SSgA closes down Fund Solutions

State Street Global Advisors has blamed a moribund mutual fund market for its European distribution U-turn. Yuri Bender reports. The European distribution strategy for $900bn (E800bn) global funds powerhouse State Street Global Advisors (SSgA) has been shelved, for the time being at least. SSgA’s deftly crafted European Investment Fund Solutions initiative, based in Brussels, but reporting in to the Paris and London offices, will cease to exist. The fate of the team’s nine full-time and four part-time staff is not clear, but SSgA’s London-based managing director Nigel Wightman would not rule out redundancies. Wightman: ‘not a good use of our people’s time’ “Given the moribund state of the conventional mutual fund industry, there has been no growth on that side,” said Mr Wightman. “With the exception of exchange-traded funds (ETFs), there has not been much activity in terms of distribution of products. So we are moving resources away from this and focusing on our general core business.” Back to original focus This means SSgA will return to its original competency of managing institutional portfolios for pension plans, charities and corporates, while also taking on some white label business and running pooled products for funds of funds. Selling straight funds through other companies’ distribution platforms will be a thing of the past. “It’s not that we are walking away from the business, but because it’s very quiet, it is not a good use of our people’s time,” said Mr Wightman. Hamrock: integrated three disciplines The change of direction could not be more marked. Last year, the Boston-based bank’s vice chairman and overlord of high net worth business John Serhant said he expected to see over 100 third party distribution agreements set up in Europe. He drafted in Eric Michel from the Japan office to mastermind distribution sales. An internal target of E25bn of new retail money within five years was floated, with a significant slice to come from SSgA’s proprietary funds sold through intermediaries. Today, there are around 50 agreements in place in Europe. But even before the latest changes, the Fund Solutions team was increasingly targeting a much smaller number of white label clients, their most successful deal being a sub-advisory arrangement with Italian insurance company Mediolanum. The rationalisation also marks the end of the attractive “Turn Key” total fund solution, which used the entire State Street tool kit. This solution was mainly sold by John Hamrock, Fund Solutions’ Brussels-based principal, an Irish American who used his custody experience gained in Boston. This was potentially the most lucrative arrangement for the group because a client would be sold a package including asset management, custody, accounting, transfer agency and securities lending. Large clients The biggest client secured by Mr Hamrock’s team was Union Investment, Germany’s third largest distributor with 6.2m clients, which is planning for pan-European expansion. When PWM visited Mr Hamrock’s operation in April, he talked about the benefits of Turn Key. “We are integrating three very different disciplines,” said Mr Hamrock. “Rather than just focusing on investment servicing, asset management or administration solutions, we can leverage the strength of all the divisions.” Clients would need to contact just a single executive to maintain a series of complex relationships right across the State Street group. Mr Hamrock’s team had also secured pan-European fund distribution agreements with three trophy clients: Deutsche Bank, Credit Suisse and UBS. He was also making headway in packaging enhanced index products, an institutional innovation, for retail distribution through Nordic banks. The team garnered E500m in net fund inflows in 2002. But Mr Wightman remained resolute: “The fund management industry as a whole is closing products, not opening them. That’s what we are reflecting in these changes.”