Fortis Investments looks to fiduciary
The fortunes of a CEO can vary with the tides, particularly when it comes to mergers and acquisitions. Sometimes a merger makes their position redundant; other times it can catapult the CEO to the helm of a new entity that has changed beyond recognition.
Fortis Investments’ future was uncertain a couple of years ago when its parent company mooted a sale, which was subsequently ruled out in early 2006. But just as it was set to double its assets under management on the formal merger with ABN Amro Asset Management (AAAM) on 1 April, the Chinese insurer Ping An emerged as a strategic suitor for a 50% stake in the merged Fortis Investments entity.
Ping An is not of course a sovereign wealth fund (SWF) but a deal would be interesting given Chinese and other SWFs interest in western financial institutions. And Fortis Investments already has an asset management joint venture with Haitong Securities - Fortis Haitong.
Closer to home, Richard Wohanka, CEO, Fortis Investment Management, says that the structure of the merged Fortis Investments is now in place. Speaking a few weeks ahead of the formal merger, Wohanka said he was pleased with how AUM has held up, with almost a third of last year’s €9.6bn inflows in the last quarter, although the number of outperforming funds has dropped to 54% over one year and 71% over three years. The merger will create an entity with assets of some €240bn when AAAM’s AUM are incorporated into the new entity. It will also break down equally in institutional versus wholesale retail assets.
Wohanka has gone on the record before now in defence of balanced management and believes the new Fortis Investments will be a strong player in the area of fiduciary management - arguably an evolution of older concepts of balanced mandates, even if many other investment managers in the area are loath to stress the similarities.
“I have always felt that a really good balanced portfolio, where you have a lot of asset classes and a lot of flexibility for the manager, is an excellent product,” says Wohanka.
The old Fortis Investments was weaker in fiduciary management than AAAM with just “a few hundred million” euros in AUM versus its merger partner’s “several billion”. Wohanka says Fortis Investments had concentrated on its diversified balanced management approach rather than formal fiduciary management in recent years, although this now looks set to change. But Fortis’ fiduciary management capability, under Christiaan Tromp, still won a €180m mandate in December from Adradius pension fund.
Wohanka notes that Germany could be the next country in which fiduciary management takes root given signs of interest from consultants. But Germany will also be a strategic focus for the new Fortis Investments: putting together Fortis Investments’ and AAAM’s German capabilities results in an entity with €6bn in AUM and some 60 staff. “That is quite a credible force in Germany and this is definitely one of the countries in Europe that we want to focus on,” he comments.
Wohanka also proclaims his faith in asset class diversification, and is also keen to stress that the merged Fortis Investments will have a strong capability in emerging markets once the capabilities of the two entities are brought together.
“One of the less pleasant aspects of this deal is where you have to choose but there is little overlap in the emerging markets space,” he says.
“We are strong in Russia, Turkey and Indonesia…they are strong in Latin America, in India and we have some interesting presence in Asia - Korea, Hong Kong, Singapore. Now we have this amazing emerging markets power house.”
But will pension funds follow the firm into the emerging markets, particularly in the current investment climate as the decoupling theory - which said markets like China would be immune from the current global economic travails - is disproved?
“A lot of pension funds got into emerging markets in 1999 and got absolutely crucified,” says Wohanka. “And of course they are not as cheap as they were. But I still believe fundamentally that this is a big shift that pension funds need to make and this merger really does help us develop that strength there.”
What won’t change with the merger is the concept of investment centres that Fortis Investments has implemented. This involved teams running three main strategies - low tracking error, higher tracking error and high alpha index. Long/short funds have been introduced but Wohanka says it is not yet certain whether this will be pursued. He also says AAAM had a similar concept of investment centres, even if they were not so called.