When Barclays Global Investors collected the award for European Asset Manager of the Year in 2005, its triumph was tinged with an element of uncertainty. It was in the middle of a management reshuffle that saw many of the people credited with building its European business leave the firm. Financial News suggested it would take 12 months before it was clear whether the overhaul had changed BGI for better or worse.

The verdict, delivered by the judges who again awarded BGI the European Asset Manager of the Year crown, is that the company has gone from strength to strength. A clear indication of its continuing success was the £185m (€276m) payout to BGI staff made by Barclays this year as part of an options incentive scheme introduced in 2000. The most recent valuation of the options was £77, compared with an average grant price of £11 in 2003. Far from resting on its laurels, BGI has been intent on exploring new areas of growth. Michael O'Brien. managing director of European institutional business, said: "The big change over the past year is that we have started to look and feel more like a European asset manager. You can see it in the people we've hired and in the focus of our business. We have migrated out from our traditional base in the UK and Netherlands and looked to grow in the Nordics, Switzerland, Germany and southern Europe." The company plans to open offices in Paris and Zurich and has worked hard to create products that will appeal to the local markets. O'Brien said: "Five years ago we would have taken an existing UK product and tried to sell it in Europe. We no longer have that naïve approach." The core elements of the products may be the same but the wrappers will be different to suit local regulations and investor demand. O'Brien said the strategic solutions group led by Hugh Cutler provides the assembly line which creates the most effective product for a particular market. To sustain BGI's remarkable growth it needs to expand in countries where it has previously not been very active, said O'Brien. As well as its strategy to penetrate further into Europe there is potential to grow in Asia, he said. The greater use of the distribution network of Barclays Bank, as well as closer links with the group's investment banking and wealth management units, are also planned. Sustaining its rate of expansion will be tough. From an asset-gathering perspective, the first half of the year failed to match previous periods. Funds under management declined to £877bn from £881bn at the end of last year. And while it took in £17bn of new business, this was well down on the £29bn in the first half of last year. Only the harshest critic would construe it as relative failure, however, particularly given the 51% growth in pre-tax profits to £364m. However, managers such as Capital and Fidelity, which enjoyed substantial growth during the 1990s, have found it difficult to maintain momentum, overwhelmed by the volume of assets they took in. O'Brien said BGI was aware of the risk: "Strategies do have their limits, regardless of whether they are quant or fundamental. So we have broadened the coal face and gone for horizontal growth, rather than focusing on a small number of products." He pointed to the rapid expansion of BGI's exchange-traded funds business, iShares, as an example. "That gets us into the retail market, where we have never really been a player," he said. It is the global leader in ETFs with $220bn under management. Fixed income is another area targeted for growth. The goal is to challenge the top tier of active bond managers such as Pimco and Western Asset Management. Having spoken of its ambitions in bonds for a year or more, BGI is set to make a big push next year. "We have been slow coming to the party and deliberately so. We have taken time to make sure we have the people, the process and the performance in place. You will see a substantial pick-up in external brand marketing." He said the traditional affinity for bond products in markets such as Germany, Switzerland and southern Europe will be an integral part of BGI's European expansion. The approach will be to separate the alpha and beta elements of the bond portfolio. An actively managed alpha portfolio will look to add returns from any area of the bond markets, be it structured credit, relative value trading, mortgage-backed securities or government bonds. "I am confident we've got capabilities across every fixed income alpha source," said O'Brien. The performance from this portfolio will be combined with the client's choice of market returns, as O'Brien suggests there tends to be a more diverse range of benchmarks used in bond markets than equities.