Telling reasons why Don Juan loves Allfunds

The infectiously fast-talking Juan Alcaraz Lopéz sounds like an extra from the film Carlito’s Way. Yet, at just 33 years old he is general manager of Spanish open architecture platform, Allfunds Bank, an offshoot of Santander Central Hispano’s (SCH). In October this year the Italian house SanPaolo IMI bought a 50 per cent stake in the platform.

“We are half of the entire Spanish market,” admits Mr Alcaraz. “There is no other example like this in Europe. Allfunds is a unique company and we can keep on growing.”

Room for expansion

On the surface, at least, there appears room for expansion, as Spain’s highly conservative investment market has only 10 per cent equity exposure, well behind France, Germany, Italy and the UK. Guaranteed products, with 25 per cent penetration, are by far the most popular.

“Spain is not the leader in Europe but it is an interesting market for any international house that wants to enter the European market,” believes Mr Alcaraz.

Currently, just E6.8bn of the E197.7bn in domestic Spanish funds is managed by third parties, way below the 8 per cent European average. But add in the underlying funds of guaranteed products – a key target of foreign managers – and you have a more respectable E12bn. Santander – Allfunds’ parent group – runs 26.5 per cent of the market and BBVA has 17.6 per cent.

International houses have been discriminated against after Spanish authorities labelled Luxembourg, their funds’ domicile of choice, a ‘tax haven’ in 2000. But after strong lobbying, the foreign groups were rewarded with a more favourable regime last year.

“This is all in the past,” says Mr Alcaraz. “The market is now more mature. Spanish investors have weathered the recent crisis and are beginning to understand third party funds, helped by new dealing solutions.”

Allfunds, for example, provides electronic links between fund manufacturer and distributor, replacing the fax machines of the past. This followed Santander’s outsourcing of Asia and US equity mandates in the first half of this year to Nomura and Pioneer, the development that Mr Alcaraz sees as Spain’s sea-change: “This was pioneering in the movement to open architecture, when Spain’s largest asset manager realised it could not manage everything.”

Early victories

This was followed by the growth of Libor-linked cash-enhanced funds of funds, offering low volatility with better performance and a commission fee for distributors. Allfunds gathered E2bn into these products in just two months.

Even more successful has been Allfunds’ promotion of guaranteed products structured around third party funds, which have garnered E2.5bn.

Mr Alcaraz launched Allfunds in 2000, having spent the previous five years as the head of investment funds at BSN, Santander’s private bank. Since then the platform has built up E7bn under intermediation. With the Spanish market firmly conquered, Mr Alcaraz is engaging his modern-day Armada in foreign action, with the goal of becoming the leading platform in Europe and Latin America.

After some opportunistic success in the UK, Italy will be the first major prize, building on an agreement between Allfunds and cross-shareholder SanPaolo IMI signed in March this year. Mr Alcaraz claims, not altogether convincingly, that the joint venture has nothing to do with politics or prior relationships. “SanPaolo is interested in open architecture and finding a partner that provides solutions for multi-management activity. We should not confuse this with the stake Santander has in SanPaolo and vice versa.”

Better access

Allfunds will not be in competition with SanPaolo’s existing multi-manager activities, but will try and make the operation more efficient through offering better access to a wider range of external fund groups. SanPaolo will also be able to use the expertise of Allfunds’ 12-strong manager selection team plus web-based portfolio structuring optimisation tools.

“Italy is a much bigger opportunity for us than Spain, as the market is three times the size and their exposure to third party funds is between E25bn and E30bn,” enthuses Mr Alcaraz.

The main targets will be savings banks, private banking multi-manager products known as GPFs and the burgeoning fund of funds business. “We have found the best Italian partner, as SanPaolo leads Intesa in fund distribution, now we have the challenge of developing our business,” he says.

This will be done along the Spanish model, with the establishment of a local Allfunds branch managed by Italians. He sees some similarity in the two markets in that “both Italian and Spanish distributors are good fee negotiators.”

“In Spain, our critics said it would be difficult for us to close B2B deals with Santander’s competitors, but we managed to sign 40 such deals,” reveals Mr Alcaraz. “In Italy, we hope they won’t identify Allfunds as SanPaolo, but as an independent company with a clear goal.”

He claims the Allfunds distribution platform, offering execution only, does not discriminate between funds, but gives a “good percentage rebate” to all distributors.

“And if I bring volume to you, you give me a better price. Through a small investment into Allfunds, managers get access to 50 per cent of the Spanish market.”

Better logistics

Dealing directly with the Allfunds platform means local banks can avoid the logistics of maintaining distribution agreements with up to 50 external managers, claims Mr Alcaraz.

He says he can provide effective open architecture for any bank within three months. “I am able to make fund providers happy and fund distributors happy, without huge investments and direct costs, as we don’t make money from execution on our web-site. This is the magic of the business and it’s working in Spain. In Italy, we will have to see.”

Private banking background behind success of third party offering

Allfunds can provide a variety of service levels to distributors. Some banks just want the supermarket model, but many require help with fund selection. With parent group SCH, selection duties are shared. Allfunds also works together with private banks such as BPI to help build recommended fund lists. “We don’t treat Santander units any differently,” claims Mr Alcaraz. “If we did, the market would soon identify it and it would have been impossible to sign up 37 agreements with external groups in Spain.”

Allfunds has been instrumental in choosing some of the underlying funds for Santander’s guaranteed products. This is the main reason why Mr Alcaraz is fęted by foreign groups, as they know that selection will clinch significant flows into their funds. Allfunds has also closed deals for structuring guaranteed product portfolios for five of London’s leading 10 investment banks, bringing in E50m of investments so far. “It looks like we have 50 per cent of the market there too!” jokes Mr Alcaraz.

Third party fund baskets are constructed according to volatility and performance. “We have combined them really efficiently,” says Mr Alcaraz. “Capital markets traders feel comfortable with the result. They don’t have the experience in selecting funds or negotiating rebates, as that’s not their business.”

Mr Alcaraz says he has the perfect experience for the job, coming from the distribution side rather than fund management, having previously headed Santander’s private bank, BSN. BSN signed fund distribution deals with Fidelity in 1991, MFS in 1994, Merrill in 1997 and Fleming, JP Morgan and Invesco in 1998. Allfunds was launched as a spin-off of BSN two years later.

Not surprisingly, the bank has its detractors among rivals in Madrid’s close-knit financial community. “My biggest source of clients is those who are dissatisfied with the service they receive from Allfunds,” claims one Spanish competitor. “Some banks are annoyed that they have to share their own fund selection information with Allfunds.”

‘Spanish investors have weathered the recent crisis and are beginning to understand third party funds’

Juan Alcaraz, Allfunds