Wells Fargo crosses Atlantic to further growth

Does Europe really need another big-name US manager, striding through the continent, promising to swallow up billions of dollars worth of private banking, family office and pension scheme assets into a series of newly created cross-border funds? Yes, according to Mike Niedermeyer, CEO of San Francisco-based Wells Fargo Asset Management, and a key member of the US parent bank’s higher echelons.

That said, Mr Niedermeyer is not the typical brash-talking American money-man we are used to seeing on our news programmes and cinema screens. Indeed, there is something slightly incongruous about hearing the mild-mannered Wells Fargo veteran of 25 years talk softly about how he will double the group’s $447bn (€345bn) asset base within seven years from international expansion.

And the fact that this message is communicated with a quiet, steely determination makes this old hand’s proposition that much more compelling.

Back at the turn of the Millennium, the bank’s investment management division controlled just $94bn in assets, he recalls, with nearly 70 per cent of this in low-fee money market products.

A decade of acquisitions, however, fuelled spectacular growth, with Mr Niedermeyer having been responsible for some challenging integrations, including that of Strong Capital Management in 2005 – whose founder agreed to pay $140m in 2004 to settle improper mutual fund trading charges with US authorities. “The isolated incident that involved the founder of Strong Capital Management preceded Wells Fargo’s acquisition of the firm,” explains Mr Niedermeyer. “However, given our strong culture of risk oversight and compliance, the situation created the opportunity for us to identify and bring on board the investment capabilities of some of the best portfolio management teams in the business.”

Wells Fargo also purchased Montgomery Asset Management from Germany’s Commerzbank in November 2002 and Wachovia in December 2008.

Overall, the “former lumber trader with a passion for the investment business” has overseen $210bn of asset growth from acquisitions and another $132bn in organic growth, although he claims the long-term organic growth was moving at a faster pace.

Much of this has come from filling in product gaps. “So if the industry can grow 7 per cent a year and double its size after 10 years, there is no reason we can’t double our size in seven years,” he says.

“The industry as a whole has good growth prospects, but we can grow even faster. Of our competitors, there are very few of our scale and quality who have so little overseas exposure.”

Rather than immediately opening a string of expensive European offices for product distribution, Mr Niedermeyer will be leveraging the influence he has on the bank’s management committee to allow his sales staff to use Wells Fargo’s existing network of correspondent banking offices in Europe and Asia.

He acknowledges that he will not have an easy ride on the opposite side of the Atlantic to his usual stomping grounds. Firstly, Europe’s distributors are even more negative about long-term business prospects than their US counterparts. Secondly, bank-owned fund houses have been criticised for charging higher fees than independents.

But the third obstacle could potentially prove the highest hurdle. The multi-boutique model favoured by Wells Fargo – where each salesman is required to promote a variety of distinct brands running different specialist assets – has received much bad press in Europe and been cold-shouldered by many distributors of late.

A raft of “affiliated brands” at Wells Fargo Asset Management include London-based ECM, First International Advisors, Gaillard Capital Management, Golden Gate Capital Management and Peregrine Capital Management.

But these concerns are brushed aside by Mr Niedermeyer, who says the boutiques story, portrayed as a negative trend in asset management, is usually over-generalised. “It’s all about the investment process and management. Our teams benefit from a common risk platform, shared technology, distribution and client service capabilities. Other US firms talk about separate boutiques with different business practices. Ours are not separate legal entities, just different investment teams.”

Short-term results are however encouraging for Mr Niedermeyer and his team: he is usually accompanied on marketing missions by Karla Rabusch, head of Wells Fargo Funds Management, serving at the group since 1997 and executive vice president Andrew Owen, serving since 1992. In the last 18 months, they have raised $670m in Europe, with expectations further boosted by a recent launch of six Luxembourg-registered funds, authorised for distribution in Germany, Austria, the UK, Netherlands and Luxembourg. Distribution agreements have already been struck with a number of European wholesalers and platform providers, including UBS, SEI, Allfunds, Hargreaves Lansdown, KBL and Nordea.

Mr Niedermeyer insists this is no flash in the pan. This makes a total of $6bn in international money added in the last two years. He sees a mountain of cash in the US, invested in often inappropriate instruments and is witnessing a similar pattern in Europe.

“We went to a lot of external parties and shared our thought process of why investors should not get caught in the trap of investing in purely bonds and cash,” recalls Mr Niedermeyer. “Our partner firms welcomed this approach, because they were not hearing that message from competitors. We have recommended higher weightings to equity funds than others.”

A similar message being slowly spread through Europe, is aided by the current popularity of North American stocks, with the firm’s US All Cap Growth fund among the top sellers.

“This is not a big bang for short-term business,” he says. “It is more of a natural evolution of who we are. We started looking at Europe and Asia long before 2008, when we first launched our Luxembourg fund range, so this is not an aggressive, adventurous entry.”

He has 150 distribution staff in the US, but there are now also six in London, two in Hong Kong, and he is currently recruiting another three, to potentially work with private banks in Germany, France and Switzerland.

It is no secret that Wells Fargo also has huge ambitions in private banking beyond US borders, with headhunters in Singapore talking about potential hires of up to 30 relationship managers in the fast-growing Asian city state. The group’s funds would be a natural sell for these ‘client advisers’.

“Asset management is a standalone business,” says Mr Niedermeyer. “We treat the private bank as our prized best customer, with the same competitive dynamics as other vendors. As they expand, we will expand our relationship with them, help them with distribution and collaborate on a number of products.”

However, it is through boosting awareness of the Wells Fargo brand and performance record among external distributors that this brave push into new territories will either succeed or fail. Mr Niedermeyer remains confident about the quality of his products and that the existing relationships with 3,700 global finance firms – most of which have US arms – will help spread the word in Europe and beyond.

“We are not here to push products, but to provide solutions and meet already present client demands,” he says. “It is a tried and tested route and makes us confident we can achieve the targets we have set.”

Move into hedge funds requires right partner

While long-term growth is the priority at Wells Fargo Asset Management, Mike Niedermeyer and his team are currently on the look out for a hedge fund manager to diversify their range of products. A fund of funds player would probably be the favoured vehicle.

“We have been close a couple of times over the last five years, but are not that close now,” he admits, although it is an area where clients are constantly seeking advice, and he is keen to be able to plug the gap.

“Our suite of strategies is focused on traditional asset classes. We have identified a product gap and we need to make an acquisition.”

But trapping the prey is not such an easy task. “It’s a very narrow funnel,” says Mr Niedermeyer. “There are 100 potential hedge fund partners we look at and 10 of those that could be a strategic fit.”