Fund houses focus on structural issues

Against a background of falling or uncertain markets, fund houses are finding themselves ­increasingly open to external scrutiny. As these firms are more and more likely to be listed on exchanges, they become frequent subjects of analysts’ reports. Every decision – from which markets to invest in, which products to keep in house and which to outsource, how to structure investment teams, and where and how to distribute products – can have a material effect on profits and perceptions of a business. Public knowledge Some fund groups change their ­structure very publicly. Cominvest, the funds business of Germany’s second-largest bank, Commerzbank, is one case in point. The new managers have made important changes to investment procedures. They have moved staff from Munich to Frankfurt and laid down ambitious targets as part of a ‘turnaround’ programme. This leaves a group open to criticism, but is good for distributors, who know more about how a ­company’s funds work. An alternative approach, favoured by central enforcers at houses such as Goldman Sachs Asset ­Management, is to stage manage announcements and play down major changes. This has paid ­dividends, however. One of the groups we can learn most from is Schroders, which is well on the way to becoming a leading brand in cross-border European ­financial ­services. Fund management became the core activity when Schroders sold off its investment bank to Citigroup in 2000. Chief executive Michael Dobson brought in a three-year restructuring programme after he joined in 2001. But we have seen slow, gradual changes in culture and practice, with many key staff involved in the process. Yet the company is difficult to ­recognise from the manager of ­balanced ­mandates, for UK pension schemes, of 10 years ago. Today, an international house with a strong ­private banking franchise, Schroders is making good progress in Germany and Italy, as well as gathering substantial assets in Asia. It has ­pioneered funds investing in ­Middle Eastern equities, which have sold and performed so well they are no longer seen as marginal bets. Schroders has also played a key role in adapting ­institutional strategies for retail distribution. It is increasingly refining its focus to working with a manageable number of global distributors that can sell its products in several countries. But it faces key challenges in 2008. Firstly, there is some disappointment with results in North America, where there has been significant expenditure on staff and products created specifically for local consumption. Its second challenge is one that faces all European groups – how do you deal with a fast-consolidating base of ­distributors? If a funds house has ­contacts with the banking elements of Fortis and ABN Amro, for instance, how should it handle global relationships now that the formerly autonomous units are joining a merged entity?