Handelsbanken looks outside to fill fund gaps

The ambition to deliver best performance to its customers, together with the strong realisation that in-house expertise cannot be achieved in all areas, drove Handelsbank Asset Management’s move to sub-advisory delegation. “We went through a strategic re-organisation of our asset management business a couple of years ago,” recalls Ulf Riese, head of asset management at the Swedish institution. “We strengthened our team, we made changes to the way we worked and we invested a lot in the development of equity research capabilities. However, we also realised that we could not develop expertise in all asset classes”.

The SKr330bn(?35bn) Swedish house services retail, private and institutional clients, where pension funds and insurance companies represent important segments. Handlesbanken itself owns Handelsbanke Liv and SPP, the largest insurance company in the country, a recent take-over.

“Our clients have a very wide range of needs. We recognised that the only way to secure best performance was to use sub-advisers,” says Mr Riese. “This is particularly true for those niche products in which we don’t have in-house expertise and we don’t feel there is scope for building it in a professional way. Or when investment markets are geographically far away.”

Handelsbanken HQ enjoys good external view

Hence, in 2005, the decision to select UBS for managing an Asia ex Japan equity mandate, currently worth ?246m. The award of an India fund equity mandate to Merrill Lynch followed in March this year.

If in some European continental circles there might still be some residual perception that outsourcing to sub-advisers is a sign of weakness, Mr Riese is quick to deny this. “We see sub-advising as a strength and a selling point and something to be very proud of,” he says. “For example, take the India fund, we are providing our clients a top-class investment management from the start and we think that is great. For us, building a talented team like that would be incredibly time consuming,” he says.

Fully responsible

However, Mr Riese is keen to make clear that his group takes “full responsibility of the sub-advised funds”, whose performance is monitored on real time basis. They could replace sub-advisers with very short notice, if necessary, “as it is Handelsbanken’s brand at stake”. In fact, the Nordic bank employs the two sub-advisers on a white-labelled basis, and this is no secret to their clients, explains Mr Riese. “Clients do tend to perceive our sub-advised products as Handelsbanken’s products,” he adds.

During the last two years, Handelsbanken AM has also set up fund of funds solutions, which have gathered around SKr3bn so far. Funds of funds and sub-advisory mandates require the same level of active management, according to Mr Riese, who disapproves of full open architecture, such as that implemented in fund supermarkets.

“Customers are entitled to a professional level of advisory service,” he says, and “that would be very hard to provide if you sold, say, 3000 third-party funds”. The realisation of this negative aspect of full open architecture, thinks Mr Riese, is leading Swedish and European banks’ moves towards what he calls managed architecture.

“A professional level of advisory service would be very hard to provide if you sold, say, 3000 third-party funds” - Ulf Riese, Handelsbanken