Avoiding sleeping with the enemy

Multi-management has long been described as the cure-all medicine for retail and high net worth investors. It promises diversification of assets and their managers in a single portfolio. It is also loved by some banks because it offers open architecture through the back door. Banks such as the newly-merged Natixis, BNP Paribas, Société Générale and Dexia like it for a simple reason. Open architecture, demanded by customers, has always presented a problem for them. Multi-management presents a solution they don’t have to think too much about. We must remember the Germans went into open architecture quite dramatically. Commerzbank and Deutsche Bank both let the enemy into their bedrooms. They put the funds of key rivals on their shelves, to be sold directly to retail customers. This philosophy has enjoyed mixed success at Deutsche. The biggest beneficiary has been the internal funds house, DWS. After initial problems with positioning, DWS funds have outsold the offerings of all competitors in the guided architecture system. This suggests it was a defensive move. There has been much debate within Commerzbank about whether the decision to open up was the right move to make. Indeed, there is now a review underway. It is this type of situation many retail banks hope to avoid. That is why they devolve the decision of selecting funds to their sister funds house. The house then chooses funds to be run on a multi-manager or fund of funds basis. This gives more fees to the organisation as a whole, and means it is easier to prevent the entry of the fund house’s key competitors. Société Générale Asset Management, for instance, entered multi-management through an agreement with Russell, which picks the external managers. SocGen’s wily funds boss, Philippe Collas, has not denied this was a defensive, strategic move. Most French banks have tried out the system, with some success. In theory, the market should be a huge, but in reality it is limited. The concept has not reached the popularity expected by its proponents. Consultants are being engaged by private banks to find out why. Initial soundings seem to suggest smaller groups such as IMS, under Anthony John, are well suited to the wealth management arena, as they can tailor concepts for family offices. Larger groups such as HSBC, who appear to have several competing in-house multi-management offers, may face more of a problem. The key will be communication to the final client, something the asset management industry has not been good at. These are among the issues which will be debated at the Business Excellence in Fund Management summit, to be held in Frankfurt on 21 and 22 November. Industry leaders who will be speaking include SocGen’s Philippe Collas, Gilles Glicenstein of BNP Paribas and Cominvest’s new CEO, Sebastien Klein. For further information, visit www.ftglobalevents.com/businessexcellence