Until a few years ago most institutions, asked what they expected from their asset manager, would probably have answered: “To manage my assets in the best way possible.”
Times are changing. Institutions are looking for a deeper and broader relationship with their investment manager, particularly in the light of the increasing importance of short-term performance, necessitating professional organisation and clear investment processes.
As a result, investment houses are finding that provision of unique complementary services is a way of adding value to institutional relationships.
One such initiative is Dutch manager Robeco’s Centre of Knowledge (ROCK) – a platform for the dissemination of information on issues such as forecasting techniques, use of investment variables and the construction of model portfolios.
Sander van der Zwan, head of Rotterdam-based ROCK since its launch in 1998, explains: “The original concept for the centre came about because we were being asked to share our investment knowledge with institutions looking to have a better foundation for discussing their investment with us. Others were also managing or seeking to manage their own assets.
“We took the view that although sometimes they were asking us for knowledge because they wanted to shift asset management in-house, we would still be managing the assets for the intervening years.
“Furthermore, we felt that if an institution came to us for information, they might then appreciate that this kind of knowledge is difficult to copy and secondly that it is completely updated each year, so it is not a question of just taking the knowledge in one go.”
He acknowledges, however, that ROCK could possibly lead to more institutions going it alone.
“We’re still assessing after a year and a half what the true impact of the system will be. Some clients will inevitably go off and do their own thing and it has happened already with the likes of ABP and PGGM, which attended our training to complement their own knowledge and then began running the business in-house.”
He points out though that knowledge-sharing is definitely bringing new business into the Robeco group and giving the company a competitive edge.
“We recently picked up a prestigious mandate with the central bank of Brazil, alongside other managers including JP Morgan and Barclays.
“One of the reasons given for the selection of Robeco was ROCK, because the bank was asking for particular knowledge on value-at-risk techniques and systems which we could provide,” he says.
“A further bonus is that performance in this case is going to be measured not only on the money we make but there will also be a factor added in for the knowledge part of the business. If we provide a good level of knowledge we get a better score.
“It may be the case that the bank will look to run their own money further down the line, but we believe this will not happen for a number of years.”
Van der Zwan also notes that the process of institutional in-house management is happening regardless of ROCK’s existence, adding that if Robeco doesn’t offer the knowledge then clients will just get it elsewhere.
He says Robeco is also providing risk management systems to clients as a means of letting them be more independent, but one which may also encourage them to remain with Robeco.
“Obviously if a client wants to shift their assets then they have to undergo a costly and time consuming change of risk management systems.”
In terms of the investment knowledge clients are looking for, Van der Zwan comments that in the Netherlands information on performance measurement is being sought, particularly in light of the new regulations from the country’s Verzekeringskamer, allowing individuals to opt out of underperforming schemes.
He also notes that ROCK takes a very proactive stance in distributing much of the information. “Interestingly, clients often don’t ask for the information they require. They want a lot of it, but rarely indicate what they want or when they want it. We have a ‘push’ strategy as a result. Each year our senior researchers and portfolio managers offer an equity and fixed-income workshop as a platform, with a further one to three sessions in groups consisting of six to 12 clients.”
Every three months the company also produces two international magazines, one containing basic investment information and the other providing specialist research papers for clients.
“The latest copy of the specialist magazine was on risk management and planned editions include research on credits, small and mid-cap investing and on the global sector approach to investment. The subjects chosen are a response to client demand indicated at training sessions already held,” says Van der Zwan.
Although the previous focus of ROCK was on Dutch institutions, Swiss, French and Latin American clients are now using the information centre, with Van der Zwan noting that the French have been keen for research on guaranteed products.
Nevertheless, he acknowledges that Robeco cannot share all its investment data with clients, nor does he believe it would be optimal to do so.
“With forecasting we decided to share what we know but we do not give out source codes or complete details on everything.
“For instance, on fixed income forecasting we say we use four variables to forecast what duration is going to do. We then give our clients the variables of momentum, yield curve steepness and the model weighting techniques, so they can completely understand how the process works.
“Only implementation issues are not disclosed, but even if they were it would be difficult for a client to have all the data and really understand the statistics. To merely copy the system would probably not produce very good results for those without the required in-depth knowledge. It would take a good investment team and a lot of money and data to carry out all the remaining work – although of course it is possible.”
He notes that Robeco also looks at, for instance, Salomon Brothers for its forecasting techniques, demonstrating that this process is never simple, even for the professionals.
Overall though Van der Zwan considers ROCK to be an essential element within the Robeco group for boosting institutional relationships.
“Client retention is vital for business these days. We have made ROCK one of our unique selling points and we believe it is an important added value service that will keep clients here and bring new ones in. Surprisingly, though, I don’t know of any other investment managers which do this. JP Morgan share their systems, but I really can’t understand why other players are not doing similar things.”