Wellington confident its long-term strategy will deliver further European growth

Wellington Management, the Boston-headquartered investment management firm with more than $1tn in assets under management, views Emea as a significant region for its expansion.

With more than 400 people across its offices in London, Frankfurt, Luxembourg and Zurich, the active asset manager launched its first Ucits fund, the US Equity Research Fund, in 1994. Since then, it has gradually increased its fund distribution in Emea, while at the same time growing its sub-advisory activity.

“Traditionally, we have been very active in the sub-advisory business,” says Roy Smale, director of the Emea Relationship Group at Wellington Management, who oversees sales and relationship management for the firm’s clients in the region, including wealth managers and private banks. The firm is one of the world’s largest sub-advisers, running nearly 400 sub-advised funds across all major asset classes, including equity, fixed income, multi-asset and alternatives. Clients include banks, asset managers, insurance companies and wealth managers across Europe, Asia-Pacific and the Americas.

In Europe, the sub-advisory business was launched in the late 1990s. “We have seen an increasing interest in sub-advisory over the past few years, which is predominantly driven by regulatory changes, with more transparency required. Growth in that area will continue,” believes Mr Smale.

Fund management delegation is “much more complicated” than off the shelf funds. It requires a closer partnership with distributors to design investment solutions tailored to their clients’ needs, and significant operational and legal compliance expertise. It also involves supporting clients in training their sales teams, offering educational programmes on sub-advised products, as well as general information on investments and market trends.     

Leveraging its 100 people servicing intermediaries in Emea, the firm is committed to grow both distribution channels. “We are fiduciary investors, we take our investment responsibility really seriously, and we are here to help our clients both through sub-advisory solutions and off the shelf funds.”

An indication of its success in Europe is the second place achieved by Wellington in PWM’s annual analysis of fund flows for 2019 from our panel of selectors. These include fund platforms acting as gatekeepers to banking and asset management groups managing more than €3tn ($3.4tn) of client assets.

Community of boutiques

In an increasingly competitive space, the firm’s private ownership structure, “the backbone of its business model and culture”, is a key differentiating factor, claims Mr Smale.

Wellington is a “community of boutiques”, organised as a collection of teams, each functioning as an entrepreneurial entity within the large, global organisation. This ensures each team has the resources it needs to deliver good returns for clients. There is no CIO or top-down house view but a “house full of views” aimed at “fostering innovation and solving investment needs”.

“Being privately held means we can play the long game and be in control of our destiny,” boasts Mr Smale. “Investment management is a long-term business, and we have a very long-term view on how we run the business and our strategies, which enables us to attract and retain great portfolio managers.”

Most of Wellington’s portfolio managers are partners, and each portfolio management team has its own philosophy and investment process.

“We all work together, challenge each other and discuss investment ideas, with the goal to deliver better investment returns for our clients.”

This collegial culture is reflected in the firm’s daily morning meetings, when hundreds of portfolio managers, research analysts and other investment professionals, connecting remotely from the firm’s offices around the world gather together to discuss investment ideas and stir debate, a tradition started more than 60 years ago.

Wellington’s 52 global industry analysts are also a key distinguishing factor. Each analyst is a specialist stockpicker with “deep global knowledge of their sector, developed over their entire careers", who identify attractive investment opportunities for the firm’s investment portfolios.

Servicing clients

If servicing clients is always “critically important”, the pandemic has further stimulated client interaction.

“It has been an intense period, we have done a lot of virtual meetings, and we have really stepped up our engagement with clients.”

The trend toward digitalisation and the increased use of technology will only be accelerated by this crisis, adds Mr Smale, and this is an area of major focus for the firm. “Our clients are digitalising their business, people are active on mobile devices, they want more tailored information and be up to date on what is going on in their portfolios. And we have to provide more transparency, more updates on markets and investments. It is a big project for us.”

The firm’s “robust technology platform” has enabled its 2,700 plus employees globally to work remotely and securely across all its offices. “Working from home, running portfolios, trading and servicing clients has run smoothly,” states Mr Smale.

Its proprietary trading platform has “easily handled” the increased volatility and volumes. Wellington’s recently launched platform has allowed investors to collaborate on research ranging across several topics. The firm has also invested in client facing technology to automate client reporting and deliver content digitally, through email automation tools, its website and client portal.

Investment trends

The healthcare emergency has accelerated investment themes too. Sustainable investing, already a big trend before the crisis, will continue to grow, believes Mr Smale.

Leveraging its dedicated ESG research team, and its global industry analysts who engage with companies on environmental, social and governance issues, the firm integrates ESG factors in “many” of its funds and portfolios, while also offering impact funds focused on generating positive, measurable impact. Its range of sustainable and impact funds include the Global Impact Equity fund, the Global Impact Bond, the Global Stewards and Climate Strategy funds.

Thematic investing is also an area where client interest has increased, although it is sometimes “underappreciated”, says Mr Smale.

In this space, an investment solution that has been drawing wealth managers’ attention is the fintech fund, launched at the end of 2018 and investing primarily in companies globally that leverage technology to enhance or disrupt traditional financial services. “The fund invests in a very long-term trend, which will have huge implications for the financial and banking industry for a long time to come,” he adds.

With volatility expected to rise following the Covid crisis, there will also be greater demand for uncorrelated returns generated by alternative strategies. In this space, the firm has just launched a new global equity long/short fund that focuses on tech stocks, called the Disruptive Technology and Innovation Fund.

Core asset classes continue to appeal to distributors. “We see continued interest in global and US equities and European high yield,” says Mr Smale. The asset management firm will also continue to expand its product range for European investors, and has just launched a European high yield fund.

Among the better known funds to Emea clients are the core US Equity Research Fund, which ranked first in PWM’s league table last year.

This core US equity portfolio is appreciated for its sector neutral approach, with distributors recognising the value of the firm’s research engine, at the base of the investment process in all its portfolios. Although the fund has experienced periods of underperformance, it has rebounded in the past couple of months. “Investment is a long-term game and underperformance is totally normal. Its long-term track record is still intact,” he states.

The firm’s healthcare fund, which was launched 20 years ago and is the largest in the world, running more than $3.3bn in client assets, was already popular with private banks before the pandemic, with healthcare being identified as a long-term, strategic theme by many. Awareness for this topic has only risen, reports Mr Smale.

Another well-known strategy to European investors is the firm’s Global Quality Growth Fund, investing in global equity quality companies.

Although this is a tough environment and markets are volatile, a sense of optimism pervades client discussions. “We are very busy helping clients navigate the environment. The aftermath of this crisis will not be a short one, and will have massive consequences for the long term,” he states.

“It will create opportunities for us to engage with existing and new clients, to help them come up with solutions for their client base, for the here and now, but also for the long term.”