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Impact Investing

IPE special report May 2018

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Seeking out US global models

The recent spate of European purchases of US money managers in recent weeks shows that Europe's leading financial institutions are determined to achieve a critical mass in the global asset management industry.



The most radical projects involve the wholesale importation of a US money management culture into Europe. Others deals involve the simpler task of extending the global asset management capabilities, but the end of global competitiveness appears to be the same.

The most recent takeovers include the Zurich Group's purchase of New York-based Scudder Stevens & Clark in June, the purchase of San Francisco-based RCM Capital Investments by Dresdner, with Commerzbank taking over another San Francisco manager Montgomery Asset Management in March.

These followed purchases by Swiss Bank Corporation of Chicago-based Brinson Partners in 1994 forming SBC Brinson, the creation of Barclay Global Investors, from Barclay's purchase of San Francisco-based Wells Fargo Nikko and the smaller acquisition of Quorum by West Deutsch Landesbank.

Commenting on the trans-Atlantic activity, Len Brennan, managing director Europe at Frank Russell says: I think that each organisation has come up with an internal assessment of what their strategic thrust should be and acted on it."

With reference to the SBC Brinson model, he says: "Some organisations have decided that they do not have a culture allowing them to represent themselves as a credible money manager in multiple locations and have decided to buy and import a whole new culture of asset management."

The new Dresdner RCM grouping is largely expected this model with the German bank importing the money management culture of RCM for its global asset management business, with Dresdner Kleinwort Benson representing the company in Europe but probably trading under the Dresdner RCM name.

Other groups, Brennan says, with a strong franchise in Europe believe it impossible for a player with a single investment content to be a dominant player in the three big regions of Asia, North America and Europe. "They have opted for regional centres of excellence with the US as just one leg of a three-part strategy."

He points to a third type of purchaser that regards the US as a component of a larger global equity portfolio, but that does not want to take on the major US managers, and so buys "a good US manager rather than a great one".

HSBC Asset Management's deputy chairman and chief executive Robert Duggins believes that this is only the start of world-wide re-structuring.

He points to definitions that have changed over the years with companies moving from being international to multi-national and then global saying: "There are subtle but distinct differences. Global means that you are taking the best local knowledge and expertise and blending it into a common corporate culture. You are not exporting American values or European values to another part of the world. There is going to be a scramble to build scale and presence in global markets. These high profile acquisitions make a good story but quite frankly, this is the tip of the iceberg."

The two German banks Commerz-bank and Dresdner are clearly in-volved in this 'scramble' but there method of doing so is very different. Dresdner is keeping its counsel to itself on its organisational structure until at least next month, but is widely expected to follow the 'Brinson' model. Commerzbank by contrast believes that its decentralised structure strongly fits with the requirement to compete globally while servicing customers locally. Montgomery will, for example, retain a separate organisation even in Germany.

"We don't believe that an amalgamation is necessary. It is necessary to be close to your client. We are even willing to accept some kind of double work if it means that we service our clients more efficiently," says Heinz Hockmann, executive vice president and head of asset management at Dresdner.

He is sceptical about the idea of im-porting a US asset management culture. "If this was the right strategy then US asset managers would have been more active in other parts of the world."

Hockmann has particularly strong views on Europe believing that global reach is important but not the key pointing to the domestic UK success of its subsidiary, Jupiter Asset Management. "Europe is still fractured and driven by local culture and local attitude. It doesn't help you a lot if you are a global firm in Spain or Italy. It is not the essential part. It is essential to be local in the market."

Duggins is also sceptical of importing a culture saying that one of the strengths of his organisation is that its corporate global culture was grown from five businesses. "HSBC Asset Management will not be importing ideas wholesale from one centre to another and therefore is better able to adapt to local conditions," he adds.

In the case of the Scudder purchase, some have suggested that European institutions are buying expertise in the delivery and education systems for defined contribution (DC), but both Duggins and Brennan while acknowledging that the move to DC is major global trend believe that it can be only one of several motives for the US purchases. Most US players do not have a multi-currency function, frustrating any adaptation to Europe, Duggins notes.

He continues: "They have expertise wrapped around 401(K) product where they interface with customers but the reasons for US acquisitions have to be far more broad in scope particularly at these prices."

He adds: "An acquisition does makes sense, however, if it puts you in a better position to capture some of those international US capital flows as they come out to other offices."



For companies hoping to avoid cultural difficulties in any global re-organisation, the set up of Barclays Global Investors, following the bank's purchase of Wells Fargo could provide a model.

However BGI director in London, James Woodlock believes that the main reason for the good cultural fit was that both businesses were passive managers. "The commodity we deal in is exactly the same to an American as it is to a Brit, so we had a unique insight into what the other was doing," he says.

Initially in London office, there were concerns that US technology and know-how would come to dominate but all three main centres, San Francisco, London and Tokyo have contributed. "At the beginning it was quite San Francisco-centric but now there has been a delegation of authority to the regions."

"We have found that between us we are better than each of us on our own and this has helped to change attitudes," he adds.

For those seeking to grow globally he suggests that there is much less difficulty for passive managers to achieve economies of scale. Size may obstruct an active strategy. "How much money can you put in a stock without corrupting the market?" he asks.

He continues "A US active fund manager can depend on the intellectual capital of three or four people. If they decide to walk out or wind down because they are very rich people the whole business can be becomes jeopardised," he says.

However, Duggins at HSBC believes that active managers can prosper if they take advantage of several important trends. The first is the move to DC outside the US. The second trend is that regulatory barriers to doing business are falling.

Finally he believes that with DC, the industry will witness a blurring of the distinction between institutional and high net worth individual investors. He concludes: " Success will come to those that are globally dispersed bringing the best of local market knowledge with a product back tailored to fit a local customer's needs." IPE"

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