Retail is no longer a dirty word for GSAM

There used to be a mantra at Goldman Sachs Asset Management, automatically recited by all from junior marketing staff to the most senior fund managers and business heads: “We are not a retail funds house, we manage money for institutions.” While nobody is suggesting that Goldman should suddenly have an advertisement on every street corner, or on the side of every bus and tram, the once-dreaded ‘R’ word is now being, almost confidently, uttered in GSAM’s City of London European headquarters at Newgate Street, and beyond in its key fund gathering centres of Paris, Frankfurt and Milan. The conversion came soon after GSAM had a range of 27 Ucits III funds – including a 130/30 flex fund, fixed income funds allowing extensive use of derivatives and others investing in currencies and commodities – authorised by the Luxembourg authorities last year. Even then, key global distributors, such as Deutsche Bank’s Frankfurt-centred private and business clients division, said they were reluctant to deploy funds from houses such as GSAM, which had an institutional rather than a retail mindset. GSAM points out that it has since made inroads into Deutsche, and is now working closely with other parts of the bank. For Alex Fletcher, once head of GSAM’s small, autonomous $30bn (?22bn) sub-advisory unit, and recently promoted to head of all European and Middle Eastern business development, including the healthy institutional franchise and the expanding retail tentacles, the progression is a natural one. The old ‘don’t mention retail’ atmosphere is long forgotten. “We are happy to be recognised as a really good institutional house, as often that means high quality,” says Mr Fletcher, now responsible for clients with more than $100bn invested in separate accounts, plus $70bn in GSAM’s European range of mutual funds. “But we are going more retail, since Ucits III changes the nature of the product we can offer. We are not supplying the vanilla funds which everybody else does, but rather those specialised strategies, which we were previously offering to institutions. “The whole point of our Ucits III launch and moving more in this direction was that we now have a product range better than a whole series of people who are operating in the traditional mutual funds market.” Making the link GSAM staff point out that their product marketing teams, which include investment-savvy ‘gatekeeper’ figures, providing the link between sales people and portfolio managers, now include ex-employees of classic retail houses such as JPMorgan Fleming. There is also a huge admiration among Mr Fletcher’s team for rival houses such as Schroders, which has made the massive transition from a purely institutional manager to one of the first choices of many European distributors, without any great fanfare. Now that the products are in place, the next stage of Mr Fletcher’s European development plan is to target global distribution houses, such as Deutsche, Citigroup and Merrill Lynch, with the new suite of strategies. “Our distributors are generally split into two groups,” reveals Mr Fletcher. “Those which are dominant locally in a particular country and some that are truly global. Citi, for example, is absolutely everywhere.” The beauty of getting into a global house, is that with Deutsche, for instance, if it accepts your fund in Frankfurt, it will also distribute it through its branches in Spain, Belgium and Poland. This approach has been particularly fruitful for GSAM. Even when it started to target some global players two years ago, before it had enough products to properly service them, results were better than expected. “We targeted x and achieved 2x,” as Mr Fletcher puts it. However, he is keen to point out that the regional or local players, which have opened up to foreign influence, will not be ignored. “Our biggest third-party relationship in Germany, for instance, is with Deka Bank,” says Mr Fletcher. “And that came in through servicing local players.” German houses like DWS and Cominvest have complained that it is difficult for them to penetrate their domestic local savings banks, the Sparkassen, while foreign houses have benefited. Reluctant to get into bed with the German fund houses’ parent institutions, Deutsche Bank and Commerzbank, the deadly rivals of the rural banks, the Sparkassen’s funds house Deka has instead outsourced fund management to foreign groups. “Deka is the company that was created by the Sparhassen to provide fund management to their clients. A relationship with Deka gets you into the Sparkassen from a mutual funds point of view,” adds Mr Fletcher. “I think the German market is an open market in that sense. Spain, Italy and France are much less so.” But this reservation has not stopped Mr Fletcher’s European distribution team enjoying some success in Italy. In addition to an existing sub-advisory relationship encompassing a “substantial” high-yield mandate with ‘virtual bank and insurer’ Mediolanum, and as one of four providers in a fund of funds for Fideuram, GSAM has a new distribution deal with Unicredito’s private banking arm, Xelion. “We have established a good relationship with Fideuram on the sub-advisory side. Fideuram and Xelion are two of the leaders in the ‘promotori’ world,” says Mr Fletcher, referring to the groups of financial advisers typically attached to Italy’s biggest banks. “Fideuram launched a balanced fund of funds managed by GSAM and three other groups, which was the first of its kind. That was a great way to start a distribution relationship with them. It means we are not selling funds off supermarket shelves, but a sensible packaged solution including funds and asset allocation for the client.” Internal competition Mr Fletcher says he is “very excited” about this solution, which is particularly suited to a group such as GSAM, which also offers multi-product and fiduciary management. But when it comes down to offering multi-manager solutions to retail and private banks, in the same way as they are offered to pension funds, as part of a more lucrative “fiduciary” mandate, there is a certain reluctance to pursue this line. As yet, clients have not been embracing this. The suspicion, naturally denied by Mr Fletcher’s associates, is that GSAM worries about competition to its internal strategies. Instead, GSAM prefers to tout its funds of funds product to private banks – that is a fund of funds product composed entirely of its own strategies. By targeting external distributors with a much broader range of funds than previously, it is possible to shift the focus away from an underperforming asset class and concentrate on those generating returns. Mr Fletcher says GSAM’s “village of boutiques” structure allows the group to support underperforming units while its processes are spruced up. “We are recognised as one of the world’s leading quant managers and our fixed income teams are also respected,” believes Mr Fletcher. “Active equity had not performed so well, so we started to fix this with the recruitment of Mark Beveridge [GSAM’s CIO of global equity] and others. The village structure means the units are totally separate, but share the same risk management and systems. If one part is not performing, we can support that business while we fix it and others perform.”

Fletcher: we are going more retail, since Ucits III changes the product