Although the pace of new product introduction has slowed down significantly in Europe because of the credit crisis, fund managers are actively working behind the scenes to enhance their product range. Innovative solutions aimed at meeting evolving private investors’ needs and designed to take advantage of new opportunities in the market place are on their launch pads.
One of the areas on which asset managers are focussing their product work is in the multi-asset space. “We do observe the greatest demand for multi-asset products,” says Gavin Ralston, chairman of Emea and global head of products at Schroders.
In the past, there was little demand for these solutions from wealth managers, says Mr Ralston, as they generally preferred to combine individual building blocks in their in-house asset allocation models.
Although this type of approach will continue to exist, wealth managers are now also looking to use external providers’ capabilities as a complement to their internal asset allocation strategies. This is because “nobody’s model predicted the scale of moves in asset classes in 2008,” according to Mr Ralston.
In the second half of this year, Schroders is looking to launch a broader version of its diversified growth fund, a four-year track record product investing in growth assets.
“The idea for our first product was to put together a portfolio of growth assets, which give a similar return to equities but with a much lower level of volatility and it is intended as a complement to fixed income, mainly for institutions,” he says.
The new solution for distributors will encompass both bonds and equities and other growth asset classes. “We are still believers in the power of diversification,” he says. “The level of alternative asset classes in this product is going to be higher than it is conventionally seen in multi-asset products,” anticipates Mr Ralston, explaining that infrastructure, real estate and hedge funds, to the extent that they can be in a liquid format, as well as private equity will be included.
Although the demand for multi-asset solutions has come from the bear market in 2008, “this new product will be an all weather sort of solution, that is designed to offer competitive returns in different parts of the market cycle,” he says.
UCITS WRAPPERS
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Another new development area is in the alternative space, reveals Mr Ralston. The firm is looking to offer a platform that gives access to hedge fund managers in a Ucits wrapper, convinced that there are “terrific opportunities” for those hedge fund managers that survive.
“The combination of deleveraging and redemptions from the industry means that there is less money chasing good investment opportunities and we will identify strong hedge fund managers whose strategy can be implemented within Ucits rules,” he adds.
Ucits wrappers are being pushed by groups, including Schroders, as high-quality containers for any investment strategy for investors concerned about the huge dislocation in the industry in the past 12 months. The idea is that the brand and reputation of the wrapper gives greater confidence that these instruments are more liquid and transparent; they are subject to Ucits rules on leverage, for example. The main purpose for this platform is to sell these products as individual building blocks in clients’ portfolios, explains Mr Ralston.
For firms like Schroders, which try to sell investment products across borders, anticipating future product demand is the key to success. The timing is almost as important as the product content. BNP Paribas Investment Partners – accused of fuelling market turmoil by temporarily closing three funds exposed to US sub-prime in 2007 – was one of the first asset management companies to realise the world was facing a credit and liquidity crisis, maintains Anthony Finan, head of marketing at the French firm.
“We started to refocus our product range quite early [in the crisis] to meet what we anticipated to be future clients’ needs. For example, we totally rearranged our short term product range, which paid off in 2008,” he says, highlighting the performance of its flagship Luxembourg-domiciled triple A rated money market fund InstiCash.
“We believe that in 2009 there will continue to be demand in fixed income and we continue to make our range evolve,” he says, explaining the firm is also planning to offer a range of bespoke credit products, which take advantage of market dislocation.
“The new market conditions give new opportunities for asset managers who have the expertise and the ability to manage risk”, explains Mr Finan. “You need to be able to identify who the best issuers are, how to combine them together and how to deliver to each specific client the level of return to the level of risk that he is able to bear,” he says.
