Siemens’ Innovest takes on the world
Next month, an Austrian pension fund manager will discover the true meaning of the old adage thrown about so freely by the global asset management community at the moment. Many have promised it, few have delivered it, but in October, a multinational will be taking the subject of cross border investment management into its own hands and will be giving one of its subsidiaries in particular full usage of the term; 'global presence with local expertise'. Siemens Financial Services will be launched into the market and Vienna-based Siemens subsidiary, Innovest will be catapulted onto the global pension fund management stage.
Siemens Financial Services will operate in five business divisions, one of which will be investment management. While Innovest and Munich-based Siemens KAG will both form the building blocks for this area, there are strong indications already that In-novest will be the dominant party. At this point in time the Innovest name is trademarked for the marketing of Siemens’ investment management services in 17 countries worldwide.
Markus Stadlmann, Innovest's helmsman is not the slightest bit perturbed by the challenges that lie ahead. “The targets are being set there, they are very aggressive and we will have to do a lot to achieve those,” he says.
Innovest's and Siemens KAG's main client base up until recently has been Siemens itself and its associated companies. The focus will now be very much turning outside of the parent company's stable with multinational pension funds being an obvious first priority for Innovest, which has had a traditionally stronger hold on the institutional side than Siemens KAG which is veering more towards the retail market. “You could say our initial target markets fall into three groups,” says Stadlmann. “Pooled pension funds and company plans, large companies based in Austria and mid-sized insurance companies.”
Outside of Austria, Innovest will be simply heading for where the profits are. “We have clear profit targets which we are striving hard to achieve and chose the most profitable opportunities in order to grow,” he says. “Business development in each product field or country depends on our margin potential there. Our sales growth targets both for mutual funds and investment services are ambitious.”
The newly created structure for the financial side of Siemens' businesses follows another global strategic rethink at the end of June, with the creation of the International Pension Counsel (IPC) formed to put together guidelines for all of the corporations' pension funds. “It addresses the complete range of topics in pension scheme design and operation” says Stadlmann. “We aim for a continuous evaluation of our global pension liabilities. A comprehensive reporting system is currently being put in place by an internal task force. The IPC also defines what parts of a pension plan operation are advised to be undertaken by local Siemens experts and what should be allocated to group-wide competence centres.
“The selection of investment managers, for instance, is something which should be done on a centralised basis. The IPC acts as a resource for the trustees of national pension plans that don't have local scheme design or investment management resources at hand. So if one of our pension funds intends to conduct an asset & liability study or is looking for an investment manager it can rely on the IPC.”
Innovest's investment market know-how will be instrumental here.
In attacking the international third party market, Innovest will be heavily marketing two key services - 'Risk-By-Design' and 'Portfolio Monitoring'. The former product incorporates risk analysis and advice for clients on how to structure their portfolio in order to achieve a risk structure and level “which they find is acceptable”. Risk by Design utilises Innovest's own ALM software now in its second stage of development, which, says Stadlmann, will make the product unique. “The next version will allow for simultaneous asset and liability modelling,” he explains. “This means that you can simulate the asset and the liability side at the same time.”
Portfolio Monitoring places Innovest in position of adviser where it exports its know-how of the Austrian marketplace, its players and rules to multinationals looking to set up plans there. Once Siemens Financial Services has found its feet, this market advice will obviously spread outside of Austria. Both products have been prepared for the international stage - Risk by Design is a global trademark, and Portfolio Monitoring is in the global application stage, says Stadlmann. Portfolio Monitoring also includes compliance, performance measurement and if required Innovest will also offer its services in the area of capital gain tax reclamation. The target is to minimise operational risk and to make the whole process more cost effective for the client, says Stadlmann. Cost and efficiency will be key to Innovest's approach.
Originally set up in 1994 as a department of Siemens Austria, along with its German running mate, Siemens KAG, Innovest now a 100% owned Siemens subsidiary and fully licensed financial services company, runs E2bn of pension fund money for 23 Siemens and six non-Siemens companies. Innovest runs 11 'basis' funds, which break down into regional bond and equity funds, the equity element split into value, growth and small cap for each region. While they are available to non-Siemens clients, they have not been actively marketed before now.
A separate set of four umbrella funds are available to Innovest's 120,000-strong private client base which basically constitutes Siemens employees and their families. These vehicles access the set of basis funds with the varying weightings giving each fund a different risk tolerance. Again, marketed on the basis of cost savings, Siemens’ economies of scale allows the funds to be sold at a third of the cost of a comparable Austrian fund. “All the money that we manage is invested in these funds,” says Stadlmann. “For the Austrian funds market they are fairly big.” To be exact, apart from the Siemens European bond fund, all of Innovest's funds are the biggest of their kind in Austria.
Innovest runs its funds under a multi-manager programme outsourcing the asset management function to 12 international asset managers, 10 of them US-based, and with the other two from the UK. As with the likes of ABB and General Motors, Innovest offers smaller pension funds access to an enviable spread of global asset managers. This stable of talent holds no real surprises, only in so much that there is a notable absence of local talent in the portfolio taken from a 64 manager strong pool Innovest monitors. Key names here are Morgan Stanley, Goldman Sachs, JP Morgan, Invesco, PIMCO and Schroders - all large, established, Anglo-Saxon players. “We are looking for two things mainly from the investment manager,” says Stadlmann. “The analysis advantage and how it is being captured profitably. Further the quality of the people and the organisation are of critical importance for us” As a matter of course, Innovest avoids passive managers, though this is based less on investment philosophy, more on one of its core focuses - costs. “We find it more cost effective to use derivative products than passive investment management as such. So for quite a decent amount of money we use total return swaps - asset and index swaps.”
Stadlmann is a great believer in the multi-manager philosophy, not least because it rids Innovest of the burdensome task of security selection and allows it to concentrate on what it is good at. What Innovest brings to the table for third party clients is access to a vast international network of capabilities, on the ground knowledge and experience. And where Stadlmann believes Innovest's real talents lie is in advising and assisting to manage fellow multinational schemes around Europe and worldwide based on Siemens' own experience as a global investor, by leveraging the skills of Siemens worldwide - a service undoubtedly for which there will be gathering demand, and which Siemens Financial Services will definitely be capitalising on. And of course the E29.7bn in global assets will not hurt either when pitching for business.
“Siemens is a multinational company that operates pension funds in 19 countries. We have good knowledge of designing and running pension schemes locally, so there is some very valuable advice that we can give to other multinational companies without these resources.
“Siemens can achieve huge economies of scale in investment management because of the size of the pooled portfolios. So if somebody buys into our investment vehicles, he is also buying into the cost advantages. Given the high quality standards we apply in all aspects of investment management, we are clearly establishing ourselves as a low cost provider here.”