One of Scotland’s highest-paid financiers, Alan McFarlane, 53, managing director of Edinburgh-based investment management boutique Walter Scott & Partners, is stepping down from the group he joined in 2001, three years after it was sold to US-based Mellon Financial. He is expected to depart with an estimated £80 million.
His decision to quit was prompted by the fact the “earn-out” period put in place by Mellon Financial comes to an end on December 31. Mr McFarlane owned a 20% equity stake in Walter Scott & Partners at the time of the £400m sale in July 2006. Mellon was acquired by Bank of New York later that year.
Earn-outs are payments made to principals and owners of an acquired company and are paid, dependent on performance, between two and four years after a deal is completed.
Given that Walter Scott made pre-tax profits of £52.65m in the year to December 31, 2008, and £39m the previous year, despite the volatile markets caused by the global banking and financial crisis, it is understood that Mellon’s performance criteria for Walter Scott will have been met.
Mr McFarlane is expected to receive a total of £80m from the sale of his stake to Mellon, most of which will already have been paid. He declined to comment on the figures.
The financier implied he was considering a return to the asset management business but would not elaborate. He said: “I have no intention of retiring. My two immediate aims are to become a grandfather and to take time out to think about my options.”
It is understood he is not leaving because of any dislike of Mellon’s approach to the business. He is handing over the reins to Jane Henderson, currently co-head of Walter Scott’s investment group. She assumes the role of managing director later this month. Mr McFarlane will leave the business in March after a three-month handover.
In a letter to clients, consultants and staff on November 27, Mr McFarlane said: “Picking the right moment to hand over responsibility to the next generation of an investment management firm’s leadership is a finely balanced decision. It is best to make changes when the firm’s investment performance is strong and operational performance is healthy. That is the fortunate position in which Walter Scott finds itself.”
Rodger Nisbet – currently in charge of client service, which includes nurturing relationships with scores of leading worldwide pension funds – is taking the role of deputy chairman and will work closely with the firm’s chairman Ken Lyall, 61. Roy Leckie remains as co-head of Walter Scott’s investment group.
Mr McFarlane was managing director of institutional business at London-based Global Asset Management until 2000. He returned to Scotland to join Walter Scott in 2001. At that time the business had assets under management of $2.7 billion (£1.6bn) and all its clients were in the United States. Since Mr McFarlane joined the company has grown its assets under management to $30bn and its client base has spread across 18 countries.
Walter Scott has also recently entered a number of partnerships with mutual fund players around the world in the hope of widening the distribution for its high-performance global equity funds and to make these more readily available to retail investors.
Walter Scott differs from most fund management companies in that it specialises in one asset class – “unconstrained” global equities – and pays no heed to so-called sell-side analysis churned out by investment banks. Instead it does all its research in-house. Once the firm has decided to invest in a particular stock it “buys and holds” for five to eight years, eschewing the short-term trading that can harm investors’ wealth.
Mr McFarlane said: “Jane and Rodger are steeped in the firm’s investment style. There will be no deviation from the investment principles that have delivered its long-term record.”
Walter Scott’s turnover was £79.5m last year, up from £76.5m in the year to December 2007. Its highest-paid director earned £4.965m last year, though it is not clear if this was Mr McFarlane. The average remuneration of the company’s 75 employees was £270,000.
Last year Mr McFarlane and his wife Anne gave £1m to establish the Scottish Centre for Diaspora Studies at Edinburgh University. This will fund two PhD students in perpetuity and provide 10 undergraduate access bursaries to help students in financial need. The centre, intended to assess the impact of expatriate Scots on communities around the world, is led by Professor Tom Devine.
Mr McFarlane’s former colleague, Dr Walter Scott, a former nuclear physicist who established Walter Scott & Partners in 1983, left the business last year. He is understood to have made an estimated £260m from the sale to Mellon.
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