Tails are high at the asset management operations of KBC, Belgium’s second largest banking group, as the division has just become the ‘third pillar’ of the group’s operations, alongside the bank and insurance divisions.
“This follows on from our formation as a separate subsidiary of the bank last June,” says, Johan de Ryck, director of institutional business, based in Brussels. “Our new status came into effect this January.”
Already, the asset management arm is delivering one third of the bank’s profit, he points out, adding: “while we only account for less than 1% of the bank’ operating costs.”
With assets under management as at the end of 1999 of E33bn in retail funds, E10bn in institutional assets, plus some private wealth management, making some E50bn all told. By the end of December 2000 this had jumped to E72bn. “Most of this growth has been in the Belgian market, which makes it even harder because it is a well saturated banking market, both from retail and pension fund side.”
The bit that is not domestic is the E8bn in assets that came with the acquisition of Ulster Bank Investment Managers in Ireland last year. “But the other E14bn is due to growth in the internal market.” While KBC Bank has around a 20% ‘natural’ market share of the local market, for asset management it reckons it has a 30% share on the retail funds’ side. While there are no clear figures for the institutional side, KBC reckons it is market leader there too, counting amongst other, about 68 local pensions funds as clients. “On the new mandates within the Belgian market, we had a 100% success rate and we did pitch for everything. Of course, many were shared with other asset managers,” says de Ryck.
In the last four years, the group has moved into passive management, even though KBC has traditionally been an active house and remains so for the institutional business. “But within the retail business, it is a very important aspect for us, with around 10 indexed funds on offer. However, the institutional side is warming up.” Of the E2.3bn under passive management, E1.5bn would be pure indexed, the rest is tilted. Within Belgian institutional assets, perhaps around 10% would be passively managed.
“Our problem is that it will be very difficult to maintain the rapid growth at home of the past few years,” he says. The group recognises that much of the future growth will now have to come from expansion outside. Yet with the changes in Belgium encouraging sector funds, KBC Asset Management will be gearing up for this area as well. While 80% of its Belgian mandates are global balanced, KBC says the trend is towards specialisation.
In terms of aquisitions overseas, the strategy being followed is to develop a series of boutiques, each of which will provide a different service. “We want to set up a grouping of boutiques, as it were, with their own areas of specialisation that can be offered both domestically and internationally. In KBC Asset Management Brussels, we have two specialities, active European equities and bonds and the passive strategies.” The Irish operation is specialist in international equities, while the operation in the Czech Republic, accounts for central European equities.
KBC Bank alreadly had a presence in the Netherlands, Germany and France, but has followed an aggressive aquisition path in Central Europe over recent years. “We are now the largest western bank in Central Europe.” In Poland the group bought last autumn a 40% stake in Warta, the largest insurer, which complements the earlier acquisition of Kredytbank there.
“Our aim is to buy assets in those four countries in the process of joining the EU, but not in other countries such as Russia or the Balkans. Our second home market is Central Europe. We are looking for a substantial market share in those countries.” In Hungary, KBC already owns the third largest bank, K&H Bank. Now the group is joining this bank with ABN AMRO Hungary, whereby KBC will hold a majority stake of 60%, positioning it in second place.
In the Czech and Slovak republics, the group bought CSOB Bank, which was among the few banks with good management and a highly profitable base. But during last summer, the number two bank IPB was acquired and fully integrated into CSOB, making it the largest bank not only in these countries, but in the whole Central European region. Now with the acquisition of Patria, the largest independent asset manager in the Czech Republic, the group will have a very large market share when it is combined with CSOB-IPB Asset Management.
The Czech operations are working very closely with KBC Asset Management. The recent launching of a series of mutual funds, some with capital guarantees, caused the market share of CSOB domestically to jump from 3% to over 30%. “In addition, there is a mutual exchange of research”, says de Ryck.
The strategy for KBC in Dublin is to encourage the development of a specialised house for international equities, global balanced and bonds using a qualitative approach, while Brussels will run European balanced and euro equity, bonds and structured products, all active with quant emphasis, as well as providing its passive capabilities. “We want to develop a common approach to tackle international markets, particularly for the pensions market in Europe.” He sees opportunities for guaranteed and indexed products among the institutional market, Europe-wide, but also where third pillar developments are expanding, as in Ireland.
The group believes that future asset management acquisitions are very much on the cards, but these could be opportunistic. “You can never be sure that what you want will always be available. But we want to develop our asset management business, and that’s a high strategic priority for the group,” says de Ryck.