We don't want managers with fad funds,' says sub-advisory firm
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Our Executive Head, Nic Andrew was profiled in this article which was published in Ignites Europe, a Financial Times service covering the asset management industry in Europe.
The head of an asset manager that selects other investors to manage its products says the best active managers only manage a few investment strategies and avoid faddish products.
Nic Andrew, global head of Nedgroup Investments, says "very few" active managers are "really exceptional", despite there being an "extraordinarily large" number of firms in the industry.
Fund managers that have delivered outperformance over the long term tend to have "common characteristics", which include being investment led, aligning their interests with clients and having humility, Mr Andrew says.
Asset managers that are investment led focus on a small number of investment strategies, with nearly all of the active managers Nedgroup works with having "only one or two areas of expertise".
There is a "much higher probability" of having an investment-led approach at boutique fund houses, Mr Andrew adds.
By contrast, marketing-led firms offer "lots and lots of funds" with which they try and chase client assets. "You don't want [fund managers] to have fad funds," Mr Andrew says. The exception to Nedgroup's use of boutique managers is for passive strategies, where the firm says size is a competitive advantage as it "helps drive down costs and improve execution capability". While fund boutiques rarely top pan-European sales charts, research from Broadridge suggests there is healthy demand for smaller firms among professional fund buyers in individual markets.
In the UK, France and Germany, boutiques form a significant minority of the asset managers with which fund selectors are most likely to increase business, the research shows.
In the UK, six of the top 15 fund houses that fund selectors favour are boutiques, or 40 per cent of the total. In France the proportion is 33 per cent and in Germany it is 27 per cent.
However, this pattern is not the case in all markets. In Italy, no small firms make it into the top 15 asset managers in Broadridge's research. Chris Chancellor, vice-president, distribution insight at Broadridge, adds that some firms excel at both investment and marketing. Mr Chancellor gives the example of German fund boutique Flossbach von Storch, where fund selectors rate the firm's investment skills "extremely highly".
But fund buyers also view Flossbach's transparency, comprehensibility and communication as "market leading", which influences their decision to select the firm, he adds.Meanwhile a second characteristic that Nedgroup looks for in fund managers is an alignment of interests with its clients. This could be shown through an ownership stake in the firm or "very significant" co-investment with their clients, Mr Andrew says.
Active managers also need to have demonstrated their ability to outperform through different market cycles, ideally over more than one decade, he says.Mr Andrew says it is "inevitable" that fund managers have periods of short-term underperformance. But Nedgroup uses those periods of underperformance to find out whether managers have learned from the experience and whether it changed conviction in their investment philosophy.
In most asset classes a disproportionate amount of long-term alpha comes from downside protection. Which means that you need […] an awareness that you might be wrong," Mr Andrew says. "So an element of humility is really important," he says. Nedgroup offers sub-advised products, using fund managers including First Pacific Advisors, Resolution Capital, NS Partners and Ardevora, as well as funds of funds. The firm's overall assets under management total approximately $19bn (€17.5bn).
The firm is in the process of building its team in London, including the recent appointment of Tom Caddick as managing director of its international business. Nedgroup's previous international head was based in the Isle of Man.