Santander am waits for new golden years

When María Dolores Ybarra became CEO of Santander Asset Management España last November, bad times for the Spanish fund industry had already started and even harder times were looming ahead. In the first three months of 2008, the largest Spanish asset management firm lost ?5.2bn, which represents ten per cent of its total assets. “To understand our industry, it is important to be aware of the great risk aversion of the Spanish investor,” says the friendly and down-to-earth Ms Ybarra, who started her career at Santander as an analyst 17 years ago. The product mix of the Spanish industry, where 75 per cent of products are invested in money market funds or guaranteed products, is the most conservative of Europe, explains Ms Ybarra. The subprime crisis aggravated the adverse market cycle, started in 2006 with rising interest rates, which made money market funds less attractive compared to deposits. Most of the credit products in Spain were invested in money market funds, particularly the fashionable dynamic funds, which promise better performance by taking more risk in credit. “This is why the industry is suffering so much, because the most conservative products have been more severely hit,” she says. But continuous bad news on these money market funds, which today still represent 50 per cent of the Spanish fund industry assets, exasperated the traditional risk aversion of Spanish investors. Moreover, need for liquidity spurred banks, saving banks in particular, to offer and advertise aggressively deposits at five per cent. Even if these high rate deposits, in fact, impose often undisclosed conditions on clients, the result is that competition is extremely hard for the whole fund industry, she says. “In Spain we say ‘Si no puedes vencer a tu enemigo únete a él’ (if you can’t beat your enemy, join them), and that is what we are doing,” explains Ms Ybarra, talking about a newly launched product investing in high rating financial institution deposits. The fund, which targets high net worth investors, has a target of four per cent net of commissions, offers tax advantages and daily liquidity, unlike deposits which can tie investors for a year at least, explains Ms Ybarra. “This product is for clients wanting to stay in mutual funds. A lot of investors withdrew their money from equity products, very much in favour over the last two to three years, because they are afraid and are waiting to come back to the market when it is stabilised,” assures Ms Ybarra. “We just want to preserve assets, to be in the situation to offer better products when the market or the clients allow us to do that,” says Ms Ybarra. Good memories Better times will arrive in the second part of the year, when the environment will be less hostile than last year, as interest rates in Europe must go down, she believes. Meanwhile it is more uplifting to remember the good times. In 2006, Santander’s market share in asset management was about 25 per cent, although that was swollen by the large inflows of the golden years from 2002. When equity markets started to recover and interest rates were still going down, Santander launched a series of equity based mutual fund products, the Superselección series, guaranteed products that were extremely popular and attracted E17bn in just a few months. That pushed up Santander market share, she explains. Santander’s market share is currently 21 per cent, which is more natural, says Ms Ybarra. “Our target is to maintain [a share] in excess of 20 per cent.” Today’s market conditions are favourable to offer retail clients products with a capital guarantee, says Ms Ybarra, remembering the success of Santander’s wrap of guaranteed products employing third-party funds, where the underlying funds were selected by Standard and Poor’s. For example, Santander is offering the possibility to invest in equity products linked to agricultural products, at risk of inflation, under a guaranteed structure, she explains. They have also launched a structure taking advantage of the dollar revaluation over the next two years, with capital guarantee of 95 to 100 per cent and they are thinking of a structure in the financial market, she says. “On the other hand, as we have critical mass, we are launching flexible products, the most important of which is Santander flexible valores, launched two years ago, in which the equity exposure can vary from –50 to 120 per cent,” adds Ms Ybarra. “It gathered ?150m with the private banking clients and now we want to offer it to the numerous and quite sophisticated personal banking clients through Santander.” For the less sophisticated, Santander’s flagship equity product is Santander dividendo, which is a mainly quantitative fund, aiming at picking the best European companies with a strong balance sheet and a high dividend policy. Ms Ybarra says that open architecture has not affected their relationship with captive distribution channels to any great extent. Banif, which is pure private banking for more sophisticated clients, is making the most of the third-party funds selected by Allfunds, the joint venture platform of Santander and Intesa Sanpaolo. But in the retail-oriented Banesto, the penetration of third-party funds is very low, says Ms Ybarra. Santander private banking has some open architecture, but it is very much a guided architecture, where Santander AM shortlists recommended funds. Santander Am also offers a multimanagement product, targeting Euribor +, to high net worth clients. The product employs 50 per cent Santander funds and 50 per cent third-party funds. Money market funds and liquidity are managed in-house, but the more sophisticated funds are sourced externally, explains Ms Ybarra. This product has been negatively affected by the crisis with assets down from ?8bn to ?7bn, but Ms Ybarra is quite optimistic. “This is the way we want to manage open architecture in Santander, under our own advice and our own criteria.” Retail branches do not offer third-party products but investors indirectly buy third-party funds through in-house products, she says. Serving institutions Only with the blessing of institutional investors can a funds house really have the right to call itself an asset management firm, says Ms Ybarra. “If you want to be one of the big players in the asset management industry, you need to have the recognition of the institutional market,” she says. “If you are only selling to your branch network, you can always say, that is easy, your clients are captive, having little open architecture, they have no other alternative than buying into your products. “We have now opened up and we are putting a lot of effort in selling to third parties.” Almost a quarter of Santander's Latin American equity assets are managed for institutional clients. Santander's LatAm fund was the second best performing equity fund in Europe last year, states Ms Ybarra."We are also starting to offer LatAm bond and balanced mandates and we just launched a range of LatAm products in our Luxembourg Sicav both for private banking and institutional investors," she says. The firm manages a mandate for a Dutch pension fund and new mandates are coming through from Europe and Asia. The latest is the advisory mandate for a Japanese Brazil Equity fund launched by Daiwa Asset Management. On the other hand the domestic pension industry is quite immature. In pensions as a whole, Santander manages ?10bn, but ?8.5bn of these come from individuals who invest this money for retirement purposes. The way this money is limited by regulation in pension funds is very similar to mutual funds. But a new regulation from next year will allow the use of hedge funds in these products, “and we are going to use them,” states Ms Ybarra. “We need to be longer term oriented and more sophisticated with our pension funds.”