Seeing clients as co-drivers
Lars Mathiesen, responsible for long-only fund selection at Nordea, believes clients play a key role in uncovering new ideas.
Lars Mathiesen, the Copenhagen-based head of Nordea Fund & Manager Selection, leads a team responsible for some €15bn of externally and actively managed long funds.
Together with a further €5bn-€6bn in alternatives, selected by a different set of colleagues at the pan-Nordic bank, he estimates the overall AUM represented by Nordea’s selection activities involving external funds at about €21bn. The focus is active products with medium to high tracking error, depending on client preferences. Passive products such as ETFs are on the shelf for customers, but it is not an area that Mathiesen looks at. The selection work serves the entire Nordea group including institutional clients and unit linked business; for example, somebody entering a Swedish branch of Nordea would benefit from the work done by Mathiesen’s team.
Nordea relies heavily on its clients for ideas generation, Mathiesen says. This results from the close client contact via the distribution channels. There are, of course, internal forums and a product committee discussing ideas, but ideas generally come from the distribution channels, he says.
“We have a Sicav fund platform servicing all Nordea’s distributions platforms in Europe. That gives access to all the product ideas popping up. We have meetings every second week, and we are in contact with a huge salesforce. There’s a lot of interaction and so many product ideas.”
Ideas are entered into a ‘catalogue’, and over time this has grown into a well-regarded funds universe.
“It is also a question of how many new products you can cope with at any time. In the past couple of years we have had the demand on the credit side and you still see it. It is very much US credit products that are hot in the Nordic and emerging markets. Equities have been trickier on the demand side.”
Mathiesen’s screening process starts with a definition of a search mandate, to understand what the team really is looking for. This mandate is developed in detail with those asking for particular products. It is also important to understand whether there is similar demand across the different distribution channels served; if there is, then it makes more sense to start the actual screening work because what is found will appeal to a broader set of investors.
The process uses databases from the likes of Morningstar, Bloomberg and S&P to analyse key ratios and other strategic figures. Equally important is gaining an understanding of how managers perform in different market environments. This is important in light of how markets performed in periods such as 2008-09 and 2010-11.
Three-year track records are preferred as a minimum, but there is leeway for managers with known performance histories.
“If you have someone that has really delivered in a former organisational setup, they could definitely be an interesting player, so you don’t exclude that. “
“In general a three-year track record, at least, is key. For the third party distribution the three-year track record is mandatory but for other segments, institutional or private banking, they could have a different view.”
Conference calls to managers help fill out the picture, but the visit is always a crucial part of the evidence gathering process. “We prefer to meet different layers of the organisation. If it is a big product, it is nice to have a chat with the management, to meet the team, to meet the risk people, the compliance people, the operational people. It’s nice to ‘smell the air’ in the organisation. Our compliance department always visits the managers, as well.”
Individual managers are important, but it is too easy to provide a standard answer to the question whether the individual or team is more important, Mathiesen says. Each product has its own story, requiring individual judgement.
“We have a preference for organisations where the people are tied closely up to the organisation. Direct ownership is an important strength in my eyes. You should live and die with the product you manage.”