One of the world’s largest asset manager is stepping on to a stage, where not only is the spotlight going to be constantly focused on it, but the floor it’s playing on is highly slippery, even for a giant like Allianz Dresdner Asset Management. In this context, the initials ADAM may not give much comfort.
There are three global business lines that are the mainstays of the organisation. The first is fixed income – the domain of PIMCO, the huge US West Coast fixed income player, snapped up by Allianz, before any talk of the dalliance with Dresdner. “It is responsible for all fixed income investing. In virtually all of the countries where we have integrated the Dresdner asset management business, we have or are in the process of completing the transition of fixed income portfolios to PIMCO- basically all of it,” says Udo Frank.
Frank is the man with one of the most challenging tasks of all, as chief executive office for the equity business of Allianz Dresdner Asset Management (ADAM) that comprises Dresdner RCM, Allianz Asset Management, and the equity investment platform of the German dbi/dit operations as well as a number of other investment platforms. The other pillar is the retail business.
Third party assets under management for ADAM come to E642bn, of which some E370bn are equity assets. Group assets would bring the total up by another E200bn or so.
The ADAM organisational structure is in place. “We have created independent investment platforms, each characterised by its own philosophy and style,” he says. He is referring to the decision to run separately the businesses of the San Diego-based Nicholas Applegate, a growth manager with $24bn in assets, New York firm Oppenheimer Capital, with $25bn in assets across four value product ranges, the $2bn NFJ a Dallas located operation specialising in small value caps, PEA a New York retail firm, the growth manager Cadence, and hedge fund of funds operation Allianz Hedge Fund Partners, built up from the team that came from Citigroup.
Alongside this raft of specialists is the combined business of Dresdner RCM and Allianz that forms the ‘globally integrated equity platform’ – Dresdner RCM. The global CEO of equity division “has regular dialogue with these different investment platforms, about their activities and developments in the market”. The CEO’s role is to work with these separate entities “in setting objectives” through a budgeting process and through strategic plans in terms of product development, particularly in relation to investment projects and the resources needed”.
The global equity platform, Dresdner RCM, is the largest part of the equity division in terms of asset size, people and the breadth of its products, says Frank. “It is also that part of the division, where the merger with Dresdner has had some impact, while the independent firms have been unaffected by this. GIP is where we had to go through a limited merger process.”
There was, he claims, high levels of agreement when it came to processes and philosophies of investment. “The devil is in the detail of these merger processes. So over the past 10 months an enormous amount of work has been done to make sure things are working seamlessly.”
Frank makes no bones about saying that the global equity process is that of Dresdner RCM. “So there is strong emphasis on grassroots company research, but we also focus on and make use of Allianz resources when it comes to top-down issues.” He reckons that they have brought a better structure and approach to how they organised their research. “The portfolio management and research teams are close to the markets and are decentralised across Frankfurt, London, San Francisco, Hong Kong, Tokyo, Singapore and Australia. The trading desks and other aspects of what we do are organised on the same basis.”
Out of this is emerging a “centre of competence approach”, Frank says. “In simple terms, when it comes to the US, no one is arguing that San Francisco will have most knowledge about the marketplace there.”
“In Europe, we are bringing together one team in two locations, Frankfurt and London, under Neil Dwane, CIO Europe,” says Frank. “London has some very important things to offer in addition to the excellent people we have there, with the depth of the market and its long history.”
The product portfolio at regional level, Frank sees as a pretty straightforward proposition. “We are thinking of a regional product that is simple. European equities primarily managed in London and Frankfurt, US managed there, Asia in Asia and in Japan though our joint venture in Tokyo,” he says.
But where it works differently is in building the global equity product. “Here we can leverage on the fact that we have the globally integrated platform. We bring in the research experts from all the regions, which is organised along sector lines. That is the team that manages the global sector product.”
The product needs to be of the same quality throughout and driven off the same platform. But Frank adds a caveat: “While it is the same product, you find in the US , global equity product is global ex-US, in Japan, ex Japan and in Australia, ex-Australia. Though interestingly, this is less so in Europe, which may be because each country is such a small part of the market, it is better to go the route of the global mandate.” The group’s biggest book of global mandates is in Europe and the US.
When it comes to individual clients’ needs, he says the approach is to tailor the product to the risk profile of the client. “So a German client with a low risk appetite might want it scaled down to a low tracking error, while a client in the UK might want it high octane and scaled up – but the same ideas and the same strategy are used.” However, how it is delivered will vary from market to market and from client to client.
The global product local teams based in the different locations running the product off a common process. “We copy or tailor make all the other sector products from this product,” says Frank. “While a common philosophy and process are offered irrespective of where a client approaches us, our colleagues in Japan will look very Japanese and in the UK look very British.” Though sales and servicing are local, the marketing has become a global process. “We now work with the global consultants in a systematic and co-ordinated way,” he claims. But the number of clients who are global operators is not that many, the key demand is from locally-based clients wanting a global product.
Another trend he points to is that the retail market is taking on an institutional character, particularly as consultants play a more important role here. “We want to deliver institutional quality products to the retail market.” There is certainly a convergence between retail and institutional about their requirements for a manager, he maintains.
The group has some of the best equity managers in the world and has the best fixed income manager, claims Frank. “We are considering how we can leverage those into developing the ‘best of balanced products’. The approach would not be to look at what ratio of equities to fixed income in a portfolio, but to go about it more intelligently. What are our highest convictions and how can these be best exploited in designing a product with the highest expected return within a certain risk level. There are lots of interlinkages between the two asset classes.” He says the group is well advance in its thinking and could deliver something tangible to the marketplace shortly.
Good products, high quality service and being close to the client are key factors of success and profitability. “You have to keep an eye on profitability, not just for shareholders, but also in order to retain your talent. Your best people want to see that they are working in a profitable organisation and with good prospects – that is what they want to be part of.”
Looking back at the challenges they faced in bringing the different sides together, Frank points to some key issues: The first was to distract people as little as possible by the integration process. “In a merger, you have to put something additional on everyone’s plate, but you have to make sure this is not taking up the majority of someone’s time and is running in parallel to managing a portfolio or doing research.”
Having a vision and then establishing objectives to enable it to be achieved were also key. “The concept of the platform, for example, so that people can buy-in to what we are trying to do.” Trying to put together the globally integrated platform spanning different locations is quite different to running a focused business such as Nicholas Applegate. “It needs to run smoothly, with things happening so they fit together in a co-ordinated way, but it certainly does not run smoothly by itself. To handle that complexity and to meet everyone’s expectations is a huge challenge. This will have its elements of disappointment, but hopefully they will be on the small side and can be addressed fast and effectively.”