A tried and tested path for asset managers on the expansion warpath is to buy up competitors or boutiques. But many over eager acquisitions have failed on the tricky side of the equation - the integration of people and processes into a larger unit.

And while some boutiques have tried to go it on their own in their attempt to expand scale and capacity, the cutting room floor of asset management is also littered with their failures. So ‘steady as she goes' might be a good way to look at it. And while it may not always fit the ‘big is beautiful' pattern to which some industry leaders aspire, keeping your acquisitions at arm's length and allowing them to flourish at a distance - as practised by the larger firms like Allianz and Bank of New York Mellon - might not be a bad idea. Keeping it simple can also help to keep it successful.

Reto Ringger, CEO of Zurich's Sustainable Asset Management (SAM Group) - in Robeco's fold since December last year - says the firm first started looking for a strategic external partner around a year and a half ago, and entered into talks with a number of financial institutions, including one large Swiss bank that he declines to mention by name.

Apart from the trade-off whereby SAM Group gets access to a distribution platform and Robeco gets hold of a growing niche player in the area of sustainability, the attraction for SAM Group was Robeco's commitment to keep it at arm's length, which he hopes will help his continue his firm's exponential growth pattern of recent months and years.

And SAM Group's growth, measured at least in AUM terms, has been pretty exponential of late - assets under management increased by 25% over the first half of this year to €7.9bn at the end of June, up from €6.3bn at the end of 2006. And assets increased by 62% over 2006 as a whole.

The basic rationale behind the transaction is pretty clear. Robeco gets access to a niche - sustainable and responsible investment - that is growing in importance. SAM Group gets access to a distribution platform that it would otherwise not have had. Apart from distribution, Ringger also points out that Robeco offers product engineering capabilities that will allow it to develop structured products. The companies saw the win of a mandate from the French civil service supplementary fund ERAFP earlier this year, of €100m-400m, as an endorsement of the tie-up.

"I think we have great products and a great process but I have seen a huge development in the sector and there are big players in the field, so distribution will play a much greater role than in the past," says Ringger. "We were looking to leverage our capabilities on the long side and also looking for a strategic investor as 60% was held by private investors. At today's level we need a more strategic investor and a more professional board."

SAM Group, Ringger says, spoke to a number of institutions but Robeco was one of the few that made a commitment to leave the firm as it was and to allow management to retain its 40% stake. "The external shareholders of the company sold their shares and the management kept theirs. Those were two very important elements for us. We have an independent board; that was a commitment," Ringger says. "I think we have a good brand and we keep developing that. The management team stayed the same and the strategy stays the same."

So SAM Group will also retain its own functions in research and asset management, as well as in areas like compliance, with its own CFO and its own head of human resources. However, as one would expect, there is regular contact in areas like product development. "Take the recent announcement of PGGM that they would like to make a sustainable emerging market allocation," says Ringger. "Robeco has a strong emerging market fund and we have a strong sustainability competence so there is an obvious fit there to develop products. That is something we are working on now and we are going to develop a concept. I think there will be a product from us in that respect."

SAM Group's objective, continues Ringger, is to be a leader in its field and for that it needs to continue on its innovation trajectory. "I think the next wave will come in the alternative investment area and we as a boutique have a pretty sophisticated process. But we need to go in a more specific direction, so we are creating a hedge fund and we will come out with a new water product next year. We have a lot of ideas but they are very specific although you will also see a lot of competition in equity long only."

Although it started out in life as a pure institutional manager in 1995, SAM has grown considerably in the area of theme funds and has recently closed a mutual funds deal with Japan's Nomura, white labelling its water fund for the Japanese group. The water fund is one of a series of SAM theme funds, which also includes Smart Materials and Smart Energy.

SAM Group also now has an office in the US on the back of Robeco's presence there. Foundations and endowments, Ringger says, have shown interest in the theme strategies: "We are in discussions with one of the large foundations in the US," he comments.

Ringger sees SAM Group's key advantage in its process, which starts with an analysis of sustainability trends and macro-economic trends. Some 1,000 companies are then screened via an online questionnaire and other analysis. The resulting ‘qualifier list' comprises around 500 stocks and a second stage then filters out firms with weaknesses. A third stage identifies clear industry and technological leaders. This ‘eligible universe', of around 100 companies, is then used a basis for further selection, using the proprietary SAM Sustainability DCF-Model.

"There are so many players who buy in a list of companies from a research firm and pass it to the portfolio manager and they create a portfolio based on that list," comments Ringger. "Our portfolio manager creates a portfolio based on the fair value assessment of the analyst so you do not lose the information through the whole process. If you use a list you lose a lot of information."

SAM Group also tries to keep ahead of the curve by funding research into specific areas within or around the sustainability field. One example is its recent Healthy Living report. "That is really a very big issue. Calories per day have increased in the last 20 years so we are eating more and the level of physical exercise has decreased so diabetes might become more of an issue for societies. In the US more than 40% of the population has that risk," comments Ringger.

One challenge will be to stay ahead of the emerging and evolving consciousness of sustainable, responsible and environment, social and governance investment strategies - a plethora of terminology that masks a great deal of dispersion in the application of theory to practice in this field. "There are a lot of discussions but it is still not decided what it means and 10 different pension funds will have 10 different concepts," says Ringger. "It will become mainstream but I am not sure whether there will be a standard description."

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