Skagen is banking on the direct access model
Skagen is hoping to build on the success of its direct distribution model by taking its message to investors outside Scandinavia.
The old fishing port of Stavanger in Norway could hardly claim to be the world’s financial centre. However, that has not stopped Skagen, the Norwegian boutique equity manager from using it as a base to launch what it hopes will be a near revolution in the way funds are distributed in different European markets.
Since its launch in 1993, the manager has built up assets under management of about €14bn. In the process, it has become the biggest equity manager in its home market by a factor of about two.
It has also become one of the best known Nordic names in the Swedish investment and pension funds markets – from where it obtains about 30% of its business – and is now set on launching onto the continent and the UK with its strategy of targeting customers directly, rather than through intermediaries.
“It’s an enormous challenge to try and replicate that [distribution model] beyond Scandinavia, which is precisely why we are going to look at taking it on,” says Tim Warrington, head of International at Skagen.
“Industry lore says it cannot be done at the boutique scale, that it is too difficult and that commercially it will not be worth it. For all these reasons, and because it just might be in the best interests of our investors, we think it is a good idea to at least consider it.
“We have yet to judge what will be possible. At the moment most of the large European retail markets are in a state of flux. There is new legislation, such as the Retail Distribution Review in the UK; big moves in terms of rebates – whether they should be reformed or done away with altogether.
So clearly the retail segment is a fast moving target right now.” He adds: “We are clear, however, that given Skagen’s modest ambitions with regard to size, we do not need to take a large slice of any retail market that we enter. We seek measured retail growth in our new international markets in order to continue to diversify our client base by type and geography, and importantly we have to learn from this. We think there are opportunities to deliver a similar kind of direct retail relationship to the one we enjoy in Scandinavia.”
Skagen wealth manager Johan Aasen provides an example of how that relationship developed.
He says that when the company first established itself in Stavanger – these days, the oil capital of Norway – it put up posters in the local Statoil petrol stations. It also put adverts in local newspapers, which consisted of subscription forms that could be cut out and faxed back directly to Skagen.
The company has used unit-linked markets as an entry point in its past development across borders, and may do so again. However, it is equally clear that a key goal currently is to build up its own distribution in the UK market.
Warrington adds that he is confident on the prospects for the model, on the basis of the experiences of carrying Norwegian investors through an entire business cycle, and the fact that a large share of the manager’s AUM has come from returns, not new client money.
“As a result, there is a good deal of confidence in Skagen, and a good understanding of what we can deliver as an active, long-only, equity fund manager. That gives me a great deal of reassurance, when acting internationally, that there is a solid base at home from which to operate.”