American Century aims for enduring european venture

American Century Investments, the Kansas City, US-headquartered mutual fund company with $86bn (€62bn) of assets under management, is pushing hard to draw European distributors’ attention. Yet it is eager not to be perceived as just another large American fund house wanting to make inroads into the old continent. A rare exception amongst the top 20 asset managers in the United States for not distributing outside its domestic market, the firm only started pursuing its international expansion strategy in 2008, while the world was in the full grip of financial crisis. “Our timing in Europe may be very good, as we have been hiring people, taking office space, outsourcing everything from legal and compliance to fund administration and there is more availability and everything is more affordable,” says Michael Green, head of the international business at the US company. “People are more open to reviewing strategies and are looking at new managers. However, our decision is not about market timing.” Indeed, one of the distinct features of the firm is its ownership structure, which affects profoundly its culture, the kind of people that join the firm, the way money is managed and business plans are built, states Mr Green, who previously drove the international business strategy and execution at Morgan Stanley Investment management. Medical background Born as Twentieth Century Mutual Funds and renamed American Century Investments in 2000, the fund house is owned by the Stowers Institute Medical Foundation which was set up by the founder of the asset management firm itself, Jim Stowers, today a well-known philanthropist. Around 40 per cent of the asset management company’s profits support research to help find cures for genetically-based diseases, including cancer, which both Mr Stowers and his wife survived. “As a firm, our primary purpose is the fiduciary responsibility to the investors that invest with us, but also we need a sustainable revenue stream that is devoted to curing cancer. We are building a very long-term business plan, we are not just that boom and bust type of firm,” says Mr Green. In the US, the firm distributes mainly through intermediaries and institutions and regards itself as a full service provider of investment management solutions. It provides five investment disciplines – US growth equity, global and non-US Equity, US value equity, quantitative equity and fixed income – each with its own chief investment officer and investment professionals. In Europe, the firm has singled out its particular growth style of equity investing as the forerunner of its distribution machine. Its philosophy of growth investing is centred on the belief that accelerating growth in revenues and earnings are more highly correlated to increasing stock prices than their absolute growth. “Most people invest through a value approach, which is more widely understood. We think that we can be credible in growth equity investing, which is a smaller space than value equity investing. We are trying to narrow down the competitive space, although we’ll compete against the top 10 global managers, which have got more brand recognition than we do today,” acknowledges Mr Green. responding to demand Late last year the firm launched four Luxembourg-based growth equity Ucits III funds, for US and global audiences, in both standard and concentrated versions. Although Mr Green believes the space in which the firm will make its name will be in US investing, global equity funds were launched to meet significant demand in that area. There will be more product launches in response to client demand but it is important to focus first and get some traction, he says. “I don’t think it is credible if we came to Europe and proposed tens of funds to people who had never heard of us. If you want to make an impact you have to be known for something,” he says. Brand awareness, on the other hand, is not that crucial as the firm is looking to establish relationships with professional buyers, who tend to believe the discovery of boutiques, or investment companies that do not have a broad reach in the retail space, is the added value they bring to their clients. However, building up credibility in the “institutional buying mindset” takes time and effort. “The strategies that we launched have a long track-record in the US. Professional buyers will look at the US for the track record, so brand does not really matter at this stage, it is all about how you manage money,” says Mr Green. With only seven sales people based in London, there are obviously limits to the client support the team can offer. The focus is on institutions or intermediaries such as private banks, insurance companies, or major commercial banks and fund aggregators. “There are firms that don’t even want you to talk to their branches, and those are the people who suit us much better. What we hope to do with our small team in Europe is to focus on a relatively limited product set, and have a relatively limited focus on buying behaviour which leads into a relatively limited country set, so we have got a much bigger change of having some sort of impact that we can build on over the long-term,” he says. Making huge generalisations, France, Spain, Italy and Greece tend to have more requirements for support of branch networks and therefore are going to be less of a focus for them, he says. Switzerland, Germany, the Benelux nations, the Scandinavian region and the UK represent a more practical set of countries for their distribution strategy. The large majority of the $2bn assets sourced from European and Middle Eastern investors since the opening of the American company’s London office in 2008 came from pension schemes and sovereign wealth funds in separate account form, which was the only route available before they launched the funds. Assets include two global equity segregated accounts that act as components of multi-manager businesses, one from RMB Asset Management International and another from an insurance company, representing some $200m in total. “Today sub-advisory would suit us much better; it is much more practical for us to work with fund selection centres, professional groups or buyers,” he says But sub-advisory is not favoured just because it means sticky money. “In sub-advisory, the decision making process can take some time and the people who make those decisions don’t want to change them quickly,” explains Mr Green. “But if the company you are sub-advising becomes dissatisfied with performance, service or anything else, you can be fired from the whole amount of money very easily and very quickly. In fact I would say that it is less sticky than individual retail type of money.” To win business, management of expectations is crucial, believes Mr Green. “We make very clear what we can and what we can’t do in the early days, it is very important that people understand there are seven of us and there are no portfolio managers here, so the right way to look at American Century Investments in Europe is as though we are a boutique asset management firm, not as some massive global house.” Portfolio managers, who are based in the US, travel to Europe to research their companies, to meet clients and to support relationships, but certainly not as often as Europe-based managers, he says. here to stay Despite being new in Europe, the firm’s philosophy does not contemplate building relationships with any distributor who wants to liaise with them. Exclusivity of distribution, which is often sought after by some Swiss wealth managers, will have to be carefully assessed. “Our strategy is to be here in the long-term and we don’t want to become too far removed from the client. If you are working for an asset manager, who is in turn selling to intermediaries, which are in turn selling to clients, you are becoming quite detached and we need to become very careful about which client groups are at the end of that chain, whether they are people we wish to build relationships with over the long term or whether we are comfortable being excluded, merely to raise assets,” says Mr Green. To grow its distribution business, the aim is leverage on the relationships that the fund house has already established in the US with institutions that also operate in Europe, states Mr Green, who also heads fund distribution in the US. “That means a lot of Air Miles” he says. And Air Miles are surely going to increase for Mr Green, since the firm also opened up a Hong Kong office last year as part of its expansion plan in the Asia-Pacific region.