Robeco reaping rewards of an internal market

Rotterdam may be one of Europe’s bleaker financial hubs, but the distribution and product management team at the Dutch City’s flagship funds house, Robeco, is not short of ideas with a bit of sparkle, having notched up €7.5bn in net new money during 2009. Alex Neve, who heads the group of investment specialists at the company, says he has been “pounding the table” about emerging markets since more than a year ago, when valuations were below ten times price earnings. Prospects may not be as bright as they were, but potential growth is more attractive than that from other global markets, which are driven by cost cutting instead of expanding revenues, he believes. Rather than looking at the pure developing economy products, Mr Neve’s gaze is now switching to those stocks in developed markets powered by themes such as infrastructure, energy and commodities, which are in some way linked to the emerging markets. Amongst Robeco’s private banking and wholesale clients, responsible for 50 per cent of the group’s €135bn total assets, he has already detected a shift away from exchange traded funds to more active plays, particularly in the core of portfolios, which he says are performing better than so-called ‘beta blocks’ in the current economic environment. “On the institutional side, emerging markets was a tilt, now it is a core product,” says Mr Neve. “On the private banking side, emerging markets have always been part of core model portfolios,” even though he feels many wealthy investors often underestimated their true exposure to the developing world. Vital to distributors’ new thinking, is a mine-sweep of portfolios to work out where the traps are and to calculate exactly how much is their exposure to a particular type of market or risk. “If a global equity fund gave you 35 per cent exposure to emerging markets, you may not be aware of that and can get into trouble if it underperforms,” he reports. Robeco must always look to its owner – Rabobank – for some business, but the institutional side has been the key driver in recent years, particularly since the new CEO, Roderick Munsters, took over the at the helm last September. Mr Munsters is a well-known figure in the Dutch pension funds world, having previously headed up investments at medical and social workers scheme PGGM. Yet there is a parallel development, of which little has been talked about outside the group, which has heightened the concentration of Mr Neve’s team on developing new products. Robeco and Rabobank started a strategic alliance in 1990. In 2001, Robeco became a full subsiduary of Rabobank. Whereas pre-crisis, Rabobank was very much of the open architecture mindset, and officially remains so, the work of Mr Neve’s team increasingly involves creating investment strategies packaged for retail banking branches, as Robeco has been named the centre of competence in investments for the broader banking group. This puts Robeco’s offering “much more in vogue” internally, as Mr Neve diplomatically puts it. “Rabo is not retreating from open architecture to a guided platform,” he says. “But we see a lot of proof of Robeco offering more competition to other entities.” This change in dynamics means 2009 was the first time in many years when Robeco saw a net inflow from products distributed through its parent company’s home soil network, consisting of 147 full branches and 1010 other manned outlets. Mr Neve witnessed money coming into the investment grade corporate bond product in particular, which helped private clients previously sitting on illiquid fixed income investments. More than half of the €563m garnered by this fund last year flowed in from Rabobank clients. The other half came from external distribution partners. “It’s important to get Rabo support for new products, but we also like to get input from different entities,” says Mr Neve, commenting on his group’s increasing fanbase outside the Benelux region. One of his innovations which has played well with these distributors was switching the range of outdated sector-based funds to a thematic product line-up in November last year, which they have integrated with SAM, the group’s boutique units specialising in sustainability investing. “We achieved an immediate inflow into our thematic products due to these tilts,” he says, with funds now investing in Consumer Trends, New World Financials, Infrastructure, Natural Resources and Agri-Business and Health & Wellness. These themes replace previous sectors such as healthcare and energy. The investment strategy also includes a focus on corporate governance and socially responsible investing, which has been gradually creeping through the firm’s fund range since 2001. Since February of this year, all equity and fixed income managers must now square their portfolios against a limited exclusion list of 12 companies, which Robeco will not do business with. This has been drawn up using, among others, Dutch consultant Sustainalytics. According to Mr Neve, many companies have already changed their antisocial stances in order to avoid being blacklisted. “Companies which made cluster bombs, for instance, were on the exclusion list,” says Mr Neve. “But we want to engage in dialogue with these companies, to change their behaviour.” If a company has a long-term contract which it cannot get out of due to legal clauses, it is put on a ‘watch list’ rather than being totally excluded. “It’s not fair to punish them if they can’t get rid of the contracts,” he says. “On the wealth management side, there may be a little bit less interest from the clients,” admits Mr Neve. “But a lot of the partners at the private banks do feel that they will look at their model portfolios in future to make sure the managers have taken ESG factors into consideration. This is already the case with Rabobank.” Five years ago, Robeco was certainly not a household name among Europe’s distributors, even though there was some penetration of funds then considered to be specialist products, such as those investing in emerging markets. “But in 2008, a lot of products failed and people were looking for transparency and stability of fund promoters,” he says. “We have always been transparent about how we manage portfolios and what’s in them, so we took that as an opportunity to increase our visibility among distribution partners. They told us: ‘We have had one of your products for ten years, but we have not really been getting to know you.’ They needed us to increase our distribution of products on their shelf, so we benefited from the 2008 crisis.” Today, like many competitors, Robeco is concentrating on the global distribution houses, the likes of Credit Suisse, Deutsche Bank and UBS, which have a strong central fund selection hub, but the reach to push investment vehicles through their tentacles into a number of different regional markets. The majority of these distributors, according to Mr Neve, have moved to a “guided” architecture, limiting numbers of partners and funds to focus on client servicing with better access now available to portfolio holdings. At Deutsche Bank, for instance, a major distribution target for big-brand asset managers in Europe, Robeco has recently been added as a preferred partner in all global private banking activities, with particular emphasis on its US value and emerging market products. Robeco has also enjoyed some inflows from Italy through its strategic relationship with Intesa Sanpaolo, although Mr Neve admits this is “still a very nascent market”. Clients, hopes Mr Robeco, will buy into the Robeco brand due to the company’s high service levels, research-driven culture and the willingness of fund managers to share information with distribution partners. “Not a lot of asset managers have been around for 80 years,” he says. “Pure investment activity is in our blood and we are focused on getting good performance and solutions for our clients, due to our big research department.” The apparently unglamorous location is actually a selling point he claims, given the company’s links, in its quantative strategies, with the Rotterdam School of Management and the Erasmus University. “People see Rotterdam as the Baltimore of Holland. We have always been the Black Box company. If you are from the academic world, and want to work with an asset manager, Robeco is the only shop.”

Alex Neve, Robeco