Participants:
Jean‑Francois Hautemulle, Head of Fund Selection, UniCredit Private Banking
Henriette Bergh, Head of Manager Selection Strategies, Morgan Stanley Private Wealth
Peter Fitzgerald, Senior Portfolio Manager, Multi‑Asset Multimanager, Aviva Investors
Claudia Itschner, Head of Manager Selection, Investment Management, Zurich Insurance Company Ltd
Nick Phillips, Head of EMEA Third Party Distribution Business, Goldman Sachs Asset Management
Raphael Sobotka, Chief Investment Officer, Multimanager (EMEA), HSBC Global Asset Management
Cedric Bucher, Head of Product Design and Business Development, Architas
Panel Moderator: Elisa Trovato, Deputy Editor, Professional Wealth Management
Elisa Trovato: The aim of this discussion is to assess whether the current market turmoil has had any impact on the drivers to sub-advisory, the types of mandates awarded and the criteria of manager selection. We will look at the concept of product innovation and whether sub‑advisory is the most efficient route to respond to market demand. We will also discuss the pros and cons of using segregated mandates, as opposed to distributed branded funds, and how to make the sub‑advisory partnership work for the long term.
How do you combine the two apparently conflicting needs of establishing strategic relationships for the long term, based on the investment opportunities in the medium/long term, with the need to offer something that appeals to clients today and respond to market demand quickly?
Claudia Itschner: The decision to sub‑advise has not changed one little bit in our case as the model has served us well. We think of our sub-advisory managers as long term relationships irrespective of what happens in the markets. The key is to find and select those that are capable of bringing you innovative and high quality solutions in different market environments. This ability is a key selection criteria when choosing managers.
I think sub-advisory is a very efficient and flexible way to respond to market demand since you can draw on and combine different talents. If you manage your own assets then you are restricted in terms of ideas and perhaps in terms of problem solving capabilities because you have only one talent pool, which might not be able to provide you with everything that you need. With the sub‑advisory route, you can combine different talents and those discussions can be very fertile and help you find better solutions. I think that diversity is probably one of the biggest advantages of sub-advisory.
Investment Management is responsible for selecting the asset managers for the Group’s own-account investments, which is about $200bn in assets and 70 per cent of that is outsourced. We employ over twenty managers but the majority of our assets is managed by six to eight. We also support some of the business units in selecting the managers for life or unit linked mandates, which are another $60‑80bn.
Cedric Bucher: I think those needs can be quite complementary. By combining sub‑advisers, one can get quite a broad pool of investment ideas that can quickly be incorporated into innovative product design, so this can work hand in hand. At Architas we focus on selecting funds and blending managers, and I rely on new product ideas that have fared well in the short run and hopefully will fare well in the long run as well. Dynamic asset allocation strategies are a big theme coming out of the crisis and that is something a sub‑adviser can implement very quickly.
Elisa Trovato: Is there perhaps the risk that you could miss a good market opportunity because it takes time to do the due diligence and find a sub‑adviser, as opposed to buying a fund?
Peter Fitzgerald: We do both in different product sets. We have products where we do just buy external managers and we have products where we create manager solutions with sub‑advisory mandates.
The selection of a sub‑advisory manager is going to bring you to the best in class of various asset classes and therefore you should be at the forefront of investment thinking when you are discussing current market conditions and opportunities with these individuals.
Then, leading on from that in terms of dynamic asset allocation, there is a perception that sub‑advisory allows you to change more slowly, and for a lot of our manager of managers products we actually do a futures overlay for tactical asset allocation to address that concern.
We use a combination of boutiques and also large asset management houses, but generally to run quite specific mandates. We would tend to identify individual specialists in particular regions or areas rather than delegate a whole sub‑advisory relationship, so we would look for specialists in UK equities or in US small caps or in European mid caps rather than delegate the actual asset allocation on a global level to a sub‑adviser. There are areas where you have one investment house that has a number of different mandates in different areas. If somebody has a robust process and a philosophy that works, in general that should translate from one area to another.
