7 NOVEMBER 2001

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Rothschild Asset Management’s multi-manager portfolio and its retail re-branding

Robin Fuller, Rothschild Asset Management Managing Director, recently spoke to David Lindsay about the re-launching of the Five Arrows brand, the reasoning behind it, RAM’s retail business and the new multi-manager portfolio being launched in Malta with Valletta Fund Management

You have said that Rothschild Asset Management has witnessed an enormous growth over the past few years, which has led to the decision to re-brand its retail business. What kind of growth are we talking about and how has the retail arm of RAM been restructured?
If you look at the multi-manager portfolio services, a product that was structured in London in 1995, it has grown tenfold since its launch. That product alone, which was originally worth GBP100 million, is now worth GBP1 billion pounds and is probably our most popular retail business, while also providing an idea of how much the retail business has grown.
The origins of the investment management business within Rothschild were simply known as the investment division of the bank. But with the separation of the businesses forced by financial services legislation in the UK in 1987, RAM became a separate company instead of being just the investment division of the bank.
The identity has really grown from there and with that growth, Chief Executive Paul Manduca wanted us to develop a clearly identifiable retail brand. This is because we believed we had the right brand qualities. However, when you’re looking at retail, you want something very hands-on and accessible to the client. So the idea was to develop a retail brand having its own logo and identity, which would enable the business to be more accessible and more identifiable with high street fund investments.
So that whole process took off in September this year. We are still really early on in that whole process, which involves a whole new advertising style, new logo, new brochures, and basically a new everything.
We have also employed a slightly different approach in terms of the language used in all the literature, which is now more retail-oriented. In any business, people tend to gravitate towards using more technical language, abbreviations. Investment professionals always tend to do so.
You need to be able to move away from that into something that your customer can readily understand. I would say that all the brochures have been developed in such a way for the investor to understand them - not just the professional advisor.
All this is a brand change that reflects a cultural change that has been taking place in London. So we now have a clear retail division, although we still want to manage high net worth professional money but that would be under Rothschild’s various private banking units.
A whole change is taking place, which reflects not just the re-branding of our products, but it is the end of the beginning. The beginning was a full evaluation of our retail capability and resources by Paul Manduca. He has strengthened and brought in teams where he has needed to, while really bolstering our resources to form a world-class investment management team in all the principle markets. One has to put all that in place before going out and launching.
You can already see the impact of that on Rothschild funds and the new teams that have come in across the range have been quite impressive.
What are the concepts behind the multi-manager portfolio being launched locally with Valletta Fund Management?
One of our most successful investment services in the UK is our multi-manager investment service, which has grown tenfold over the last five to six years. We’ve long had ambitions to introduce it into Malta but we’ve been very full on the Maltese development front lately.
Because it is a portfolio service rather than just funds, it has involved a great deal of software development and testing. The project’s timetable has been fairly lengthy, but it has now come to fruition.
It is based on our UK service, which we are running already. Accordingly, all the machinery and experience is already in place, but what we have done here is unique to Malta in that we have come up with two unique Maltese lira denominated strategies, which are designed specifically for Maltese residents.

In what way are these strategies designed for Maltese investors in particular?
If we look at one of our more popular portfolio strategies, the international capital growth strategy which is invested in equity unit trusts, it’s benchmarked against the world capital markets. This means that your starting point is the capitalisation of the world’s markets, which would be 50% in the US, 25% Europe, 8% Japan, 5% in the UK, and so on. However, it would not involve any emerging markets at the moment. That basically gives you the approach of how you are going to manage the money for those investors, who want something that retains its value globally and sees their global purchasing power going forward.
We took that same approach to the Maltese residents. If they expect to live out their lives here and to always have their liabilities here, they wouldn’t actually go and invest 50% of their money in the US, they’d want to invest it here. By this, you have what is called an asset liability match, so you reduce your investment risk by having most of your assets in the market where most of your liabilities are going to arise.
So if you are a Maltese resident, you might see school or hospital fees rising, or you might leave your portfolio to your children who you would expect to be Malta-based. In that respect, most of your assets should be in the local market in order to limit the potential volatility of your investment going forward.
So the two Malta strategies, one of which is capital growth and the other which is balanced income and growth, reflect that. One is a mixture of equities and bonds, while the other is equity investment.
To give an idea of the thinking behind it, the Maltese investor is basically a European investor, so we have 50 to 60% of that portfolio invested in European equities. Of that at the moment, the local market represents good value relative to other European equities and most of that is invested in Malta funds. You then have some European allocation and the remaining 40% would be invested in some major markets according to their size, half of which might be in US equities.
Having the majority of investments close to home does reduce volatility. If you had invested all you money in the US equity markets over the last five to six years, you would have had growth rates of about 20 to 30% over the first few years, then you had a downturn of about 30%.
If you overlay that with the US dollar, which has at times been quite strong and quite weak, you find your pot could have dropped by some 30%.
Obviously wherever you’ve invested in equity markets over the last year, markets have downturned substantially. However, you do get an element of risk reduction by your degree of spreading – for example, the UK market has performed very well over the last couple of weeks, the Australian has likewise.
You can diversify the risk but you need to do so in such a way that you are not taken so far away from the domestic market that you have a fundamental mismatch between what your assets are generating and what you need to spend.
How do you explain why you chose the present time to launch a new product, when investor confidence has been eroding?
We think that, despite the fact that we have a negative investor sentiment at this point in time, it is the right time to be launching this service. This is partly because we firmly believe that markets will recover.
In this respect, an interesting feature about the service is that we have introduced a phased investment scheme, meaning that someone can place, GBP10,000 – which is the minimum per strategy - in a strategy and he can opt for the phased investment service whereby we will immediately invest 25% of that amount, and the remaining amount can be phased for investment over a period of up to 12 twelve months.
The advantage of that is that, since we have volatility in the market at present, with a phased investment you are averaging the course of the market. Markets are offering a much better value at the moment than they have over the last couple of years. However, I can’t say that they won’t fall next week.
If the investor makes a single lump sum investment, the investment remains very price sensitive. But if you average your investment over a period of time, some you would pay more for and some you would pay less for - but the idea is that this is a long-term investment. As such, if you acquire your investment at a sensible evaluation, which you are doing by phasing it by averaging the market price, then we believe that gives you a good value portfolio approach to start with.
This is the much safer approach. In regulatory terms, we always have to deal on forward pricing. The investor can come along today and give us his cheque for the investment. You might think that today is a good day and suddenly the market goes up by 5% and the investor is not so happy. Market timing is impossible to call so I think that the phased investment is a very practical response to difficult market conditions.

Robin Fuller, Rothschild Asset Management Managing Director, recently spoke to David Lindsay about the re-launching of the Five Arrows brand, the reasoning behind it, RAM’s retail business and the new multi-manager portfolio being launched in Malta with Valletta Fund Management

You have said that Rothschild Asset Management has witnessed an enormous growth over the past few years, which has led to the decision to re-brand its retail business. What kind of growth are we talking about and how has the retail arm of RAM been restructured?
If you look at the multi-manager portfolio services, a product that was structured in London in 1995, it has grown tenfold since its launch. That product alone, which was originally worth GBP100 million, is now worth GBP1 billion pounds and is probably our most popular retail business, while also providing an idea of how much the retail business has grown.
The origins of the investment management business within Rothschild were simply known as the investment division of the bank. But with the separation of the businesses forced by financial services legislation in the UK in 1987, RAM became a separate company instead of being just the investment division of the bank.
The identity has really grown from there and with that growth, Chief Executive Paul Manduca wanted us to develop a clearly identifiable retail brand. This is because we believed we had the right brand qualities. However, when you’re looking at retail, you want something very hands-on and accessible to the client. So the idea was to develop a retail brand having its own logo and identity, which would enable the business to be more accessible and more identifiable with high street fund investments.
So that whole process took off in September this year. We are still really early on in that whole process, which involves a whole new advertising style, new logo, new brochures, and basically a new everything.
We have also employed a slightly different approach in terms of the language used in all the literature, which is now more retail-oriented. In any business, people tend to gravitate towards using more technical language, abbreviations. Investment professionals always tend to do so.
You need to be able to move away from that into something that your customer can readily understand. I would say that all the brochures have been developed in such a way for the investor to understand them - not just the professional advisor.
All this is a brand change that reflects a cultural change that has been taking place in London. So we now have a clear retail division, although we still want to manage high net worth professional money but that would be under Rothschild’s various private banking units.
A whole change is taking place, which reflects not just the re-branding of our products, but it is the end of the beginning. The beginning was a full evaluation of our retail capability and resources by Paul Manduca. He has strengthened and brought in teams where he has needed to, while really bolstering our resources to form a world-class investment management team in all the principle markets. One has to put all that in place before going out and launching.
You can already see the impact of that on Rothschild funds and the new teams that have come in across the range have been quite impressive.
What are the concepts behind the multi-manager portfolio being launched locally with Valletta Fund Management?
One of our most successful investment services in the UK is our multi-manager investment service, which has grown tenfold over the last five to six years. We’ve long had ambitions to introduce it into Malta but we’ve been very full on the Maltese development front lately.
Because it is a portfolio service rather than just funds, it has involved a great deal of software development and testing. The project’s timetable has been fairly lengthy, but it has now come to fruition.
It is based on our UK service, which we are running already. Accordingly, all the machinery and experience is already in place, but what we have done here is unique to Malta in that we have come up with two unique Maltese lira denominated strategies, which are designed specifically for Maltese residents.

In what way are these strategies designed for Maltese investors in particular?
If we look at one of our more popular portfolio strategies, the international capital growth strategy which is invested in equity unit trusts, it’s benchmarked against the world capital markets. This means that your starting point is the capitalisation of the world’s markets, which would be 50% in the US, 25% Europe, 8% Japan, 5% in the UK, and so on. However, it would not involve any emerging markets at the moment. That basically gives you the approach of how you are going to manage the money for those investors, who want something that retains its value globally and sees their global purchasing power going forward.
We took that same approach to the Maltese residents. If they expect to live out their lives here and to always have their liabilities here, they wouldn’t actually go and invest 50% of their money in the US, they’d want to invest it here. By this, you have what is called an asset liability match, so you reduce your investment risk by having most of your assets in the market where most of your liabilities are going to arise.
So if you are a Maltese resident, you might see school or hospital fees rising, or you might leave your portfolio to your children who you would expect to be Malta-based. In that respect, most of your assets should be in the local market in order to limit the potential volatility of your investment going forward.
So the two Malta strategies, one of which is capital growth and the other which is balanced income and growth, reflect that. One is a mixture of equities and bonds, while the other is equity investment.
To give an idea of the thinking behind it, the Maltese investor is basically a European investor, so we have 50 to 60% of that portfolio invested in European equities. Of that at the moment, the local market represents good value relative to other European equities and most of that is invested in Malta funds. You then have some European allocation and the remaining 40% would be invested in some major markets according to their size, half of which might be in US equities.
Having the majority of investments close to home does reduce volatility. If you had invested all you money in the US equity markets over the last five to six years, you would have had growth rates of about 20 to 30% over the first few years, then you had a downturn of about 30%.
If you overlay that with the US dollar, which has at times been quite strong and quite weak, you find your pot could have dropped by some 30%.
Obviously wherever you’ve invested in equity markets over the last year, markets have downturned substantially. However, you do get an element of risk reduction by your degree of spreading – for example, the UK market has performed very well over the last couple of weeks, the Australian has likewise.
You can diversify the risk but you need to do so in such a way that you are not taken so far away from the domestic market that you have a fundamental mismatch between what your assets are generating and what you need to spend.
How do you explain why you chose the present time to launch a new product, when investor confidence has been eroding?
We think that, despite the fact that we have a negative investor sentiment at this point in time, it is the right time to be launching this service. This is partly because we firmly believe that markets will recover.
In this respect, an interesting feature about the service is that we have introduced a phased investment scheme, meaning that someone can place, GBP10,000 – which is the minimum per strategy - in a strategy and he can opt for the phased investment service whereby we will immediately invest 25% of that amount, and the remaining amount can be phased for investment over a period of up to 12 twelve months.
The advantage of that is that, since we have volatility in the market at present, with a phased investment you are averaging the course of the market. Markets are offering a much better value at the moment than they have over the last couple of years. However, I can’t say that they won’t fall next week.
If the investor makes a single lump sum investment, the investment remains very price sensitive. But if you average your investment over a period of time, some you would pay more for and some you would pay less for - but the idea is that this is a long-term investment. As such, if you acquire your investment at a sensible evaluation, which you are doing by phasing it by averaging the market price, then we believe that gives you a good value portfolio approach to start with.
This is the much safer approach. In regulatory terms, we always have to deal on forward pricing. The investor can come along today and give us his cheque for the investment. You might think that today is a good day and suddenly the market goes up by 5% and the investor is not so happy. Market timing is impossible to call so I think that the phased investment is a very practical response to difficult market conditions.

 



The Business Times, Network House, Vjal ir-Rihan San Gwann SGN 07
Tel: (356) 382741-3, 382745-6 | Fax: (356) 385075 | e-mail: editorial@networkpublications.com.mt