Redrawing the lines
Fund managers need to negotiate in order to get the best distribution agreements, but it is their partners who hold the power. Conducting a cross-border partnership is no easy matter for product provider or distributor. Such links can be disrupted by operational difficulties – as happened recently before the dissolution of a joint venture between US manager of managers SEI and French bank CCF. Relationships can also be redrawn due to economic or political changes. US funds house State Street Global Advisors (SSgA) and Italian financial services company Mediolanum recently found themselves in this position. Their joint venture to manage segregated private equity accounts for Italian retirement funds was “redrawn” because the pension system under prime minister Silvio Berlusconi has not expanded as quickly as expected. The existing money has been transferred to Banca Esperia, a joint venture between Mediolanum and Mediobanca, originally established to take in money from high net worth individuals. This set-up is believed to allow Mediolanum to manage the business on a lower cost base. Fondamenta, the fund of funds operation set up by SSgA and Mediolanum, continues to operate. And there is even talk about establishing a private equity fund for rich Italian individuals. SSgA will also continue to manage over E4bn in equities, bonds, sector funds and index-trackers on a white-label basis for Mediolanum’s Dublin-based Challenge range, alongside external multi-manager providers SEI and Northern Trust. SSgA is also in preliminary negotiations with other potential Italian partners, but it is clear that once a deal is signed, the power lies increasingly with the distributor, not the fund provider. While SEI is happy with its relationship, it will structure future partnerships more along a model developed with Italian bank Bipiemme, which has allowed the Americans to train their salesforce and help position the products. “Mediolanum has provided us with good business and a way of delivering our multi-manager expertise,” said an SEI spokesman. “They raised E2bn for us, but the nature of the relationship means we are put in a box as to how we can help them. We can help them in many more ways, but they have not taken us up on the offer.” The increasing consolidation of this distributory power appears to be key to the success of players such as Mediolanum, headed by the enigmatic Ennio Doris, himself a former investment product salesman. “Every year we renew every contract with an external provider before it expires,” said Guiseppe Lalli, Mediolanum’s purchasing director responsible for all external relationships. These have included the recent take-over of Germany’s Leverkusen-based distributor Gamax, which contracts asset management out to Rothschild. But Mr Lalli stressed that any external partners will share the spoils of the group’s new direction. “The more we have expanded, the more our funds managed by State Street, SEI and Northern Trust have benefited, as their value has grown.” Yury Bender
