Strategically Speaking: Loomis Sayles
This year, Loomis Sayles will be celebrating the fifth anniversary of its European headquarters in London. The Boston-based active manager, part of Natixis Global Asset Management, has plenty to cheer about its presence this side of the Atlantic.
In its London office, situated in the Economist Plaza within the upmarket St James’s area, Loomis Sayles has created a fully-fledged investment operation. It boasts a trading desk as well as teams of portfolio managers, analysts, salespeople and back-office employees.
Loomis Sayles’ chief executive, Kevin Charleston, downplays the extent of the development: “I wouldn’t call it a big bang. In 2011 we started from moving a few analysts over and established client service and consultant relationship functions.”
But as Charleston notes, the subsequent period was one of expansion in the public debt markets, and one where bank disintermediation was beginning to offer opportunities.
“It was a good time for us to get our footprint and get greater access to the markets. Pretty quickly we realised that having a trading desk here made sense.”
Loomis Sayles, established in 1926, has been part of Natixis Global Asset Management since the early 2000s. The French group was 14th in IPE’s Top 400 Asset Managers ranking last year.
Since the acquisition, Loomis Sayles has taken advantage of the French parent’s wide distribution channels. The relationship with Natixis helps the firm maintain its focus, says Charleston. “We rely on them for global distribution infrastructure. This allows us to focus our resources on alpha creation.”
But the Natixis link did not make setting up the London office any easier. The biggest challenge, says Charleston, was making employees feel connected to the firm in Boston and engaged with the London operation at the same time.
The CEO recounts that the London office was initially staffed with expatriates from Boston, at least on the investment side. Within three years, the firm gradually migrated those analysts back to Boston and began integrating local staff. “Now our analysts and the trading desk are connected with the local environment, which is gradually having a greater influence in the various products. You have to make people feel like they are having an impact”, adds Charleston.
Last year the firm implemented a “succession plan”, whereby most of the management team was moved to a more senior role. Charleston assumed chief executive responsibilities from former CEO and chairman Robert Blanding, who kept his role as chairman.
But Charleston says the staff changes were not disruptive. “The management group has been together for over 10 years. The succession plan had been anticipated. Loomis tends to be very organic and evolutionary,” adds the CEO.
Charleston is keen to point out that, while the firm aims to grow its client base, the top priority is maintaining the positive performance record. “We’re not confused on what’s going to define success or failure. We have to beat our benchmarks and deliver the patterns of return that clients are looking for. We tend to re-invest constantly in our alpha engine.”
Over the years, Loomis Sayles has adopted different investment styles. The overall approach is active and opportunistic. Bottom-up research and quantitative analysis both play a part in the investment decisions. But the key message Charleston wants to get across is that everything at the firm is geared towards generating alpha.
The firm’s current chief investment officer, Jae Park, is a former fixed-income CIO of the IBM pension plan. In describing his role, Charleston sheds light on an important aspect of how the firm sees alpha: “Jae has an engineering background and to a large extent his work at IBM involved evaluating managers. Thanks to him, we have learned that alpha comes in many different forms, and it’s rare, but we’ve also learned that disciplined, repeatable processes are the critical element to alpha generation.”
That is why, Charleston explains, the firm strives to increase its idea-generating capacity in different asset classes. That capacity, which is deployed in a disciplined manner, is really what constitutes the basis of firm’s the ‘alpha engine’.
During Charleston’s London visit, when the interview with IPE took place, the firm had an event for the consultant community. It was an opportunity to showcase Loomis Sayles’ improved macro research capabilities.
The macro research skills now complement the firm’s capabilities in fundamental and quantitative research. Fundamental research, particularly in credit, has traditionally been a competitive advantage. Quantitative tools are a more recent addition to the skills portfolio.
Charleston says: “If you go back 15 years ago, we were probably long in the art of fundamental research and not as developed in terms of quantitative tools and the risk framework. David Waldman, our deputy CIO, came in to build all that.”
The result of this combined approach was a success, according to the CEO. He highlights how a high percentage of assets managed by Loomis Sayles is in accounts that have beaten their benchmarks for five years. At the time of this interview, the percentage was about 86-87%, but it had been higher over the past few years.
The significant dislocations that developed in the credit markets after the financial crisis presented an opportunity to build alternative credit capabilities. One example is securitised credit, which the firm added to its offering shortly after 2008. Naturally, given Loomis Sayles’ experience in the credit markets, the firm embraced the growing interest for multi-asset credit products.
A global version of an existing US multi-asset credit strategy was launched two years ago. It has been particularly successful with the firm’s international clients, says Charleston, because of the flexibility it offers to clients.
A good example of how this flexibility gets rewarded is a recent mandate awarded to Loomis Sayles by a UK local authority pension fund. From last year, the firm manages £200m of the Wiltshire Pension Fund’s diversified fixed-income portfolio. Half of the assets are managed through an absolute-return fixed-income fund, and the other half through the firm’s global multi-asset credit strategy.
“I think we will see more of those type of mandates, because the premise there is the beta element of the multi-asset credit strategy, but then you have the absolute-return strategy to flatten out the volatility. We’re talking to other potential clients about that.”
Thanks to its established presence in London, and the ongoing efforts to develop its office in Singapore, the firm has built an increasingly global client base. “Around 25% of our client base is outside the US,” says Charleston. “We recognise that we’re going to have to service those clients effectively, according to their own specific requirements.”
But he admits the industry is becoming more challenging: “The bar is high for us. We compete with some of the best-run firms. If you go back 20 years, firms were smaller and not particularly well-run, because they did not have to be.”
However, the CEO says there is more than one way to meet that challenge. Loomis Sayles will focus on making employees across the firm, whether they are analysts, portfolio managers, traders or risk managers, feel part of the same team. There can be no doubt on what that team’s only objective will be: generating alph