A scientific approach to selling funds

Yuri Bender outlines how Gartmore’s European targets have evolved to the fund of funds operations of banks and insurance companies.

Gartmore’s head of European distribution, Steen Steincke, can seldom be found in his headquarters, adjoining London’s Fenchurch Street Station. He is more likely to be visiting potential partners in Madrid, Milan and Frankfurt. Born of Danish parents, Mr Steincke’s bespectacled features could be placed in any strässe in the Teutonic, Benelux or Scandinavian countries. This Euro-acceptability bodes well for a man who hopes to exploit the continent’s movement towards open architecture in order to sell Gartmore funds. Before being recruited to Gartmore, Mr Steincke ran the funds operations of Alliance Capital and Credit Suisse Asset Management (CSAM). But it was during his five-year stint at Flemings, targeting European banks from Luxembourg during the mid-90s, that he developed his taste for distribution. “The passing of the first European directive on the free marketing of investment funds provided a tremendous opportunity for us and, once the product and administration was firmly established in Luxembourg, sales really took off at that time,” reminisces Mr Steincke. “Fidelity, Flemings, Mercury and Threadneedle were all becoming established, working with a network of sales outlets across Europe.” Buccaneering days Mr Steincke’s eyes almost mist over when he remembers the early, buccaneering days of cross-border fund sales. But the scatter-gun approach once used to “just get names on the forms and sign the deals” has evolved into a scientific sales push. The targets are predominantly the fund of funds operations of European banks and insurance companies. Mr Steincke plans to double the E3bn in Gartmore’s cross-border range through these outlets over the next three years. “These channels account for 80 per cent of all our mutual fund business in Europe,” says Mr Steincke. “They are gradually becoming more and more open. As a professional and intelligent asset management house, we are quite a natural provider for banks and insurance companies looking for specialist alpha producers. “We are not part of a merchant or investment bank and so are a natural fit for a professional fund choosing house, says Mr Steincke,” referring to the sale of Gartmore by NatWest bank to Nationwide Mutual Insurance of the US three years ago. This smooth line of euro-patter has helped Gartmore pull in E1.4bn from the top 20 per cent of distributors in the German market since 1995, despite the drastic downturn. Much of this has come from fund of fund distributors including Deutsche Bank, even though Gartmore has been omitted from a controversial list of preferred providers. “I asked Deutsche about their so-called deal with preferred providers,” says Mr Steincke, referring to link-ups with the likes of Fidelity, Invesco and Templeton. “They said ‘Gartmore is one of our very few preferred providers’.” New opportunities Mr Steincke remains enthusiastic about Germany, which is in the process of repealing tax rules discriminating against foreign funds. He is also looking at new opportunities in Italy, Sweden and Spain, where Gartmore opened an office last year, and has already secured an agreement with Banco Santander’s distribution platform, AllFunds Bank. “Because markets have almost dried up, we are focussing on existing money, plus putting in an option for when flows return,” admits Mr Steincke. France, where an agreement has long been in place with Banque du Louvre, is “next on the drawing board, but we will wait and see,” he adds cautiously. Now that the Iraq war is over, he believes pension reform and demographics will eventually herald the return of Europe’s “nice growth markets”. Of the E64.7bn Gartmore manages, E16.2bn is invested in retail mutual funds, but most of this is in the UK, sold by independent financial advisers (IFAs), rather than banks. Mr Steincke’s job, to promote an unknown brand on the continent, is a much tougher one. “We are fortunate that we have developed a very strong UK brand over 30 years,” says Mr Steincke. “But the difference between the UK and European market is so huge, that they need to be tackled separately. IFAs have never had that same strength in Europe, where they have only 15 per cent share.” The UK is moving down the multi-tied route now that HSBC bank has appointed Gartmore as one of five preferred providers, says Mr Steincke. But Continental Europe is already much further down this route and he expects the trend to continue: “We have scarce resources, so when targeting a continent like Europe, we focus on the large distribution houses.” Mr Steincke also points to strong cultural differences between continents. “In the States, it’s common to say to a customer: ‘If you are happy with the fund, can I have 10 names of your friends whom I can approach?’ “In Germany, you will get a very strange look if you ask this question. If you ask for referrals in Europe, you must do it in a very casual way. In a previous life, I tried to bring across a US guru to teach European distributors how to get referrals. The exercise was not a success. That’s why we need to rely on Italian, Spanish and German offices to tell us how the market works.” Product differentiation is also important. Whereas UK clients generally prefer UK equities, a pan-European product is de rigueur in any continental European country. With more banks outsourcing their sub-advisory business, European equity fund prospectuses are the core products tucked into Mr Steincke’s briefcase when he does his continental rounds. Using external providers But with fixed income management fast becoming more sophisticated, Gartmore has added two bond funds to its Luxembourg range. Naturally, there is a strong reluctance among some banks to admit to customers that they are using external, often foreign providers, for core products. “It’s difficult to explain to customers why you’re using a different manager and why you have replaced an internal one,” admits Mr Steincke. “We know the case can often be misinterpreted. They really should say: ‘We can get you a high alpha by outsourcing’, but many prefer to be discreet.” Of course, Gartmore has not been without its problems, demonstrated by a prolonged “for sale” period from 1999 to 2000. As with many houses, equity fund performance has varied from poor to excellent over the last decade. This has led to several restructures of investment process and management hierarchy. Global chief investment officer Peter Chambers, credited for reshaping the process in the late 90s recently left, after being offered “a different challenging global role within Gartmore”. This followed a review of strategy and “leadership resources” in the light of sustained bear markets.

Continental dealings Huerta: working on the Spanish market for Gartmore

• AllFunds Bank, an institutional third party distribution platform created by Spain’s Banco Santander Central Hispano, has signed a deal to distribute Gartmore’s Luxembourg registered family of open-ended Sicav funds. This covers six equity and two bond funds. “In most cases, Spanish banks will look for something where they have a gap in their offerings,” says Mr Steincke. Agreements with two Spanish distributors have given Gartmore “access to a huge share of the Spanish market.” Their selections are driven by fund ratings, he reveals. “Although they sign up whole umbrella funds, they only market the best-rated sub funds.” He says this type of distribution deal normally takes between one and six months to negotiate. “Victoria Huerta and Alfonso Balsera are now working to secure further selective distribution agreements.”
• Distribution through Deutsche Bank concentrates predominantly on Continental European equities, encompassing both the Luxembourg Sicav and Jersey offshore funds. “Our current strong relationship with Deutsche Bank, and in particular with their private banking and private wealth departments is not affected at all by the existing list of strategic providers,” confirms Mr Steincke. “We have been with Deutsche Bank for a number of years and several other key distributors in Germany. We are seeing today that more of this guided architecture rather than truly open architecture is clearly taking place.”
• Gartmore’s Riverview suite of hedge funds is sold to private banks, funds of funds and family offices by Mr Steincke’s teams in London, Sweden, Madrid and Milan. “The fund of hedge funds market in Europe is an attractive and growing one,” says Mr Steincke. Gartmore is currently seeking a European listing for its Cayman-domiciled fund “in order to enhance its attractiveness to European investors.”

Steen Steincke, Gartmore