Bankers point to cream of the crop

Despite claims to the contrary, few asset managers have genuine asset allocation skills and insights, and surprisingly few recognise that alpha is a zero-sum game. Nevertheless, investors should off-load the accountability for active asset allocation to selected fund managers, according to James Bevan, chief investment officer at Spanish-owned UK financial services group, Abbey. Too many asset managers believe that a “detailed granularity” of mandates is somehow value-increasing for the customer, said Mr Bevan during a panel discussion on fund manager selection at the Fund Forum conference in Monaco. He contended that “an awful lot of value is being lost by people who say that they can add value, for instance, as a growth manager or a mid-cap manager.” Abbey, he pointed out, awards mandates to asset managers with a global investment outlook and who take all of their value decisions in the context of an integrated risk perspective. “They also have a profound alpha skill,” he hastened to add. Among his top alpha-generators he lists Axa Rosenberg, Goldman Sachs Asset Management (GSAM), Invesco and Investec. Dominic Blum, head of products for Deutsche Bank’s private and business clients branch banking division, hailed UBS, Fidelity and Schroders as the most successful asset managers operating in the retail investment arena. These firms are three of Deutsche Bank’s nine preferred providers of retail funds. In a bid to offer a high level of customer service, Mr Blum said each partner is requested to meet regularly with branch staff in order to provide product information and close sales support. “The task of the producer is not only to manage assets but also to explain the investment process and why someone should buy that product,” maintained Mr Blum. Bob Parker, vice-chairman, Credit Suisse Asset Management, said that the degree of client servicing provided to retail clients might differ from that offered to institutional investors. “For instance, a large number of our institutional clients are demanding real-time intranet reporting. In the retail space, our website provides investors with information about the funds we offer and allows them to print off reports,” he said. Delivering the goods As one of the “clients” of Credit Suisse Private Bank’s open architecture system, he claims the onus is on the asset management division to deliver “value, performance and good customer servicing”. He contends that those organisations which are part of large financial services companies which do not work with open architecture, will not survive. “Open architecture is helpful because it puts pressure on the asset management company to deliver,” said Mr Parker. But whatever the impact on a manager’s performance, a system providing a large number of different funds to choose from runs the risk of confusing and deterring potential retail investors. Mr Blum said that in order to avoid this happening, Deutsche Bank has set up a system of “guided” or “controlled” architecture whereby the firm selects only certain funds, all first quartile performers, to market to its retail and private client base. “We need to give guidance to our customers; it is not helpful to offer 300 funds and say: ‘you choose’. It is a limitation on one hand but on the other it helps to reduce complexity for the investor.” During the three years this system has been in place, Deutsche has not yet fired any partners, despite poor performance of some. Not so FundQuest, an independent subsidiary of BNP Paribas which vets non-core, externally-sourced strategies and markets them to clients as a multi-manager offering. Alan Mudie, chief investment officer, says T Rowe Price was terminated from a dollar-denominated high yield bond fund two years after hiring the firm because of perceived changes in the way the portfolio was being managed. “They had managed a concentrated portfolio on the basis of which we selected them and as the assets grew, they diversified to a much greater extent and that was why we decided to terminate them. But it is a firm that we continue to look at,” he says.

Mudie: as assets grow, managers can change the way they run a portfolio