Maintaining focus in a time of plenty
Preserving the fund selection focus has been the recent challenge for customer-owned asset management and fund distribution business Länsförsäkringar, as the company threw open its platform to a wider range of funds.
Early April saw fund selectors at Länsförsäkringar Fondförvaltning adapt to some big changes in the way access to fund products is handled. The business recently decided to open up its platform to pretty much all funds offered in the Swedish market. However, the role of its selectors has remained focused on just 74 of these, which have been subject to quality controls and subsequently recommended to its customers, identified on the platform with a ‘thumbs up’ symbol.
Thirty-three of those 74 funds are classified as ‘internal’, such as the Länsförsäkringar Asia ex Japan fund. These 33 internal funds are so-called white-label solutions, provided by Länsförsäkringar Fondförvaltning, with day-to-day management mandated to one of eight external managers, while the ‘external’ funds are selected as products from other management companies and added to the platform. For example, Goldman Sachs is responsible for the actual management of the Asia ex Japan fund, according to Karolina Qvarnström, responsible for manager selection for the internal funds at Länsförsäkringar Fondförvaltning.
There are some SEK70bn (€7.8bn) in assets under management across the 33 internal funds. The biggest single product by AUM is the Money Market Fund, followed by the Sweden fund, Qvarnström says.
Länsförsäkringar Fastighetsfond – property fund – was the best-performing fund in 2010, across the entire market, Qvarnström says.
It grew threefold in size over the year as its performance continued to attract investors, she adds. Emerging markets funds made poorer returns in comparison. There are also four funds that are managed fully in-house, which are Länsförsäkringar funds of funds.
It also has index tracker funds, but no ETFs. These passive investments are more popular among institutional customers. There are no currency funds at the moment.
Areas such as absolute return or hedge funds would normally be brought in by selecting external funds to add to the platform. Specialist funds, such as a Ukraine fund would also be brought in from the external selection.
Most of the internal funds range is linked to sales of pensions, which means retail investors are the underlying client group. However, direct savings are limited. The pension business comes mainly through the Swedish PPM platform for distributing funds for additional private pension savings. But the funds of funds are not on the PPM platform.
The process for selecting the types of products and the managers of these internal funds is based on finding “good risk-adjusted return to the customer,” Qvarnström says.
The objective is to create a selection of funds that investors would like to have as their core holdings. The funds of funds are there to allow some further flexibility. There is a continuous process of monitoring the existing management choices and the performances of the portfolios they are mandated to run, and there is work ongoing in the area of new product development.
The continuous evaluation relies on parameters covering ‘process and performance’. Qvarnström says that managers are tracked to ensure “the returns hit targets that they promise.
“If not, it means we need to change them. It is the managers who are changed, not the funds themselves.”
There are other options, too. For example, funds could be merged. This has happened in the past where Länsförsäkringar’s so-called ‘Mega funds’ range for institutional clients were merged with their retail equivalents to stabilise the flows to the fund.
An environmental fund was closed, partly because it was felt it was released “too early into the market”. It was merged with another fund. A ‘Brain fund’ was shut down, too. The reasons for doing this include poor inflows, or that the funds prove incapable of delivering product growth. “Generally, closures will occur where poor inflows are spotted, or there is an opportunity to merge the fund with another product, all in favour of the clients,” Qvarnström says.
The eight existing management companies Länsförsäkringar Fondförvaltning works with on its internal range currently is unlikely to grow in number soon.
These eight comprise: Alfred Berg, BNP Paribas, State Street Asset Management, Goldman Sachs Asset Management, Lannebo Fonder, Danske Capital, Montag & Caldwell and Handelsbanken.
Länsförsäkringar does not want to have too many actors to deal with. Also, spreading the work across a greater number of suppliers this way could affect pricing levels, says Qvarnström. She adds: “We aim for good co-operation.”
The company looks at all types of managers, but requirements include that they should show stability as companies themselves. It is also another positive tick in the box if they have an extended fund range themselves. This increases the chances of deepening the future relationship, because it raises the possibility of adding further mandates to any deal struck.
There is, however, a constant stream of suggestions for other parties to work with.
Länsförsäkringar receives limited feedback on its funds from retail customers. However, this is difficult because they are normally not interested in the work being done by the appointed manager: their focus is on the performance. More knowledgeable feedback comes from intermediaries, Qvarnström adds.
Either way, Länsförsäkringar is keen to note that it adopts a transparent position, with all information on the internal and external funds it distributes available through its own website.