ABN AMRO reaches out from dutch base

“Our distribution strategy is based around clients,” says Julian Ide, global head of products, marketing and third-party at ABN Amro Asset Management. To add weight to such a wide-ranging assertion, the second biggest Dutch asset management company claims to have implemented concrete product and marketing strategies to provide flexible, common sense solutions for clients and partners.

“We tend to talk more about capabilities than we do about products,” says Mr Ide from his Amsterdam office.“We have clients and we have a series of capabilities that we want to deliver to those clients. Those capabilities may be applied in a fund or could just as easily be a segregated mandate or even a structured product fund”.

In other words, the philosophy adopted is to disaggregate their products and sell components, ie their capabilities, to adapt to clients’ needs.

ABN Amro AM runs ?173bn, split equally between equity and fixed income, but ?90bn worth of these funds have been sourced from Europe. Mr Ide’s brief on the Continent has been to give the fund range a much broader appeal, and to attract clients from a variety of jurisdictions, moving away from ABN’s previous image as a domestic, Dutch house.

“A few years ago, the majority of our business would be in the Netherlands,” recalls Mr Ide. “This year we have merged a number [26] of Dutch funds into our Luxembourg range and we will continue to focus our attention on Luxembourg.”

The Luxembourg umbrella range, comprised of Sicav and Sicap funds available for cross-border distribution in Europe, is currently worth around ?20bn. This range is primarily focused on the third-party distribution market. Currently, ?10bn of the assets are from distributors, and the remainder from internal banking networks. Mr Ide expects assets from external distributors to grow by ?2bn during 2006. “We expect accelerating growth across the board and specifically third-party. We have got good performance and, having relocated a number of our products into Luxembourg, have got a much better platform to sell them from”. The sub-advisory business, which amounts to ?1bn within ABN Amro’s third-party business, is also seen as a major driver, which will benefit from the greater visibility offered by the Luxembourg funds.

Fundamental to the growth of third-party business are several key accounts from domestic distributors and 15 cross-border distributors, including Merrill Lynch, Credit Suisse and UBS, accounting for 60 per cent of third-party assets.

“We would expect 70 to 80 per cent of our total third-party fund business to come from key accounts, of one sort or another,” foresees Mr Ide. “Probably a higher percentage of our sub-advisory business will come from these sources,” he says.

“Having distribution agreements means absolutely nothing. What matters is the quality of a relationship. Our aim is to provide a high level of service to selective clients.”

In order to get maximum leverage from their capabilities, Mr Ide explains that individual sales people in local markets are supported by a team responsible for managing relationships with cross-border groups, from which the sub-advisory business tends to come from. “The key-accounts team is there to bring in added expertise, to generate additional business, which would otherwise not have come from that client. The sub-advisory sector is one good way of doing that.”

Mr Ide says that they have advisory relationships with third parties, who tend to buy a capability already offered in a fund, typically the same product but without the fund wrapper. “For example, we are in the Merrill Lynch Global select programme with a bond fund, and that is very similar to a bond fund that we sell in Luxembourg”, says Mr Ide. “The difference is that we manage it on a segregated basis. This means we give them information about portfolio holdings, performance and so on of that particular portfolio rather than the fund wrapper.” While the level of service provided, in terms of sales reports and marketing support, is the same as for a fund, in the case of a segregated mandate the level of operational support and transparency is much greater.

Private banking channels are “the most profitable and biggest channels” and sell discretionary managed portfolios, funds of funds or direct to clients. Insurance companies are also considered a big market but they account for a much lower percentage of ABN Amro’s third-party assets.

“That is very good long-term business from the net present value point of view. That money is extremely high quality money,” enthuses Mr Ide, who sees liability matching products as a massive, relatively unexploited area. “We provide some traditional life-cycle products, but also guaranteed life-cycle [insurance-style] products, which are extremely unusual products”. Mr Ide expects that 20 per cent of his company’s total third-party net sales will be through insurance companies in the near future.

Emerging markets

At present, emerging markets products are by far the most popular among Mr Ide’s distributor customers. He considers this a key specialisation for the group, with emerging market bond funds currently holding ?2bn, and ?2.5bn in emerging market equity products. ABN Amro AM has also been successful in the distribution of absolute return products and hedge funds through third parties.

Innovation, above all, seems to be the key to draw third-party business. “The third-party buyers typically wait longer before the products attract them, which is why our market strategy is based around premium innovative product to market” says Mr Ide. One of these innovative products is a short-duration preferred securities fund in Luxembourg. While this was created after requests from internal clients, it has also been successfully sold through third-party channels. “We have the only preferred securities fund in Luxembourg,” boasts Mr Ide.

The launch of this new preferred securities fund, fixed income instruments that behave more like equities, which are still new to Europe despite having a very big market in the US, seems to satisfy the three conditions that the Dutch asset manager has established for the creation of new products. “All those new products must pass a test, which is a clients’ driving test, secondly it must be financially viable, thirdly we must have an existing capability to do it” says Mr Ide.

However, in the case of preferred securities, ABN did not have an existing capability, as the ?140m fund is managed by Spectrum, part of the US-based Principal Global Investors, who are relying on niche fixed income products, like preferred securities, to make a strong push into Europe. Mr Ide makes sure to clarify that this is an exception: “By and large, we rely on our existing capability; preferred securities is the only sub-advised product that we have in Europe, and I would not expect to outsource an enormous number of mandates.”

ABN Amro has also recently awarded to Spectrum a preferred securities segregated mandate, worth more than ?100m, on behalf of one of their institutional clients, based in Germany.

The same concept of widening the product range by using third-party funds, applies to the multi-management business, which ABN Amro has developed mainly in Paris and more recently in Luxembourg. It has a ?5bn advisory business (including long-only and excluding funds of hedge funds), ?2bn of which are in multi-manager mandates and ?3bn in multi-manager funds. Mr Ide expresses his theory on the increase of the overall pot. “There is so much money available that I find the concept of cannibalisation a little bit of a defensive approach. Multi-manager is basically there to increase the overall size of the opportunity” he says.

Asked how the relationship with internal private and retail banks has changed, following their move to open architecture Mr Ide comments: “We are absolutely in competition with other asset managers. But competing within our internal channel is no different than competing elsewhere.” He explains that ABN Amro was one of the first retail banks to go open architecture, while the private banks have been open architecture for a long time. “A few years ago the distribution of third-party products did not exist, now it probably represents 10 to 20 per cent of assets.”

Although ABN Amro AM has not gained market share within internal channels “because that would be impossible”, Mr Ide states that they have gained assets. “Typically, this is where we have infused an innovative product or we have a good performing product. For example, for our convertible bond fund, most of the money was raised through internal channels.”

Ide: ‘having distribution agreements means nothing’