SEI’s dating process brings new breed of bedfellows

Take one look at the type of partners that SEI – the US manager of managers hoping to increase its footprint in the wealth business – has been signing up recently, and one thing is clear: these are large organisations, in a state of flux. Commerzbank scaled down its international ambitions in banking and asset management to a German/European remit three years ago. It is now in the middle of another asset management and private banking review. SEI began working with Commerzbank in 2003 and runs e400m for the bank’s clients. HSBC’s asset management arm has been rebuilt once under CEO Alain Dromer. Private banking currently uses a cocktail of Mr Dromer’s products, external funds selected by internal teams and the SEI offer. So what is the attraction in courting partners still in the process of finding their true direction in wealth management? “Our policy is not as deliberate as that in reality,” says Brandon Sharrett, recently appointed as head of SEI’s 25-strong private banking team in the Europe, Middle East and Africa (Emea) region. “But change is always good for us. Any time an institution is making a change [we are presented with] an opportunity for dialogue. We are looking at those institutions that want to do things �differently.” Islamic offerings The same is true with country targets. SEI is currently doing its homework to come up with a solution for Middle Eastern banks, already managing money in their own market, but requiring client portfolios with a more international flavour. The idea is to provide Shariah (Islamic)-compliant products managed in London, sold from a booking centre in Geneva through Middle-East-based relationship managers. This region is being targeted because its institutions are going through a period of upheaval, says Mr Sharrett. “That is a region with a lot of change, and a focus on building onshore private banking capabilities and family office start-ups. We see significant activity, not just in Dubai, but also in Bahrain, Qatar and Kuwait.” But there is more to this search for partners than just targeting those lonely hearts, who may be weakened by upheaval and are looking for a quick fix relationship. SEI has changed its ways. There was a time when, especially in the US, it may not have been selective enough in its client-seeking searches. Today it is looking for soulmates as well as sugar-daddies. “We ask ourselves, are those banks really investing in their business? Are they investing in their infrastructure to be successful?” ventures Mr Sharrett. “Do they have a clear value proposition and strategy on how to serve their clients? We are looking for quality, not quantity, in terms of relationships. “We have to be much more disciplined about who we select as our partners,” says Mr Sharrett, who has been with the SEI group since 1993, servicing predominantly private and regional banks in the US, and handling 250 banks generating $100m (e73m) in annual revenues at one stage. There are some types of business, such as back-office servicing and custody, in which SEI was heavily involved in the US under Mr Sharrett’s stewardship. He admits, with hindsight, that some of the partnerships were with banks that maybe did not have the “horse power” to be serious players in mutual fund management, and that the organisation has learned valuable lessons from previous decisions. Now there is a gradual move away from this mass market to a concentration on institutions offering more bespoke services to high- and ultra-net-worth individuals. The “typical implementation” on the private banking side is on the scale of £1m (e1.46m) to £5m, he claims. These amounts are well up from the typical e10,000 brought in by mass affluent customers of Italian bank Mediolanum, e100,000 from Bipiemme private clients or e500,000 from clients of UK advisers at the beginning of the decade. While all of these models garnered significant amounts – SEI once ran e3bn in multi-manager funds for Mediolanum – they are not necessarily the type of models they want to replicate in the future. Up close and personal SEI’s global head of private banking, Joe Ujobai, was known to want a much deeper relationship with Mediolanum’s advisers, where SEI could provide staff training and have some contacts with clients, but this was blocked by Mediolanum founder Ennio Doris and his key advisers. “What I always say to all the partners that we have, having been in charge of developing this since the beginning, is that the relationship is like a marriage,” Furio Petribiasi, head of partnerships at Mediolanum, told a PWM sub-advisory roundtable last year. There is an inherent problem in these partnerships, believes Mr Pietribiasi, in that a new partner always wants to get too close to the client, wants to use up too many resources and offers its opinion where this is not requested. This can lead to problems unless the ground rules are established at an early stage. Mediolanum praises its partners for their expertise in handling clients’ investments, but clearly does not want the link to go any deeper than this, as it crosses over with companies like SEI, where both boast excellent distribution, client servicing and record-keeping expertise. There was an inbuilt reaction within the Italian group against a foreign partner somehow imposing its own business model inside Mediolanum. “SEI has a completely different attitude to us,” believes Mr Petribiasi. The relationship ended in 2005 when Mediolanum developed its own multi-manager programmes. “At the end of the day, it’s the bank’s client,” agrees Mr Sharrett. “It is their cash and it is up to them to determine how much of a relationship SEI can have with their client.” Yet he believes that it is in the interest of banks to open their doors to his advisers, to forge closer working relationships. He cites the example of HSBC, where his private banking team are working very closely with the UK institution’s private banking relationship managers. As a services company, Mr Sharrett aims to get SEI staff as deeply implanted into their client banks as possible, and then to take on asset management and distribution functions in addition to operational outsourcing. “We have a number of services, but each individual bank will determine which things they need,” says Mr Sharrett. Flexible business model “If I can do some of the heavy lifting to allow them to better deploy their assets, that’s a good formula for us. The relationship evolves over time, so the bank can use us one way, and then they use us in more areas as their business model changes. “Not every bank can get where they want to get to on day one. SEI is all about long-term partnerships. The average relationship in the US is 10 years, and I have seen these relationships evolve over time.” Recently, Mr Sharrett’s team has been concentrating on bedding down the partnership with HSBC, whose UK onshore private banking business was signed up to its Global Wealth Service in July last year. This offers front, middle and back-office support in terms of people and technology to outsource the bank’s asset management, client accounting, portfolio administration and reporting services. “We are very fortunate that HSBC will be the first client on our new platform,” says Mr Sharrett, who is relieved at not having to cold call 20 banks with an untested platform. With HSBC migrating its private banking services to the new platform in June, Mr Sharrett will then be out “looking for our second, third or fourth client. We will no longer be designing, building or trying it out,” he says. “We’re in execution mode; we are not just talking any more, but doing.”

Enhanced european offerings SEI hit Europe just before the turn of the millennium, with its manager of managers formula. In the last five years its assets under management have grown from $80bn to $180bn, and its assets from non-US clients have surged from $14bn to $25bn.

Like its key competitor in the private banking arena, Frank Russell, the company has found it extremely difficult to generate significant alpha in standard equity and bond areas, so instead it markets various combinations of its full-service �package, which offers convenience to banks, and assures them they are working with a tried and tested �partner. “Historically, we have been able to deliver operations and action services for clients in a high quality, cost-effective and risk-managed environment,” says Mr Sharrett.

“We have a history of being able to perform these activities better, faster and cheaper. If we can take over these functions, we would like to do this. Plus we have asset management capability, proven by pension funds which have allocated some $800m of assets, so the programme works.” But SEI has also found itself having to become much more innovative on the investment side in order to fend off strong competition. Typically, it uses well-known managers like Axa, Blackrock, GSAM and JPMorgan. But rather than just providing benchmarked equity funds, which can barely mimic those already produced by banks’ proprietary fund management units, SEI is now looking to provide riskier funds, exploiting more esoteric opportunities. One example is the enhanced income fund, which uses external managers Record Currency Management to run its managed currency strategy, Smith Breeden to run mortgage-related and structured products and Highland Capital Management to oversee a high yield bonds portfolio.