Martin Steward asked Michael Klimek about his company's innovative co-operation model in investment management
The LFP Klimek Advisors "The Dolphin" fund - newly-launched by French giant UFG-LFP and the first asset-management advisory mandate for Frankfurt-based Klimek Advisors - pursues the highly unusual strategy of investing exclusively in publicly-listed asset management companies.
Managing director Michael Klimek observes that there are plenty of financial-sector funds out there - and indeed asset management sub-sector strategies that used to be offered by KBC Asset Management and Clariden Leu were ultimately folded into broad financial-sector funds. But he can only name one other similarly-focused product on the market today: Guinness Asset Management's Money Managers fund, which rolled out at the beginning of 2011 and runs less than $1m.
Boasting seed capital from a large European asset managemer, Klimek says that the Dolphin fund, a Luxemburg SICAV, is already bigger than its competitor. "It's a great idea and I hope we will see more funds like this," he says.
The market-cap of the industry is only around $200bn (half of the fund's 80-plus strong universe weighs-in at less than $500m) so illiquidity can pose a challenge to offering this sector for retail, but Klimek talks up its advantages for long-term institutional investors - beyond getting exposure to some of the fee revenues that they themselves pay out to these businesses.
"We only hold companies that make the vast majority of their revenues from asset management - so no UBS, no Deutsche Bank, no Goldman Sachs, for example," he says. "That exposes you to an industry that is a leveraged play on broad financial services - these firms have high betas, sometimes in excess of 2.0 - but without exposure to the debt on a banking balance sheet or the long-term liabilities of an insurance balance sheet. Mid-to-long term this industry shows surprisingly high outperformance of equity benchmarks - albeit with higher volatility."
But if the fund is unusual, in combination with its manager it is truly unique. Because for its first couple of years Klimek Advisors has specialised, not in asset management, but in consultancy services to the asset and wealth management companies trying to grow their businesses nationally and internationally.
Most of its work is in marketing and sales consultancy: pan-European media relations and events-promotion, or business development for select clients into European and Middle Eastern markets. Unlike run-of-the-mill public relations agencies, the team's long experience in the industry - Klimek and his managing partner Heidi Rauen established Invesco's German operations, and they have been joined by Riccardo Ricciardi, ex-CIO of Invesco's global division, former Standard Life Germany board member Matthias Wiegel and ex-Goldmans staffer Manjula Menon - ensures deep understanding of products and their markets. It also means that the firm can offer management consultancy services (advising on business and product expansion into or out of Europe) and single-transaction advice for smaller management buyouts or M&A in the sector.
All of this feeds directly into the Dolphin fund's research effort, which concentrates on the basic financial health of firms in its universe, the nature of its products, and its sales and marketing strategy.
"Sell-side research is OK on the US and UK industries, but not really beyond that," says Klimek. "And even there you see analysts looking at product ranges, but hardly anyone looks at sales and marketing, as we do. You need a comprehensive approach to analysing these firms."
Ultimately Klimek Advisors wants to present itself as a boutique with a clear investment strategy focus supported by diversified revenue streams from the asset management industry. For its next step Klimek says that the firm is "in the fourth round of discussions with a large pension fund" to advise and create a private equity fund dedicated to the European asset management sector - which would open up possibilities across hundreds of non-listed companies.
"If we can bring this to fruition we will be able to bring not only working capital, but also our sales and marketing know-how to businesses trying to grow their assets under management," says Klimek.
He already has intimate experience of this kind of synergy, having welcomed UFG-LFP - with which Klimek Advisors also has an exclusive distribution and consultancy contract for its project to access German institutional investors - as a 9.9% shareholder in Klimek Advisors itself.
"The fundamental belief is that if a firm is able to grow their assets under management in a sustainable way, we want to be invested," he says. "The rest is due diligence - where we feel that our consultancy work gives us privileged access to vital personal networks and contacts among firm's competitors. Both sides of the business are very complementary: they help us to reflect on the business models of our consultancy clients, the companies we invest in - and ourselves, of course."