Few asset managers in the UK can feel as content as Australian group First State Investments, which has just moved into sparkling new offices in London’s Cannon Street and celebrated its 10-year anniversary with £24.2bn (€29bn) under management, 85 per cent of which is invested in the booming emerging markets. This growing funds franchise is part of the Colonial First State firm, backed by ultimate parent Commonwealth Bank of Australia.
Emea CEO Gary Withers, formerly top dog at the formidable funds franchise of Credit Suisse, now has his old stomping ground of Continental Europe in his sights, with the long-term aim of becoming one of the region’s top 10 product suppliers. “We are pretty well known in the UK and established in Asia Pacific and the emerging markets,” he ponders, with 65 per cent of these fast-sourced assets managed on behalf of UK clients such as pension schemes and multi-management groups. “But we are significantly under our natural market share in Europe’s heartlands.”
His team is currently talking to “the right people” in Europe, especially within family offices and private banks, where there is a greater appreciation of specialist funds investing in areas such as global resources, listed infrastructure projects and real estate securities. First State has managed to carve a significant niche here, particularly in global resources, an area traditionally dominated by heavyweight producers BlackRock and JP Morgan. In the listed infrastructure arena, First State already boasts the largest fund in the UK, also in Europe’s top three.
“There has been much more interest during the last six to 12 months,” says Mr Withers. “People are looking for a sustainable income and infrastructure will provide that.”
Often lumped among alternative assets, infrastructure is regularly misinterpreted. “There is a high risk, high return element to the infrastructure world,” he says. “But the majority of infrastructure is very boring, consisting of car parks, electricity and airports.”
These products tend to outperform in bad markets, while they can be slightly behind the pack in strong, liquidity-driven environments. “We have a significant emphasis on absolute return,” says Mr Withers, whose products often see cyclical performance patterns relating to resource-driven stocks and commodities.
“We feel very uncomfortable if we can’t see positive returns over a long-term period. That differentiates us substantially from benchmark operators, who go with liquidity and momentum flows, which we walk away from.”
The priority is talking to existing clients and enticing them into these new, slightly more obscure strategies, rather than to spread the word to a new set of disciples in difficult times. “Particularly at the moment, with volatile market conditions, you must look after existing investors,” he confirms.
RUNNING AT FULL CAPACITY
It is these investment classes in which First State hopes to increase assets rather than the emerging market funds it is more famous for. “Our Asia Pacific emerging market business is already running at full capacity,” says Mr Withers with a satisfied smile.
Preferred investors – and First State has long been one of the pioneers who believe fund houses must pay even more attention than fund selectors when deciding whom to do business with – often exclude the larger private banks, which tend to be “more aggressive” on fees. He is keen to work with those distributors who believe in his products rather than just sell them because they can get a good deal on price for bulk sales.
“If you are running a proper business and have good products, there is no reason to be providing a discount for a bigger brand name compared to the guy down the road,” he says.
First State also wishes to discourage so-called “fast flow” business coming in and out of its funds in favour of more stable, longer-term relationships with distributors. “It can be very disruptive for a fund if there are significant flows of assets moving in and out, in particular when conditions are volatile,” concedes Mr Withers.
Analysing these potential movements of client monies is a key decision made when searching for distribution partners. “We want five to 10-year investors,” he says. “Family office money is often better than private banking money, although some private banks do have long-term horizons. We want private banks who are experts in the areas we invest.”
Because wealth management institutions are increasingly expected to make bold asset allocations for clients, fluctuations in holdings come with the territory, admits Mr Withers. But these variations must be within reason.
For this reason he is happier to do business with the mid-size institutions with an investment heritage, the likes of Pictet and Lombard Odier, rather than the big global franchises. Similar private banking counterparties in France, Germany and Scandinavia are also among preferred business partners.
