FAI turnaround keeps prospectors guessing
Speculation continues to mount over the future of HIH Insurance's recently inherited 48 per cent stake in FAI Life.
Up to five life insurance groups are believed to be circling the financial services group, which has dramatically improved its funds-management performance over the past 12 months.
FAI Life was previously a partially owned subsidiary of FAI Insurances, which HIH Insurance acquired in a recently completed take-over bid. Any take-over of FAI Life could have a major bearing on the 700 financial advisers that supply the bulk of the company's risk and investment products.
Speculation over the future of the group follows a major turnaround in the performance of its funds management operations since John McGee took over the division just over a year ago. McGee says his appointment coincided with a decision to change the group's investment process, which has paid dividends over the past year.
"We had been trailing the field for a number of years since being awarded Money Management's Funds Manager of the Year in 1994," he says.
FAI Life changed from actively managing its equities portfolio to what McGee calls an "index plus" approach. This approach involves having 50 per cent of the equities fund invested in a State Street index fund while the other 50 per cent of the fund is actively managed by a group of fund managers.
For Australian equities, that group is made up of Credit Suisse, First State and Perpetual while overseas equities is overseen by Credit Suisse, Lazard and Salomon Smith Barney. FAI Life continues to actively manage the fixed interest and cash part of its balanced funds.
Since the new process has come into place, FAI Life has emerged from the doldrums and returned to the top quartile of fund performance over one, three and six months.
McGee says the current good run in investment markets plus product development and distribution initiatives could see FAI Life's funds under management increase from its current level of $750 million to more than $3 billion within five years.
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