Ready for the real take-off
In January 1999, the investment management arm of the AXA Group took a strategic stake in niche asset manager Rosenberg, for which the move was even more highly strategic. “We were to be the sole quantitative active equity manager within the group,” says Jennie Paterson, chief executive of the London end of AXA Rosenberg. It was one of those moves that changed everything and changed nothing. The four existing offices of Rosenberg carried on as before, with the office in California still looking after the US, London catering for Europe and Middle East, and the office in Singapore focusing on Pacific region ex-Japan, which is covered by the Tokyo team.
“Each office is an investment management company, and runs the assets invested for that particular geographic region for all our clients around the world.” Marketing is handled locally, she adds.
So, if the company gets, as it hopes will happen, some Europe funds from the largest US pension fund Calpers, the client relationship will be handled by the US company, but London will do the investment management. But where there is a global mandate from a European client, this is divided up between the four offices to run each portion, with London doing the co-ordinating. “As we are running the same generic model, there is great consistency in how we run the portfolios.”
But AXA has brought benefits in a number of ways, she points out. “Having the AXA name provides us with a sense of security or depth, in a way that being part of small, privately owned company could not always do, for people who regard this as important,” she says. It also brought in money. “In Europe, that has been most obvious in our development of a series of Ucits funds out of Dublin. The AXA money helped to seed these.”
As these funds cover all the main investment strategies, they are now a central plank of the group’s strategy. “The funds signal that we want to be involved in more than just the conventional, institutional pension fund business.”
AXA’s reach into markets where Rosenberg did not and could not reach was another important benefit of the tie-up, most obviously France, she points out. “We have been working with them on initiatives there in particular.”
The overriding strategy in Europe remains as always: to provide the active equity management processes relying on quantitative models. However the context is altering in that the dichotomy between institutional and retail business is breaking down. “The structure of the market is changing. Most of the savings undertaken globally is directed at pension provision, but not always within a discrete pension fund. People are realising that with increased life expectancy they are going to have to be saving more and more.”
In most markets no new defined benefits plans are being created with all new schemes defined contribution. “There is a new class of individual investor with sizeable funds wanting to put their money into ‘interesting investments’,” Paterson says. So the company is broaden the definition of clients, from pension funds to other “owners of capital”. “Our key definition is the controllers of capital. But what we won’t be doing is going to these people directly. Our strength is customising portfolios and servicing investors.”
This means relying on more sophisticated distribution outlets, with fund of fund and managers of managers being the ideal. The company has picked up some high profile mandates from Frank Russell. “We also put our funds into the Swedish PPM system and picked up some money.”
As before, the London’s team great strength is its European equity process, with an annualised 2.7% alpha since inception in 1993. So far no significant in-house money has come its way. “Practically all the money we manage is for third parties and not in-house.”
Though the company celebrated its tenth birthday recently, its European presence dates from 1993. Two years later the London office was obtaining “serious money” for management. Some 25 of the total staff of 125 is London-based. “This year has been the best year for London by a good margin.” Altogether, $1.5bn is managed in Europe, out of the group total of $8bn, the best continental markets being in Belgium, the Netherlands and Scandinavia.
For continental investors diversifying from their local markets, Europe is going to be their first port of call, so the group has the right product at the right time, she believes.
“But we are not turning our back on our traditional business in Europe, which has been a happy hunting ground for us,” Paterson says. “But we are living in interesting times for the investment industry, with the issues of whether people should be distributors or manufacturers and where the market is for their product.”
Now with a year’s performance under the belt for the Dublin funds, the effort is to get these on to the selection lists, particularly the flagship European fund. “We are already obtaining some substantial flows into these funds.”
Just launched publicly, the fund is an enhanced index version of the European strategy aiming a 1% outperformance, instead of 2%, but with a 2% tracking error. “It is structured in such a way that it really does reduce the volatility, which will suit pension funds in some markets.” For smaller pension funds not able to run core satellite, but interested in a similar approach, according to Paterson. “This is a neat one-stop solution as you get to much the same net alpha, but just one manager to deal with instead of a number.”
The relationship with AXA is working out very well, she says. “AXA has a significant shareholding,. It was a complicated transaction that took a lot of thinking out. But the combination of the two is very good.”
Looking ahead, Paterson says: “Assuming we get everything in place as planned and our distribution ambitions are fulfilled, and we can capitalise on new marketing opportunities, our growth in assets will escalate quite dramatically. We have most of the right ingredients in place, it is just a matter of harnessing them.”