Of orange blood and quieting storms
It has been a stormy four years at ING Investment Management – but the skies are finally starting to clear. November 2012 saw an improved agreement with the Dutch state and the European Commission on restructuring ING Group following the €10bn bail-out it received in the teeth of the financial crisis. And in February 2013 a year-long search for a replacement for departing CIO Jan Straatman ended with the appointment of Hans Stoter, a 15-year veteran at the firm with, to use Stoter’s own words, “orange blood” in his veins.
By May 2015, it should have paid back the final tranche of its €10bn debt to the state (netting the taxpayer a 12.5% return). The restructuring programme is also progressing steadily. Until last November, it was under pressure to divest all of its insurance and investment management operations, ING Direct USA and WestlandUtrecht Bank by the end of 2013. The Latin-American operations were sold in 2011, but the first three unit sales in Asia were only announced in October 2012.
Now, only 50% of Asian operations has to be divested by year-end 2013, with the remainder divested by year-end 2016. Similarly, only 25% of ING US has to be divested by year-end 2013 (already achieved after the IPO of re-branded Voya Financial in May), with the rest to be sold by year-end 2016. In Europe, the group now only has to sell 50% of its insurance and investment management operations by the end of 2015, completing the process by year-end 2018. It will be the asset management activities of this new entity that CIO Stoter and CEO Gilbert van Hassel will lead thereafter.
But clearing skies do not erase the toll of the storm. As ING Group CEO Jan Hommen himself conceded in November: “For our employees, the past years of restructuring and insecurity have not been easy.”
As well as Straatman, who left for Lombard Odier after three years with ING IM, the firm has suffered further high-profile departures. Stoter takes a pragmatic view.
“If no-one wants to hire anyone from your team you must be in pretty bad shape,” he reasons. “But while it’s a luxury problem, it’s a problem nonetheless.”
Tackling it involves providing the right infrastructure, resources, incentive structure and culture to support the investment talent, he says, but also hiring like-minded people in the first place – people who are team-oriented, rather than ‘star managers’. That way, even if senior portfolio managers decide to leave, the firm has what Stoter calls a good “bench” waiting to take the field.
“We really should be the place in the Netherlands where the top portfolio managers and analysts want to work,” he says. “I think we have achieved that. But at the same time we will never be the best payer in the world. All of this makes a good fit for talented young people who desire an education and a career that grows until they have their name on a fund.”
Stoter himself embodies this ideal of natural succession and internal stability, having joined ING IM in 1998 and lived through Straatman’s transition to an ‘integrated multi-boutique’ business model.
“I know, from experience, how well this works,” Stoter says. “As CIO, I don’t see any reason to move away from the essence of the structure.”
The structure established by Straatman had three pillars: first, a clear focus on alpha; second, re-organisation from asset-class silos into strategy teams that can apply skills across different markets; and third, a new division, strategy diagnostics, to consolidate risk analytics. The result was a collection of skills-based boutiques, the leaders of which take responsibility for investment philosophy, process and results, backed up by shared branding, marketing and training resources, and centralised oversight.
“What really changed was the entrepreneurial culture,” says Stoter. “Investment professionals really started to develop an understanding of what clients really want, and became much more visible to them.”
It is this kernel of the multi-boutique culture that has grown into Stoter’s first modification of Straatman’s vision. He takes that first pillar – being a high-alpha shop – and insists that alpha is not an objective but rather a means, albeit crucial, to achieve the true objective of “distinction” in understanding and meeting clients’ needs.
“We want to avoid portfolio managers saying: ‘This is my skill, isn’t it great? Now find me a client’,” he explains. “A great alpha engine stuck at €50m is not a strategy at all.
Sometimes I make myself unpopular by reminding my colleagues that alpha that is not commercialised is a waste of bonus money.”
There is more to this than just words: as one of two boutique mergers Stoter has already implemented, the firm’s strategy and tactical asset allocation and derivatives-focused systematic investment strategies teams were brought together because, he reasoned, clients do not want those things separately, but combined in a single “outcome-oriented, volatility-managed” multi-asset strategy.
“Breaking the silos is great as far as it goes, but the obvious risk is that you create new silos,” Stoter says. “One of the changes already implemented to Jan’s model was simply to acknowledge that we had too many boutiques.”
Making the firm’s products responsive and relevant to institutional investors is important if ING IM wants to capitalise on the fact that, right now, there does indeed seem to be a strong confluence of ING IM’s acknowledged strengths and those investors’ needs. In fixed income the firm has admirable track records in liquid and illiquid credit; in equities it runs well-regarded contrarian, thematic and, especially, quality-dividend strategies.
“By far the biggest worry for insurance companies and pension funds is not rising yields – it’s low yields,” Stoter says. “If you keep the traditional portfolio in place this is a business model-threatening environment.”
In response, investors initially moved out of equities into low-volatility, high-dividend and spread products, but are now also shifting out of government bonds into credit, too, he observes.
“We feel this will be the new heart of the institutional portfolio – fixed income spread alongside high-dividend, low-volatility equity,” he says. “Our traditional core equity and fixed income strategies pay a lot of bills but, for sure, the growth will come from these areas where we have a different story to tell.”
Stoter says telling that story is his main priority. That makes sense: it is easy to be drowned out by the noise of a storm, even when the story is one of emerging stronger into the sunlight – of ING IM becoming a more dominant partner in a smaller insurance and asset-management business.
“Asset management will be a very important activity of the new company,” he says. “There are lots of real orange-blooded people who really like the opportunity to be part of this transition, to be involved with designing strategy and branding.”
That is why he sees the IPO and re-branding of ING US as such an important step – it provides “the blueprint towards becoming a standalone entity”.
And while he concedes that it would be easier to convince consultants if ING IM were already standalone, re-branded, with its uncertainties truly behind it, he insists that taking charge of the narrative now is already paying off.
“We just have to work to demonstrate that we are a stable company with a bright future,” Stoter says. “And when we speak directly to end-clients we don’t face this problem – they see the energy and the passion when they meet with us.”