Cost riposte

Threadneedle Investments’ head of legal Tom O’Connor won’t stand for high hourly rates from his external advisers. And a panel shake-up may be on the way. Husnara Begum reports

Tom O’Connor is heading up the legal department at Threadneedle Investments amid market speculation that the company’s troubled parent, Zurich Financial Services, may sell it off in another bid to raise much-needed cash. But despite the threat of a sale, it is business as usual for O’Connor, who only joined Threadneedle in September.

In addition to devoting time to learning how Threadneedle functions, the 30-year-old lawyer’s day-to-day responsibilities include advising each of the company’s three business units, product development and some corporate work. “There’s a tremendous amount of work to be done in order to sort out the legal department. We’re essentially a cost centre, so we have to be very service-orientated,” says O’Connor.

O’Connor began his career at Nigel Harris & Partners, an English firm based in Jersey, where he specialised in offshore trusts and tax planning and a small amount of corporate and intellectual property work. But shortly after qualifying, O’Connor decided that a career in the City beckoned.

So in October 1997 O’Connor joined the private client department at Allen & Overy (A&O), doing more offshore trusts and tax work. But gradually his focus shifted towards partnership law and then eventually moved into the quasi-financial services arena. Despite enjoying his time at A&O, O’Connor felt that working in private practice was not really doing him justice.

“I realised after being at A&O for three years that, although I could continue and become a successful private client lawyer, it wasn’t playing to my strengths, which is being a lawyer with a good commercial mind. And having made that decision, it made sense for me to move in-house,” he explains.

O’Connor secured his first in-house position in 2000 at Aldgate Capital, the now defunct London-based hedge fund consultancy company. “When I joined Aldgate it had only been running for about four to five months, so I got thrown in at the deep end,” he says. “I got the business regulated in New York and was in the process of getting it regulated by the then Securities and Futures Authority. I got involved in all sorts of things that I wouldn’t have done in private practice.”

But in the following year, after O’Connor had the “entertaining experience” of writing his own redundancy letter, he spent a few months playing golf in the Far East before joining Henderson Global Investors in August.

At Henderson, O’Connor came of age as he moved from a very small outfit to a large financial services business. “Working at Henderson offered me pretty valuable experience,” he says. “The work was varied and I also got involved in some corporate activity, which made me realise that external lawyers don’t always understand what it means for a business to go through an acquisition or disposal. They can think of it in pure legal terms, but they don’t necessarily understand what that involves for the businesses concerned – for example, integration following an acquisition.”

O’Connor says he gained a lot of experience at Henderson and did not expect to leave for a while. But moving to Threadneedle, one of Henderson’s direct competitors, was an obvious promotion for O’Connor, so he parted company with Henderson only one year after joining.

Threadneedle’s institutional business manages pension scheme assets in relation to defined contribution and defined benefit pensions. O’Connor says Threadneedle has been successful in attracting defined contribution assets. O’Connor’s involvement in the institutional business includes updating client documents for the pension scheme products and negotiating insurance and reinsurance documents.

The retail business offers a broad range of investment services, including ISAs, PEP transfers and shares in open-ended investments companies (OEICs) and unit trusts. Most of Threadneedle’s retail business is conducted through intermediaries. In the UK this is typically done through independent financial advisers, while on the Continent the products are distributed through banks and bank assurers, except in Switzerland, where it is handled generally through private banks.

On the retail side, Threadneedle is the fourth-largest fund manager in the UK and the fifth-largest in Germany, which are by far two of its biggest markets. “Threadneedle was one of the first UK fund managers to distribute its OEICs in Europe,” says O’Connor. “In 1997, when the decision was made to do this, it was very forward-thinking.”

The group business manages monies received by other group companies, including Allied Dunbar, Eagle Star and Zurich Financial Services. On the group front, O’Connor spends a lot of time tinkering investment management agreements and developing and revamping existing products. Currently, he is working on the launch of a new hedge fund.

O’Connor manages a legal department that currently consists of four other lawyers. “We tend to outsource work where we don’t have the expertise. But the general rule is to insource work where possible,” he says. “For example, we don’t have enough employment work to hire an employment lawyer, so we give that work to Eversheds.”

O’Connor has a loose panel of firms, which includes Eversheds, Farrer & Co, German firm Heimann, Lovells and Wedlake Bell, as well as various European firms. He explains that he selects the firms for different types of work based on their relevant expertise. O’Connor hopes to establish a formal panel next year. “Because of the state of the stock market I need to be very careful about the pricing of our external legal advice,” he says. “One reason for establishing a formal panel is to see the benefits in terms of the overall cost of external legal advice.”

Fees are an important consideration at the moment. “There’s no doubt going forward that cost is going to be a very important factor when I select law firms, and any firms that think otherwise are kidding themselves,” says O’Connor. “To think we’re going to be able to bear another 10 per cent increase in hourly rates is just wrong. I’m not going to use firms that insist on billing their normal hourly rates. To have lawyers working at £450-£500 per hour is not acceptable given the current market conditions.”

In 1997 Eversheds advised Threadneedle in connection with the launch of its OEIC. Since Threadneedle did not want to pay for Eversheds’ learning curve, and because the firm would have a lot of future demand for the product, it agreed to do the work for a very low fee. O’Connor says he is thinking of instructing Eversheds on a new project on the same basis next year.

In addition to the obvious challenges concerning the possible sale of Threadneedle (a subject on which O’Connor refuses to comment), the main difficulty is the competitive marketplace in which the company operates. But despite this, O’Connor argues that the businesses are doing well compared with competitors, particularly on the retail side, which has held on to its market position.
Tom O’Connor
Head of Legal
Threadneedle Investments

Organisation Threadneedle Investments
Sector Financial Services
Assets under management More than £47bn
Employees Over 800
Legal capability Five
Head of legal Tom O’Connor
Reporting to Director of legal, compliance and business risk William Lowndes
Main law firms Eversheds, Farrer & Co, Heimann (Germany), Lovells and Wedlake Bell