Does SWIP pay below the odds?

There may be a simple explanation why Scottish Widows Investment Partnership (SWIP) has suffered a number of key staff defections in recent weeks - it doesn't pay very well.

It's now been confirmed that Robert Waugh, formerly head of UK equities at SWIP, is set to join Royal Bank of Scotland. This follows on from the departure of Graham Wood, chief investment officer for equities, earlier this month and its fixed income team leaving for new roles at Dundee-based Alliance Trust.

Clearly the fact that SWIP chief executive Dean Buckley is due to reveal a new corporate strategy in the coming weeks is causing a lot of unrest at the fund manager. This follows the sale of the third-party business of its partner Insight Investment Management to Bank of New York Mellon last month.

But one asset management headhunter says it isn't known for paying particularly well, which means its staff are more prone to being poached.

"A lot of SWIP's money is captive, which is lower fee, so they pay very similar amounts to a lot of other insurance firms without huge volumes of third-party business," they said. "This isn't terrible, but there are greater rewards elsewhere."

You could also argue that parent company Lloyds Banking Group's government stake means any extravagant pay packages are frowned upon.

However, elsewhere in the business, it has hired ex-Goldman Sachs veteran, James Garvey, on a 1m a year package to run its capital markets division. Plus RBS is offering guaranteed bonuses, so lavish pay packages are clearly still possible at these institutions.

There could also be straightforward answer to the defection of SWIP's fixed income team to Alliance Trust - past associations. Rod Davidson, who will lead the new team, previously worked with Alliance Trust chief executive Katherine Garrett-Cox at Aberdeen Asset Management - she was chief investment officer and he was global head of fixed income.

"At Alliance Trust, they have a chance to build a fixed income business from scratch," says another headhunter. "At SWIP, they're on low fee money, in a non-core part of Lloyds' business."

But SWIP's performance has to be questioned. Darius McDermott, managing director of IFA Chelsea Financial Services, told the Scotsman that the loss of key teams and consistent underperformance means he does not invest client money in SWIP funds.

He added that it needed to pay for talent: "If they want to replace Waugh with a high-profile UK fund manager, you have to get your chequebook out. If they are not in a position to do that, they are in trouble."