Europe shows on Robeco radar
Robeco, a Netherlands-based asset manager with global ambitions, has set itself three broad objectives for 2007 and beyond - to invest in Europe, to grow in the US and to seed in the emerging markets.
George Möller, who moved from Euronext to become Robeco’s chief executive in 2004, says investment in Europe is the most pressing concern, and much effort has been put into strengthening Robeco’s presence there.
“We came to the conclusion two years ago that we were not sufficiently pan-European,” he says.
As part of this move to become more pan-European, Robeco has re-vamped its Paris-based French operation. In early 2006, it hired Jean-Louis Laurens from AXA Investment Managers to head Robeco France.
“Today you can see us coming back very rapidly in the French market,” says Möller. “We’re on the radar screen again there.”
Another way to become more pan-European is to confine acquisitions to continental Europe, says Möller. “We take the view that the big money should be spent in Europe. We’ve made the point that if we want to acquire those capabilities which we lack we would prefer to buy them in continental Europe because this achieves two things. It enhances our capabilities and it enhances our presence in Europe.”
Robeco’s fixed income skills have won it continental European business, notably a mandate from the FRR, France’s reserve pension fund. European equities, however, have been an area of weakness. Möller is looking to remedy this either by strengthening Robeco’s in-house skills or buying in external skills.
“We are still interested in either developing our own European equity operations or buying a European equities capability, preferably in Europe,” he says.
Socially responsible investment (SRI) is another area of equity investment that Möller is keen to develop. Robeco is fully owned by the Rabobank Group, and this has to some extent shaped Robeco’s approach to socially responsible investment, he says. “Rabobank is a mutual bank and part of a tradition of societies that return money to society. So we felt that we needed to occupy the SRI space. But we also felt we were not big enough to play that role.”
To gain greater stature as an SRI player, Robeco acquired 64% of Zurich- based Sustainable Asset Management Group (SAM) in December last year. “At a stroke we have done two things. First, we have strengthened our position in Switzerland, which is important, and second we have bought a ‘missing alpha’.”
Strategically, the SAM Group will act as the centre of excellence for sustainability investments within the Robeco Group, Möller says. This strategy has already borne fruit. In February, the French public service additional pension scheme ERAFP awarded Robeco and SAM Group part of the largest SRI equity tender in France, worth up to €1.2bn over the next four years.
Möller is less concerned about building a greater presence in the US where Robeco already has a firm foothold. Historically, it is a well-established investor in the US, having invested more than half of its portfolio in the US during World War II.
In the past 10 years it has made a series of US acquisitions. It acquired Weiss, Peck & Greer, a New York-based fixed income manager in 1998, Harbor Capital Advisors, a Toledo-based manager of managers, in 2001, Sage Capital Management, a New York-based fund of hedge funds manager in 2002, and Boston Partners Asset Management, a Boston-based US value equity manager, in 2003.
Robeco is not looking for further US acquisitions, Möller says. “We feel that we now have a good enough US presence. Of course it could be much larger, but I think for our purposes it has gained a momentum of its own and is growing of its own accord.”
Yet Robeco’s US acquisitions could provide a model for future European acquisitions, Möller suggests, particularly in the area of fiduciary management. Robeco is currently considering setting moving into fiduciary management with the acquisition of a European manager selection operation.
“We are in essence asset managers but we will not close our eyes to the fact that selecting other managers is something very close to what we can already do,” he says.
“We already have asset liability advice and portfolio construction advice. But we don’t yet have manager selection, and we are currently talking to people who want to set it up for us, under our umbrella.”
Arguably, Robeco’s ‘best of breed’ manager selection skills already exist in the US in the shape of Harbor Capital Advisors, Möller suggests. “Harbor Capital Advisors essentially do the same as manager selection firms. They run a mutual fund complex and select only external managers. That’s why, although they’re 100% owned by Robeco, they do not use the Robeco name.
“What we may anticipate doing is partly borrowing their concept and creating a kind of Harbor Capital Advisors Europe to do the same thing, but make it a bit more of multi-manager type of selection.
A European manager selection operation would be branded separately from Robeco, he suggests. “Probably we will have to do that under a different name. You need to be very sure that your asset management and manager selection operations are kept apart, and that you are not perceived to be biased towards your own asset manager capabilities.
“Fiduciary management is a different kind of game from asset management, but it is an area where we would like to be active. We are looking at this very seriously and we believe we are very close to being able to develop something.”
merging markets represent a long-term, but important prospect for Robeco, he says. “You cannot ignore India. You cannot ignore China. You cannot ignore the Middle East. Yet from an asset management point of view these are still emerging markets. So we have decided that we should put some money into that market on occasion and hope that it will grow over the next 10 or 20 years.
“We are very close to one or two transactions in these regions. They will not be large but they are intended to put some seed on the ground in those markets. And if you water the seed, in three years’ time there’s a tree.”
Overall, Robeco plans to expand its operations geographically where it has a competitive edge, says Möller. “Once you have a capability, you must ensure that you have that capability in more than one location around the world. So if we have a capability in one location, we will try to roll it out globally.”
Robeco Sage, the fund of hedge fund operation based in New York, is one example, he says. “If you are in New York you probably select the best managers from around the Greenwich area and you don’t look beyond that. If you want to catch all the talent for fund management and fund selection I think you
need to be in different places around the world. We plan to put something else on the ground, probably in London. In time, we also will put something on the ground in Hong Kong.”
There are similar roll-out plans for Robeco’s fixed income capability, he says. “We are in the process of integrating our fixed income unit in Rotterdam with the unit in New York and create a truly global capability. Once that’s done, we can have a lot of alpha generation in the US market which effectively we are going to use for European asset management.”
The strategic co-operation between Robeco and SAM Group also suggests possibilities for geographical expansion. “There will come a moment when we will not only manage SRI funds out of Zurich, but will also want to be in New York or Boston perhaps.
“We are working towards a concept where we are an international multi-boutique company with global capabilities. Capability by capability, we will see whether it makes sense to roll it out globally.”
As part of Robeco’s move to position itself globally, Möller has introduced a new business model. This model, which he terms ‘hub and spoke’ decentralises operations and, in effect, puts offices where the people are, rather than people where the offices are.
“We bring the company to the talent instead of asking the talent to come to our company,” he explains. “If we were based in London we could argue that all the talent in the world would be happy to work at our head office, so we don’t need to worry. But we are in Rotterdam and not in London, and in our case we adopt the philosophy that talented people should work at the place where they feel happy, whether it’s in Nice or in Stockholm.
“We want to ensure that we have a head office with strong infrastructure, good compliance and efficient systems, while at the same time ensuring that we can accommodate our investment talent around the world.”
One example of this decentralised approach is the decision to base the European small cap team in Paris, he says. “We looked for people who could manage European small cap companies and we could not find anyone in the Netherlands. But apparently there is much more talent available in Paris, so that is where we positioned that investment engine. On the fixed income side we had a lack of money market capability, and that is also being run out of Paris.”
Möller says this chameleon-like approach, whereby Robeco adapts to the shape of the market, differentiates it from its international competitors in Europe. “We are much more willing to tailor the product according to local needs and then position those products with a global brand. That’s where our competitive edge is, and that is why we will win business.”