With growth for US and European asset managers currently restricted to Asian markets, where the vast majority of pooled funds are being sold, forward-thinking players are starting to look closer to home for the next big opportunity.
Schroders’ appointment to a strategic mandate, advising Romania’s Fondul Proprietatea on how to manage €4bn, which will be used to compensate those whose property was stolen by the former Communist regime, will not go unnoticed by competing global players. BlackRock, which lost a team to Schroders last year, including German business chief Achim Küssner and Central and East European (CEE) sales head Adrian Harris, may be paying more interest than most.
Sure, Mr Harris had a little help from his new friends – Schroders’ 20-year plus veterans Gavin Ralston and John Troiano – in securing the Romanian mandate. But his knowledge of the region, built up through regular weekly flights back and forth to London during his BlackRock days, is at last paying dividends.
Schroders is a small player in the region compared to the likes of Italian bank Unicredit’s Pioneer funds house and the Austrian Raiffeisen Capital Management. But a legacy of goodwill remains from the years before the turn of the Millennium when the UK house still had an investment banking arm doing deals in the borsch-belt economies. Mr Harris’ five-strong team covers Greece, in addition to Poland and Russia, where most long-term activity is expected. Sales efforts in Moscow are based on securing private placements from the country’s domestic and foreign private banks for their wealthy clients. “Other markets are under starter’s orders,” he says. “We have an opportunistic approach at the beginning of the race. Looking at the Romania mandate – you hear about it, work out if it is interesting, chase it and bring it home.”
But this approach is restricted to the few, large one-off mandates which occasionally surface in the region. Elsewhere, a painstaking, more systematic sales process, including development of local products, is required. The likes of KBC and SocGen enjoy captive distribution through subsidiaries in the Czech Republic, as do the Austrian and Italian banks in Poland, making them difficult to compete with. What Mr Harris is working on is a stronger relationship with global distributors such as Deutsche, Citibank and Xelion, a private client subsidiary of Unicredit.
Poland is expected to be a slow burner, as most of its €41bn institutional pension fund market is currently inaccessible to foreign managers. It is the retail market which has been the more lucrative for managers investing in the Warsaw index, although recent market downturns mean demand for the more innovative international products are back in favour.
Because many of Schroders’ funds, such as its futures-based commodity products, are not registered in Poland, they must be sold through a life wrapper by insurance companies including PZU, Aegon, Nordea and Skandia. Mr Harris does not pretend he can go head to head with those groups which have the benefit of captive distribution. His philosophy will be to chip away at the niches, build up the brand, and hope to secure the occasional big name institutional client.
And competitors are stepping up their presence. UniCredit’s chief executive, Alessandro Profumo, recently revealed his three-year business plan. Unicredit expects to open 1300 new branches in the region, serviced by 11,500 new workers. But 9000 jobs in home markets including Italy and Germany will be axed, in line with Mr Profumo’s expectation of 4.5 per cent average annual growth until 2010 in CEE countries, compared with 1.7 per cent for the Eurozone.
Pioneer's asset management growth is also expected to come from the CEE countries, but strategists are wary of relying on captive distribution. The Italian parent bank is expected to move to open architecture sooner or later, which will put up to €60bn of captive assets under threat. Even the €10bn built up through internal branch sales in Poland may not last the course. But how long can the captive model last?
“One day, captive distribution won’t work in Warsaw either,” says one Pioneer insider. “You can’t keep pushing the same products through the same channels, as people will have enough.”
Yuri Bender, editor in chief.
yuri.bender@ft.com.
