Strategic Insight’s Andreas Pfunder sees renewed threat to independent asset managers from bank integrated peers
Andreas Pfunder, managing director Europe & Asia at Strategic Insight, believes independent asset managers need to refocus their distribution activities in order to overcome the challenges of dealing with wealth managers that have in-house asset managers.
Independent asset managers could gradually be left behind when trying to drive business through Wealth Managers (WM) tied to an in-house asset manager (AM).
This is the conclusion I have reached after discussion with distribution Heads in Q4 ’12 and more recently, with senior staff of AM/WM integrated organisations.
When Deutsche Bank and Credit Suisse announced the integration of their WM & AM units in 2012, the move was largely seen as weakness: protection of revenue from sub-scale, non-core operations in the face of shrinking investment banking income.
But here are reasons why closer bank owned AM/WM integration, widening the group to include UBS, BNP Paribas, Unicredit/Pioneer and others, could be a strategic advantage:
1. Direct client access. Over the past 10 or so years, independent AMs have become disintermediated, now dealing through platforms of either pure administrative or client advisory nature. WMs are a significant channel since new money from Retail Bank advisory and IFAs have dwindled since 2008. Integrated AMs have direct access to clients at least for their captive WM client base. Some integrated AMs, e.g. UBS, developed apps to reach its WM partner’s clients directly.
2. Squeezing out independent managers and the middle segment amid a preference for in-house products. Rightly or wrongly for investors, the rationale behind bringing the two units together is that client assets and revenues can be kept in-house, squeezing out third party managers without superior building blocks. Out of 99 actively managed Global Equity funds with between $101m and $750m in AUM (at December 2012) that have the MSCI World Free NR USD as their primary index, only 32% beat that index in 2012 on a USD basis. (Data according to Strategic Insight’s Simfund Global fund database).
3. Proximity to changing product trends may favour integrated managers to lead future innovation. Much like in the auto industry, suppliers close to manufacturers have an R&D advantage over un-associated firms. Integrated AMs need to respond to their affiliated WMs’ changing needs, or become irrelevant. Compelled to generate revenue for the bank, they need to innovate building block products, improve investment outcomes and build white label WM solutions themselves for a persistent asset base.
In my view the next big leap in product innovation will come from a sharp increase in demand for outcome oriented savings and investment products in general and for personal liability matching solutions in particular. Those WM/AM organisations with an affiliated investment bank or insurer will have an additional incentive to lead this innovation, balance sheet permitting.
What are independent AMs to do? They should:
1. Focus on uilding blocks and themes that are a) sub scale for WM-affiliated AMs, such as alternatives, b) associated with star managers or c) capturing the investment theme du jour as has Morgan Stanley with its Global Brands fund in 2012 collecting €2.5 billion.
2. Focus on solutions superior to those that a WM-affiliated AM can produce. Encroaching on WMs’ turf, solutions must capture the conceptual and investment return imagination of investors and RMs. Invesco’s Balanced Risk Allocation fund which collected around €2bn mainly in Italy over the last 12 months is a successful example. Brand, easy to use marketing materials and proactive client service are a necessary underpinning.
How about those who cannot deliver the above consistently? Focus time and money on:
a) IFAs (UK, Italy, Germany) and bank advisory channels operating Open Architecture models
b) Semi-institutional product manufacturers, e.g. fund of funds
c) The classic institutional business of pension and SWFs.
The latter may become more attractive to independent AMs once more. As commented on by a senior figure familiar with such a situation, AM/WM integration can result in organisational instability which is damaging to institutional relationships.