Richard Woolnough of M&G is among the biggest earners in an industry famed for its bloated pay packets. Last year he scooped £17.5m following a bumper year for his bond funds.
Over the last 12 months, however, his performance has gone off the boil, and his giant funds have slipped into the bottom half of the performance tables. Common sense would suggest his paypacket might shrivel accordingly – but the Prudential’s accounts, published this week, reveal the 51-year-old was paid £15.5m – far in excess of the £11.8m paid to his boss, Tidjane Thiam.
Behind Woolnough’s enormous pay packet lies M&G’s extraordinary global asset gathering machine. The funds he manages are huge; Optimal Income has nearly £25bn in assets, while his Corporate Bond fund has another £5bn. In total, he manages around £35bn. But relatively little of that money has come from UK investors; Woolnough’s success has been to crack open Europe’s fund management market, drawing in billions from small investors from the heel of Italy to the far north of Norway.
Last year, Optimal Income was the single biggest–selling fund in Europe. Even as news broke in the UK of his sky-high pay, Woolnough was in Paris presenting to French investors, hoping to garner yet more assets from European investors who now make up around two-thirds of his customers.
Yet his performance has, temporarily at least, gone awry. According to trustnet.com, M&G Optimal Income made a gain of just 3.7% for investors over the past 12 months, compared to 6.4% for the average bond fund. It currently ranks a lowly 54th out of 74 funds. M&G Corporate Bond gained a healthier 9.3% last year – but still lagged the sector, which turned in an average gain of 10.4%.
Woolnough made his reputation during the 2007/08 financial meltdown, selling out of bank bonds and positioning his funds to take advantage of falling interest rates.
But for much of last year and into 2015 Woolnough has been on the wrong side of the interest rate bet. He has rightly forecast strong GDP growth and falls in unemployment – but the interest rate rises he also anticipated have not materialised. Today, he still reckons that rates will rise sooner rather than the market is expecting, and that government bonds on zero or negative yields represent exceptionally poor value.
To European investors, Woolnough’s recent run of underperformance has mattered little. In euro terms, the fund figures look better than in sterling, and in any case European investors prize low volatility as much as investment growth – and Woolnough has managed remarkably steady returns in turbulent times.
M&G bases its bonuses on longer-term performance rather than one-year returns and it is understood that his bonus is in the form of Prudential shares, and deferred for several years.
Meanwhile, the financial advisers who have plunged their clients into Woolnough’s funds remain enthusiastic supporters. “Yes, he picks up a staggering amount,” says Darius McDermott of Chelsea Financial Services, “but it is understandable. He is a big revenue generator for M&G, and while the focus right now is on him, what about the likes of Neil Woodford and others who are possibly earning even more? The truth is that it comes down to performance. If he didn’t perform, the money would soon start to flow out, and his pay would come down.”
But Woolnough’s pay is likely to be a lightning rod for criticism about excessive pay, amid signs that fund managers are elbowing aside investment bankers as the fattest cats in the City.
Simon Walker, director general of the Institute of Directors, said last month that the UK’s fund management industry is “ripe for investigation” because of “an alarming lack of transparency that surrounds [its] pay and practices”.
Critics argue that fund managers, although they are the custodians of the nation’s savings, have little interest in scrutinising runaway boardroom pay when their own remuneration is so out of control.
M&G itself bluntly refuses to discuss Woolnought’s remuneration. When he makes presentations to investors and financial journalists, M&G’s PRs insist at the outset that Woolnough will take no questions about pay, jumping in to rule out errant journalists who do pipe up on the subject.
What does Woolnough do with the £30m he has already earned? Despite having a high public profile, Woolnough is a very private man. When asked what he would do if he were not a fund manager, he says he would have been an academic. He studied at London School of Economics and was a bond fund manager at Old Mutual for 10 years before joining M&G in 2004. According to industry colleagues, he has bought a large amount of land, but is seen as neither flash or lavish in his spending habits. Bond managers are like actuaries to accountants, widely regarded as the greyer, decent and boring end of asset management, and the bespectacled Woolnough has done nothing to shake that stereotype.
The acid test for Woolnough, says Gary Potter of F&C, who runs a manager-of-manager fund, will be what happens to interest rates. If Woolnough’s big call is right – and rates rise later this year or next – then investors will probably happily continue bankrolling his vast pay package.
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