Big-brand mindset has all of MFS playing same tune

Jim Jessee, global distribution overlord at Boston-headquartered MFS Investment Management, is a regular visitor to the group’s London offices opposite St Paul’s Cathedral, housing 130 staff.

Whereas much of the firm’s astounding growth has been down to assets added in US heartlands, it has long been his strategy to improve flows from European markets and further-flung asset sources.

Mr Jessee, who joined in 1987, works in tandem with international distribution lieutenant, Lina Medeiros, recruited in 1997. “We are all long-termers,” says the avuncular Mr Jessee. “The joke at HQ is that MFS stands for ‘my final stop’ in a long career.”

This long-term mindset is coupled with an organic approach to gathering assets, rather than a parade of acquisitions common to many of today’s large-scale fund houses. 

He effortlessly rattles off an impressive set of growth metrics. MFS oversees $441bn (€411bn) and is one of the industry’s fastest growing asset managers. Its US mutual funds more than doubled from $93bn in 2010 to $191bn today. Its Luxembourg domiciled funds increased from $12bn to $31bn, while institutional business surged from $72bn to $163bn over the same five-year timeslot.

Reflecting growing internationalisation, 40 per cent of revenues are now from non-US clients and management hopes this will eventually reach half. “This is surprising to many in the US, who remember our roots and heritage back to the first American mutual fund of 1924,” says Mr Jessee.

Since the early 1990s, he has seen the build-out of investment offices in London, Singapore, Tokyo, Sydney, São Paolo, Mexico City and Toronto. 

Contrary to fashion among mega-houses, which tend to split themselves into a series of boutique-based businesses, each with its own identity and investment specialism, MFS has decided to stick with a big-brand mentality. 

All channels use the same global research platform to back investment management. The so-called ‘village of boutiques’ model favoured by much of the funds industry is totally foreign to the MFS DNA, claims Ms Medeiros, a Boston-educated Portuguese national. “We look at things in a very different way, using shared resources.”

Lina Medeiros, MFS

The aim is to have unity and regular discourse between various parts of the growing MFS empire, making sure there are no tentacles cut off from firm’s beating heart.

“The challenge of the multi-boutique model is that you can segregate investment managers, with little communication between different teams,” says Ms Medeiros. “We insist that our eight sector teams are always in touch with each other, sharing ideas with their peers and they are compensated on their ability to work collaboratively.”

Equity, fixed income and quantitative analysts – seen as foreign and competing breeds in some groups – are together imbedded into the global teams. “This level of information sharing gives us a competitive edge,” she says.

MFS are strong believers in employing staff in a variety of investment locations, corresponding with global markets of the firms they invest in. “Given the complexity of the world today, it is difficult to see how sitting in any one locale, you can acquire knowledge about a firm and its global competitors,” says Ms Medeiros.

Those who just concentrate investment staff in a single base are failing to grasp basic market realities, she says. “If you don’t believe having people in different jurisdictions creates value for a firm, it means you don’t believe in the nuances. Having local investors and managers allows you to make assessments of local needs much better than firms who fly people in and then leave again. To not give credit for that is a little bit naïve.”

But the youthful MFS model in Europe is far from perfect and there is a strong recognition about the deeper brand footprint needed in Europe. “It would be disingenuous for us to say we would not like to have better branding internationally,” admits Ms Medeiros. “Even in the US, we have not led the effort in branding.”

She recognises that while the global research platform has been the key asset which MFS brings to the table, this is sometimes wasted on an audience of disparate distributors, many of whom do not know enough about the US group and its values. This is as much about an educational process for her sales staff, as it is for distributors, fund selectors and gatekeepers, connecting with ultimate clients.

“The distributors know us, but it is becoming more important for them that their clients know us, so we have to work harder and better to achieve this and concentrate on brand building.”

The firm’s effort will be focused particularly on leading wholesale partners in Europe, the likes of UBS, Credit Suisse and Deutsche Bank, which also control broader geographical relationships.

“It is important that they see MFS not just as an asset manager, but as a firm which can do business with their customers across the globe,” she says, pointing to a pattern of these banks centralising fund selection processes and consolidating partner lists.

“That will be ultimately good. Of course you may not be selected, but if you are, then you can achieve more wallet share and a true partnership,” which works more efficiently for both parties. “It’s hard work for distributors to cover too many fund managers.” 

Mr Jessee acknowledges that distributors have tough jobs, regularly confronted by a barrage of marketing literature and performance statistics. “We need to help them, by giving them less surprises to deal with, less portfolio manager and style changes,” he says. 

“The more we can minimise those changes, the better partner we can be for them. We don’t like putting them on the spot by having to decide if it’s best keeping a partner or making a change. And it helps that corporate wise, they will see very little in the papers about MFS acquiring or going through some organisational shift.”    

Packaged solutions

Top selling strategies in the MFS product suite during 2014 and 2015 have included European equities, emerging market debt and “several varieties” within the global equity space.

Many banks, and in particular Latin American and US clients, have flocked to global total return strategies in the multi-asset and balanced spaces.

This reflects appetite among distributors for packaged solutions, rather than choosing from a DIY-menu of single strategy funds.

The experience of banks in building their own portfolios, from a series of funds they select, has not necessarily proved positive.

MFS also points to demand for diversified income and dampened volatility, including sleeves focused on emerging market debt, high yield corporates, government bonds, dividend paying stocks and real estate. These strategies have raised more than $3bn in the US and are also proving popular in Europe.

Rather than attempting to forecast macro-economic trends, MFS concentrates on asset selection to boost performance. “Clients may want to understand central banks’ intentions as a backdrop, but it’s really about stock selection for us,” volunteers Mr Jessee. “We’re much more focused on the fundamentals and valuation of a particular stock.”

He chides investors for a mistaken macro-obsession, which can deplete returns. “The short-termism, which has crept into investors’ mindsets, has not made them any better at managing money,” argues Mr Jessee. 

“It encourages them to get out of investments at the wrong time. We need to focus on longer-term time horizons.”