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Through
different lenses A visit from the chief executive of your investment management house would make most think that there was something wrong. Not at KBC Asset Management Limited, whose top thirty clients have come to expect a visit from chief executive Gavin Caldwell once a year or every second year. His background in investment markets facilitates the client meetings as it does the new business meetings which he also attends on some occasions. “I’m not there as chief executive. I’m there as someone who is directly involved in the money management side,” he says. Caldwell is not the only one breaking from tradition; the rest of his team is equally hands-on and they are each involved at all stages of the decision-making process taking ownership of what is decided. Typically, investment houses are theory based; at KBCAM investment decisions are made in a very different way. Reality checks are conducted to ensure that what fund managers believe to be the case is actually what the person on the ground is saying. These checks are multi-purpose research visits that may include analysts, companies, central banks and/or government agencies across the globe. KBCAM’s asset managers, although responsible for different geographic areas, are all in one location so that team participation occurs at all levels - strategy, regions, sectors, stocks - ensuring information flows are maximised and fully used. There is a strong feeling in the company that it is very dangerous to look only at sectors “because an analyst may end up knowing more and more about less and less unless they are also involved in the asset allocation process”, says Eoin Fahy, chief economist at KBCAM. “What is particularly interesting is that you get an asset manager in one area challenging one of their colleagues in a different department,” says Nigel Wright, managing director of KBCAM(UK). For instance if the UK asset manager decides to buy M&S stocks, he may have to defend the position to someone on the Asian desk. “Although this may sound a bit strange, what it does do is get the managers to actually sit around and to challenge each others’ decisions, which is really quite useful,” says Fahy. He notes that by defending his position, he provides the team with more and more information on his decision and the thought processes leading to it with each argument he counters. Combining a strong top-down approach with a bottom-up stock theme, the manager is able to pay attention to the direction of change by keeping one eye on the country’s political economy at the macro level and one on the micro stock level. The policy team, which includes all the asset managers, meets once a month to discuss strategy while the asset managers meet every week to review sectors and discuss current issues. Portfolios and holdings are reviewed on a daily basis. Fahy notes: “If we can’t decide on an issue, then we need more information.” When the managers fail to agree on an issue, the relevant manager is on a plane in order to get more information from those on the ground. More
than a wrapper Along with its unique style to asset management, KBCAM takes the time to sit with trustees and go through investment strategy and style. Whereas larger asset management companies might only consider smaller schemes by putting them into one of their managed pooled funds, KBCAM accepts segregated mandates from clients as small as £5mn. Clients have responded well to KBCAM’s management style. “I think people always like to see people involved in the management of the business, and I don’t mean general management, I mean asset management,” says Caldwell. “What you are ultimately selling in this business is investment performance,” he says. KBCAM’s managers, on average, remain with the company for about eight years which, according to Wright, encourages the good performance. Wright attributes this stability to the more democratic approach adopted by the Dublin-based manager when it comes to making an investment decision. The asset managers are carefully selected to make sure that they fit in well, not because they are like the rest of the team rather because they get on well. What binds them is their interest in the work and the degree of ownership they are given by involving each member in every aspect of the investment process. In contrast, the average turnover for a City-based manager is 3.6 years, according to Napier Scott Executive Search’s 1999/2000 study of 500 City managers. The retention of key people combined with the company’s small size and culture that encourages strong client-focused practices, has established a reputation for KBCAM among its long-standing clients as being the friendly face of asset management. Caldwell notes: “Though it is difficult to prove – we believe we have never lost a client to poor service in 20 years. We don’t go to client meetings because we have to, that’s our culture. Our investment performance is the product but our service is the culture.” KBCAM started in the segregated business before they had any collective unitised funds. “We were never just investment managers; we were the segregated account pension manager. So right from the beginning of the business, we developed this culture of looking after our clients,” says Caldwell. He is of the opinion that the IT staff must be part of this structure, otherwise there can be gaps between business users and IT staff. An effort is made to integrate IT staff and business users by including some of the technical staff in the morning investment meetings where, in addition to asset managers, client servicing people are also reporting. This ensures that feedback is funnelled to the correct channels and that “the IT staff can understand the impact that they have on the business”, says Caldwell. KBCAM systems are built on an open component-based platform allowing for flexibility and expansion. The consistency of the team has meant good returns for each of the last five years to the end of December 2000. To demonstrate, in the CAPS Pooled Pension Fund Results 2000, KBCAM (at the time Ulster Bank) ranked eighth out of fifty-eight funds with a return of 13.8% per annum over 5 years. Perhaps, more importantly, CAPS identified KBCAM as one of only two managers who had consistently performed above the median in each of those last five consecutive years. Exporting this idea should not be difficult. From their base in Ireland, KBCAM has always thought globally, maximising its mid-Atlantic position of being more aligned to European thinking than the British, yet also in tune with how Americans see the world. As traditional houses look to reinvent themselves to keep up with quickly collapsing borders due to technological change, KBCAM finds itself one step ahead having always recognised that their business is international. – Pensions Age September 2001 – BACK
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