Sub-advisory roundtable, June 2009, London, UK. Participants:
- Mario Bortoli, Head of Multi-Manager, Fideuram Investimenti
- Cedric Bucher, Director Investment & Product Office, Barclays Wealth
- Nick Phillips, Head of third-party distribution Emea, Goldman Sachs Asset Management
- Frank Schäfer, Head Sub-advisory Asset Management, Clariden Leu
- Furio Pietribiasi, Managing Director, Mediolanum Asset Management
- Lars Eigen Möller, Head of Asset Management, Danske Capital
- David McFadzean, Head of Manager Research, RBC International Wealth Management
Panel moderator: Elisa Trovato, deputy editor, Professional Wealth Management
Elisa Trovato: Welcome to PWM’s sixth annual sub‑advisory round table. The aim today is to discuss, in particular, drivers to outsourcing the management of assets, the impact of the financial crisis on manager selection and asset classes sub-advised, and new areas of opportunity.
Search for external managers
Elisa Trovato: What drives your decision to use external sub-advisers versus developing internal expertise or buying third-party funds? And what are the benefits of sub-advisory?
Lars Eigen Möller: In 2003 we realised we had spread out into too many types of assets and too many strategies. We aim to be global competitors in our core areas of expertise and it did not make sense to try to be all things to all people. We started to focus on European assets and to look for external managers on those areas where we did not feel we had expertise; we applied more discipline in our product creation process.
Of course, it hurts to stop producing products in areas where you have good performance. For example, taking the decision of not wanting to manage emerging market equities out of Europe made some people unhappy. It takes a lot of explanation in the organisation and changes to adapt to the new order. Most of the resources were reallocated within the organisation and some of them went to strengthen specific areas.
Mario Bortoli: Fideuram Investimenti started sub-advising some years ago in the absolute return or flexible space where we think we do not currently have the right expertise. Our mandates have been described as 130/30 but they are more flexible than that, depending on market opportunity. Most of the assets we have in multi‑manager products also have absolute return targets, with different risk-return profiles.
I am quite optimistic about absolute return products for the next 12 to 18 months. We may see poor quality assets in some funds and negative returns in the future. But overall we expect to be in an environment where hard work, ie analysis and appropriate portfolio construction, pays off.
Cedric Bucher: One benefit of sub-advisory mandates is the ability to define the investment mandate. One can clearly specify the benchmark, alpha targets, tracking error and relevant constraints within a mandate, which allows you to have a very clean asset allocation at the overall portfolio level.
Many active managers, particularly in equities, often generate some of the alpha by going outside their core asset class. That might be a good thing on a single asset class level, but if you construct a portfolio across multiple asset classes, the preference would be for clearly defined mandates to avoid allocation biases. Sub-advisory also gives you the flexibility to create innovative, unique products that otherwise you could not do.
A further benefit of multi managing is that you are accessing institutional managers at institutional rates. So at the total expense ratio level you are competitive. However, it is quicker to select and promote an existing third party fund as opposed to creating a new fund and having it approved by the regulators, which is important when playing tactical investment ideas.
Furio Pietribias: We tend to sub-advise where primarily we do not have the necessary expertise to provide the best product to our clients. In the market many retail clients suffered from very bad advice and they are becoming very selective on what they are buying and who is advising them. Sub-advisory, or buying somebody else’s asset management, for some institutions is an opportunity to reinstate their credibility and trust with their client. It also allows you to mix products together and to give clients a service for which you are paid.
We are managing in house products where the outsourcing would be over priced and with little added value. We recently started running in-house some money market and short term euro fixed income portfolios. We wanted to have more transparency and control on the investments. Generally we always look outside to see what external players can offer to give the best available to our clients.
Elisa Trovato: Is there risk of cannibalisation where sales of sub-delegated funds replace in‑house funds?
