of them built model airplanes in their spare time, but that was never for me. Then I realised that lots of the big insurance companies in Edinburgh were run by actuaries, so there was a technical career where I could also advance to running the company if I was good enough.

"It would be disingenuous of me to say that I never thought I could be a chief executive, however much I might present as an avuncular and not hyper-ambitious person.” 

At that stage of his life, Munro did not actually know what a fund manager was, but learnt while training as an actuary at Scottish Provident.

Learning the ropes 

He says: “As part of the training, they put me with the investment managers, specifically a fixed income manager, and I loved that world; the news changing every day, the fact you were measured daily against an index and against your peers, there was a score card every day, and some days you went up and some you went down. That excited me, and I wrapped my legs around the chair there, and they kept me on.”

After two years managing money at Scottish Provident, he moved to the much larger Standard Life, where he launched GARS, which is believed to be the first absolute return fund available to the UK adviser market. 

Once again, he says the idea of launching the product was the result of his own experience. 

 It would be disingenuous of me to say that I never thought I could be a chief executive

He says: “At Standard Life at that time, most of the clients were in with-profits funds, and most of the allocation was to equities. The thing about those products is, there was a pre-determined return. And that was OK if equities fell for one year, but the dotcom stock market crash lasted from 2001-2003, and Standard Life went from a very solvent firm to almost bust.

"And I thought, well, if clients want a product that generates reasonable returns, but with low volatility, why shouldn’t we give that to them? It was an idea that came from the school of hard knocks.”

Absolute return funds have fallen sharply from favour with clients in recent years, but he says the prevailing market conditions of much of the past decade, with equities performing strongly, have not suited the asset class and he expects the trend to reverse. 

GARS was the largest fund in the UK market, and Munro was head of fixed income and multi-asset at the company, when he quit to join Aviva Investors, launching a GARS-type product. He became chief executive in 2013. 

 There are lots of people around the industry claiming to have cared about it since they were in nappies. I am not going to make that claim about myself.Euan Munro

A hint of his latent ambition could perhaps be provided by his completion of the advanced management training programme at the prestigious Wharton business school in the US. 

Munro acknowledges that it is rare for fund managers, whose focus tends to be on their own asset class and markets, rather than the fate of their employer or colleagues, and tend to not have to deal with HR or IT-related matters. 

He says: “Its certainly true that as a fund manager I thought us guys in the front office were the stars. I went from running an investment division at Standard Life to being a chief executive.

"But when I was running a division I got a lot of my validation from being a good investor. As chief executive, obviously the remit is much wider, I have to care about far more things. But I think the key is to create an executive team who know far more about everything than I do. I will never know as much about IT as our head of IT, or about cybersecurity as our head of that department. I hope the fund managers we employ realise that they need the back office as well – not that we pay fund managers badly.”  

Munro says his decision to depart Aviva Investors in 2021 was “entirely my choice, I got offered a great opportunity at Newton” – though it is worth noting that shortly after his departure was announced, Aviva Group chief executive Amanda Blanc announced cutbacks to the unit he had run, with a number of redundancies, including of head of equities David Cumming, who has now joined Newton. 

 I see my role as being to help clients with what they need, even if they don’t know they need itEuan Munro

Aviva Investors has assets under management of £262bn, which is considerably higher than the AUM of Newton. Many market participants take the view that Aviva Investors has not had a standout product for many years, but has been overly reliant on its absolute returns fund – the product originally launched by Munro, and which has underperformed in recent years. 

Munro’s new business is part of the wider BNY Mellon group, and “has its own swim lane", he says. "We do the global equities and sustainable investing and have a real return product. Those are the areas we will focus on, and it is my job to grow the business organically."

He says the opportunity will come due to the shift in focus of the market away from growth stocks and passive strategies. 

Growing pains

Munro says: “The key thing is demographics, which show that more people are going to need retirement income, and that needs to be their focus, not trying to outperform the Nasdaq. I see my role as being to help clients with what they need, even if they don’t know they need it.

"In recent years, the world of low interest rates, equity income and many of the other strategies we run have been unfashionable due to market conditions, but that is changing, and so now my job is to stop the outflows here.” 

Munro says the business's biggest clients are defined benefit pension schemes, but as those go into abeyance, he needs to focus more on defined contribution schemes. 

He says Newton performs well as a business and has “acceptable” profit margins, meaning he is not worried about running an active fund house in an age of passive.

Munro says: “I don’t think there is a problem, as you have a clear offer for clients and size the teams appropriately. I certainly want to make Newton bigger, and think I can do that.” 

All the while thinking of the Fife mining village where it all began.

David Thorpe is special projects editor of FTAdviser