SEI goes one step beyond

Which of SEI’s four models will make it in Europe? Yuri Bender finds that it is the broader approach, offering administration as well as asset selection, that most pleases the US company’s managing director, Joe Ujobai. Forget multi-management, consultancy and asset allocation. SEI, already cutting a swathe through Continental Europe, is a US financial services company that wants to go “one step beyond” these basic capabilities. So far, less than $8bn has been pulled in from outside the US. But Frank Russell, SEI’s bitter rival in the “manager of managers” arena, runs $69bn. Nearly $14bn of this comes from the fast-expanding Continental European market. While Russell has generally aimed at the largest or most prominent distributors in its target countries, Pennsylvania-based SEI, which runs $78bn globally, has gone for a more varied approach. It has already built four different models in the US and European countries to test the water. Now, managing director Joe Ujobai hopes to build on experience in the US, the UK, France and Italy to construct the ideal European distribution platform.

1 First model: Mediolanum This is a three-year-old deal whereby SEI manages E2.8bn for Italian financial services giant Mediolanum, which is 35 per cent owned by Italian prime minister and media magnate Silvio Berlusconi, and managed day to day by his old friend Enio Doris. Much of the success of this venture lies in adroit use of the media. Mediolanum has leveraged off Mr Berlusconi’s TV channels and other media satellites, which, according to Mr Ujobai, “can educate and teach people about investment products”. The Italian, Milan-based firm sees itself not just as a distributor, but as a selector of products, and has picked Northern Trust for some additional portfolios. “We are just one of the institutions they use,” says Mr Ujobai. 2 Second model: Bipiemme The second model is a distribution agreement with Italian bank Bipiemme in Milan, for whom SEI runs E225m in four fund of funds products, invested in its Dublin cross-border Ucits fund range. “We had already trained Bipiemme’s sales force, and after September 11, when all Dublin funds shut down for five days, we quickly put together a presentation to show them what to do in times like these,” says Mr Ujobai. “We showed them not just how to sell the Bipiemme multi-manager product, but also how to position it in relation to other products. As a result, Bipiemme was one of the few banks in Italy that was able to have a net positive collection of assets after September 11.” 3 Third model: CCF SEI also uses a joint venture approach pioneered with French institution CCF in Paris, registered locally with French regulators. A 20-strong staff is made up of both SEI insiders and local recruits. But the deal was blighted almost from birth, thanks to HSBC’s purchase of CCF in 2000. Sources say that this left the parent company concentrating on organisational structure rather than product distribution. The venture is now under review, having raised just E25m despite substantial investment. 4 Fourth model: registered advisers The fourth model is the US one of registered advisers, which SEI has adopted through a small entrepreneurial advice model launched in the UK last year. “We are ultimately after the mass affluent/high net worth client,” says Mr Ujobai. “And we have seen different levels of success in accessing this, depending on the distribution model we have used.”

So which model is the favoured one going forward in Europe? Not, Mr Ujobai says, the Mediolanum set-up. This is essentially a retail model, bringing in investments of around E10,000 per client. But the more services that SEI provides in terms of product structuring and services, the higher are the investments and the fees attached. Bipiemme customers typically invest between E90,000 and E100,000 in SEI products, while investments garnered by UK advisers are often between E400,000 and E600,000. Mass affluent market “We are looking for amounts substantially higher than $50,000 from mass affluent investors,” says Mr Ujobai. “Mediolanum has provided us with an interesting model, but not the one we want to replicate going forwards. “We are very pleased with what we have seen with Bipiemme, which is much more suitable for our approach. We are also very pleased in the UK, where we are receiving well above what is often granted.” SEI currently works with 12 advisers in the UK, including Norton Partners, Scott Goodman Harris and Allenbridge Group. “We don’t want to be just another fund manager for these people,” says Mr Ujobai. “We want to go one step beyond, building a platform for full blown-partnerships, but with one adviser at a time.” The UK distribution model is based on SEI’s US experience with advisers, whereby it runs “wrap” programme housing investments of more than $500,000 in a single account. In such arrangements, SEI is responsible for custody and administration, as well as fund selection and monitoring. SEI says it boasts a “significant market share” in US trust accounts for private clients of institutions such as Bank One, Wells Fargo, JPMorgan and Fleet Bank. In a huge US push, since April 2000 it has added 72 banks as distributors of short-term investment products, including money market funds, enhanced-cash and tri-party repo programmes. These expanded relationships demonstrate the power of targeted distribution, with $1.8bn added to SEI’s liquidity assets in the first year. One single family account in the US amounts to $300m, while Mr Ujobai is about to close a $16m account from a single UK investor. Image change Three years ago, SEI was emerging from its historical role as the largest plan sponsor consultant in the US. This was consolidated after the purchase in 1983 of the funds evaluation division of AG Becker, giving SEI a substantial funds evaluation and performance measurement service. But what works in the US does not necessarily have the same effect in Europe, and SEI found that consultancy had a somewhat less respectable image on this side of the Atlantic. “In Continental Europe, once we get there, people will let go of that consultancy image pretty fast. Consulting can be a dirty word,” admits Mr Ujobai. “People in the UK are asking what the consultants added to the UK pension market over the last 15 years – how can you measure long-term advice? All of our clients question that.” So SEI chose the manager of managers route, with headquarters in London, servicing both institutional clients and independent financial advisers (IFAs). “We felt, three years ago, that the easiest thing would have been for us to strike three big distribution deals in Europe,” says Mr Ujobai. “But this didn’t feel right for the long term. We wanted to add value through a relationship, so we put a huge investment in the investment process and infrastructure to approach advisers in the UK and then tackle multiple projects on the continent.” Italy was chosen because it was the fastest growing mutual funds market in Europe. “A lot of people questioned why we went into France, but it is the biggest market, although dominated by money market investments,” adds Mr Ujobai. “We knew that if we could go into France then it would be a huge learning experience of tackling the Continental funds market. Germany would have been way too much to handle.” Germany remains on the “radar screen”, with financial advisers rather than banks the favourite distribution channel. The key is finding which ones are tied to which organisations. “There are certain things about the German model which are very attractive to us,” says Mr Ujobai. “The advisers are entrepreneurial, door to door salesmen, but how do we structure a model for those advisers tied to big players? “Europe for us is a 10-15 year project. We want to build a big sustainable business in each country, which requires resource. What we like about IFAs is that they buy technology as well as asset management.” Frank Russell has teamed up with car maker BMW, and SEI has also looked at working with luxury goods retailers. There was talk last year of a link-up with French department store Printemps. But it doesn’t seem to be top of the agenda. “We can’t discount this model,” says Mr Ujobai, “But we prefer a back to basics approach with some enhanced services. Can we help the growth of IFAs in Europe? Can we build a solution set that can help put people in that business? These are the questions we want to answer. “We would rather promote the development of the independent fee-based adviser as distributor than going to a luxury goods provider because they already have an excellent client list.”