The restructuring of a fixed income business that has €35bn of assets under management, is part of the changes that the company is undergoing following last year’s appointment of Huibert Boumeester as chief executive officer. Mr Boumeester intends to reposition the firm in both the institutional and retail markets.
Mr Abberley doesn’t have a problem with changing things around. As market structures and dynamics do not stand still, he finds it necessary to “evolve the organisational structures you put together to exploit new opportunities.”
For his division, this evolution has meant London becoming the central location for AAAM’s fixed income business, concentrating the European and multi-currency fixed income teams under a single roof. “The exception to that within Europe is that we still have teams in the Nordic countries looking at fixed income currency portfolios, but they are relatively small. But the major hub for European fixed income is now London having replaced the previous structure, which was a combination of London, Amsterdam and, to a lesser degree, Frankfurt,” he says.
Centralisation
For a company that prides itself on having a truly global presence across the different local markets, bringing most of its fixed income investment professionals to London could be seen as an unexpected move, but Mr Abberley is confident the changes will make things more efficient.
“There was certainly a recognition that there were not enough exchanges of ideas and insight between the various groups around the world,” he explains. “In my role, and it is the same on equities, I have to ensure that increasingly the various investment teams are truly part of a global structure and that the bonds between those teams are strengthening. Communication is undoubtedly easier when you have all your alpha teams in one building.”
However, by consolidating the fixed income teams in London, AAAM is also losing the benefits of having local research and moving to a centralised research model “That is a trade-off we have been playing with over the years,” he explains. “We have reached a point where we think that the advantages of local research in many European cities has pretty much faded away with the creation of the euro and the increasing integration of the European Union. Now we really want to emphasise the communication benefits provided by having lots of people in the same location.”
The reorganisation is also having an impact on the way the fixed income team operates, he explains: “The biggest impact on the product side is the ease with which you can provide portable alpha from a broad range of fixed income and currency investments and apply that to a particular investment objective.
“The default option when you are running a bond portfolio actively is to look for active management opportunities within the universe which is defined by the benchmark itself,” he explains. “What we’ve always recommended to clients is that, ideally, we would like to be able to look for opportunities outside the benchmark.”
For example, says Mr Abberley, if the goal is a eurozone government index, buying UK bonds or Swedish crown bonds is something they would recommend as a source of adding value. “And one could extend that to the whole [fixed income] range, into high yield, global emerging debt and so on. It is really a question of what the client is comfortable with. I think that with the structure we have now, we are in a very good position to offer all that to our clients in Europe.”
Money management
The new London setup is already well prepared for meeting the client needs in terms of different ways of looking at fixed income management. “In London the investment process was built around the idea of looking for relative value opportunities and creating alpha in a sense that is separate from the underlying index that you are trying to outperform,” he says. This philosophy was put in practice in 1997 because “it was intellectually a good way to approach money management”.
“The problem at the time was that few clients wanted that product but in the current market environment, relative value, absolute returns and portable alpha are becoming more interesting for clients, and we have a process in London that is already designed for this,” he adds. “Those clients that were previously serviced from the Netherlands or Frankfurt now have their portfolios managed under a platform optimised for that style of investing.”
Mr Abberley knows the role of intermediaries – whether they are pension fund consultants, IFAs or private banks – is becoming harder and harder when it comes to choosing managers. They need to select the players they believe can beat the market: “Basically you are looking for managers who can do what universities would tell you is nigh on impossible. So how on earth would you pick someone who is going to be able to deliver going forward?” he questions.
When it comes to institutional mandates – that account for half of the total fixed income assets managed by AAAM – intermediaries such as pension fund consultants always emphasise the importance of process. “They want you to show them that you can beat the market through your investment results, but they also need transparency of processes so they can see how you got there.”
For being able to deliver what clients want in a transparent manner, Mr Abberley thinks it important that investment professionals work closer to clients. “One would argue that you don’t want the investment professionals to be involved with clients because you want them focusing on returns. Others, and I am in this second category, would say that if you have the investment professionals working in a client vacuum, how are they going to understand what clients need?” he says.
Even though he fully understands the frustration of the investment manager trying to concentrate but who keeps being interrupted by phone calls from clients, he believes a closer relationship with investors could be positive, and promoting this is part of the changes being implemented in the group. “What we are doing is evolving the way we approach this to make the investment teams themselves take much more ownership of servicing clients for the mandates. They are not going to be managing client relationships, but when it comes to a mandate and we have to produce a report about a particular fund, for instance, we want that report to come from the investment team itself, and not from someone else in the bank.”
He adds: “I am convinced that even though this would be a distraction to a degree, we will produce better delivery of what the client wants if the portfolio managers really understand what they are doing, rather than doing the whole thing in a vacuum.”
With the new structure in place, and the increasing interest from investors in their investment style, Mr Abberley is positive about the future for the business.
“On the institutional side, we expect to see the separation of alpha and beta. There is increasing talk at a pension fund level about immunising liabilities using either swaps or even a physical portfolio and then having an active asset manager to create alpha in the absolute returns space. This is something we expect to happen but it’s been slow coming,” he explains.
PAUL ABBERLEY: THE MAKING OF A CIO
- Graduate in Philosophy, Politics and Economics from Keble College, Oxford
- 1981 Joins the asset management department of Saudi International Bank in London, contributing to the development of the bank’s global bond management capability
- 1986 Hired as an assistant director by Lombard Odier in London, with responsibilities for multi-currency portfolio management
- 1990 Becomes head of fixed income at Lombard Odier in London
- 1997 Appointed head of fixed income for the Lombard Odier group with responsibilities for teams in London, Amsterdam, Zurich and Geneva
- 2000 Joins ABN Amro Asset Management as global head of fixed income
- 2001 Becomes CEO of ABN Amro Asset Management, UK
- 2004 Appointed CIO, fixed income, of ABN Amro Asset Management
