By Fiona Maciver
Setting business growth and sales targets is never an exact science, with many factors that can derail the desired outcome. Professional fund buyers form a significant part of the equation, particularly given the influence that they wield over asset allocation and the sales flows directed to specific managers. Examining the managers in the frame for increased business volumes – and the reasons for reduced allocations to some groups – provides clues on how to win greater volumes.
▪ JP Morgan is the cross-border group most likely to enjoy future business growth from existing clients.
▪ Invesco enjoys an improved outlook in the hunt for sales in Italy and Spain.
▪ Performance and allocation shifts are the top criteria for fund selectors to reduce business volumes with asset managers.
Last month, Fund Radar disclosed our high-level forecasts for overall market growth across Europe in 2015, and the prospects for third-party growth in particular markets. In this edition, we take a look at the groups set to see increased inflows from existing clients, according to Fund Buyer Focus data on business growth*. Based on in-depth interviews conducted with fund selectors, the results are of course indicative rather than set in stone; changes to the macro environment, shifts in allocation strategy, and manager performance can quickly change perceptions of specific asset managers and their ability to meet selector needs. The measures used in the Fund Buyer Focus research to gauge current and near-future popularity of managers are:
▪ Most used Provider
▪ Business growth
▪ New provider of choice
▪ Reduction in Business
Drivers of a bright future Fund buyers’ top-three reasons for placing more business with an existing provider are: a strategy need, product need, or a performance/product quality issue with another existing provider. Furthermore, buyers comment with increasing frequency about business- capacity issues, and how they are looking to diversify and place business with other groups. This is considered in more detail later.
At a cross-border level, the companies that are most likely to receive new business are shown in the top five rankings table above. By the end of 2014, JP Morgan still held the crown acquired from BlackRock earlier in the year. There isn’t much separating these two groups on this measure. Reviewing the reasons for future reductions in business arguably provides the biggest hint to understanding this shift. BlackRock was ranked 5th overall for being likely to witness a reduction in business, while JP Morgan was only 9th. The most frequent reason given by fund selectors for anticipated reductions in sales volumes with BlackRock related to performance issues.
Spotlight on Italy and Spain
Drilling down to data on individual countries presents further insights into local preferences. Last month, we highlighted Italy and Spain as markets potentially offering the most enticing opportunities to third- party fund providers. Both countries have attracted significant interest from international managers, resulting in increased competition for business. This has filtered through into some changes to the top five rankings of groups for business growth. Invesco, for example, has made significant progress, moving into the top five in both markets. Reviewing Italian and Spanish distributors’ qualitative comments on this asset manager underlines the strength of its product quality and overall brand awareness. There is interest across its range of products, as captured in the following comment from a Spanish fund supermarket:
‘We have already increased our use of Invesco’s European equity products. In addition, it has a good, conservative fixed-income-weighted mixed fund that is producing excellent results, and our plan is to increase our investment volume in that area, via this product. Furthermore, at present it is marketing a niche, short-term, fixed-income fund that we are interested in. This product already has a three-year track record and is going to attract plenty of business in the Spanish market.‘
Product ranges pique new interest
The main reasons for fund buyers to consider striking up relationships with new providers are very similar to those highlighted for business growth. Naturally, different names appear in the new provider of choice rankings than in business growth and most used provider, often driven by selectors seeking out new strategies, or the arrival of fund managers in new geographies. M&G tops the current rankings for new provider of choice. Potential fund buyers identify the company’s product range as a trigger of interest in the group. Of course, the success of M&G’s Optimal Income Fund, the best selling product in Europe in 2014, has also helped to increase recognition of the group’s name, together with its efforts to increase brand awareness in specific markets. Amundi is another European group in the top five for new provider of choice. Here too, product differentiation through niche strategies, including alternatives, is helping its name to crop up on more fund buyers’ radars.
Turning off the taps
Where there are winners of new business, there are inevitably losers. Fund Buyer Focus also determines the managers that are currently susceptible to seeing sales volumes pared back, and the causes behind this. At an aggregated pan-European level, fund buyers’ top reasons for reducing business are:
▪ Performance issues ▪ Strategic shifts in asset allocation ▪ Unsuitable / limited product range ▪ Dislike of management style ▪ Concerns about size of assets under Management
The top three groups most likely to suffer reduced business from fund buyers are all facing this prospect for different reasons, relating to performance, management style and shifts in asset allocation respectively. All groups are susceptible to performance issues. For the larger, generalist managers offering funds for all weather conditions, a shift in asset allocation or concerns over product range are less problematic than for smaller specialist providers. The question of assets under management (AUM) is more of a problem for large managers. AUM issues can come into play from several angles. Firstly, some distributors impose capacity criteria on their holdings, limiting the size of exposure to one fund group. Secondly, concerns over large mega-funds are also leading selectors to reduce commitments, and look for smaller funds in which to invest instead. Ultimately however, any group can fall prey to the herd effect if outflows gain traction and start to dent AUM.
The high-level indicators covered here illustrate the starting points for securing or losing out on new business, but conversion into actual sales is a complex and often lengthy journey. Achieving a distributor’s attention and buy-list status are only the first steps of many that influence business volumes. Next month, Fund Radar will look at the role that brand plays in this process.
*Rankings are based on answers to the question ‘Which of your current fund providers have the best chances of experiencing business growth with your organisation?’ Responses are from 964 fund selectors, between 01/01/2014 and 31/12/2014