Open architecture reached the Nordic region several years ago. Angele Spiteri Paris looks at the strategy of Danske Capital ...
Danske Capital is one of the most recognised Nordic banks to adopt open architecture. But the adoption saw a significant shift in the business model of the Copenhagen-based bank, well beyond just selling funds for competitors. The bank stopped marketing its asset management expertise to external institutions and instead began to focus on providing platforms to its retail division and harvesting clients from different parts of the business.
Robert Bruun Mikkelstrup, head of development at Danske Capital, says: “The structure within the bank has changed a bit over the last couple of years. Before, the fund-rating unit also looked at selling the asset management competences to external clients, such as pension funds. Now, however, Danske Bank has expanded internationally and therefore our resources are tied up in making sure the platforms being sold to the bank branches are up to date and deliver sufficient quality.”
The fund rating section of Danske Capital is now responsible for finding the gaps in Danske’s internal expertise and sourcing the best possible filler from the range of funds available externally.
In Scandinavia, open architecture is a well-accepted investment model, with the line between competitors and allies being blurred on a daily basis. However, where as in other European markets this may give cause for unease, in this region managers are said to be less squeamish about looking to one another to complement their own skills and promoting other managers’ expertise.
In Danske’s case, making use of other managers’ expertise to supplement its own strengths has led to two methods of distribution. External managers can either be employed on a sub-advisory basis or else simply have their fund, under its original manager’s name, sold through Danske.
“This is an important part of understanding how we work,” says Mikkelstrup. “When looking at a sector, we need to concentrate on whether we want to create alpha or value and if we feel we don’t have the expertise, we go to find it elsewhere. Our philosophy is about selling good products to our clients and if we cannot deliver this ourselves, we go to someone who can,” he explains. “Therefore, we mainly outsource funds in areas where we feel we cannot yet add any value with our own products,” says Mikkelstrup.
Recently, Danske Bank added a US equity fund from Henderson Global Investors and a small BGF new energy fund.
A Schroders commodity fund also made it onto the Danske Bank list after the team debated whether to carry out the management of the asset class internally or to outsource it.
The bank currently has around 25 external managers on its platform, offering approximately 170 funds – this means an average of seven funds per manager. On the sub-advised side about 20 managers have been taken on to form part of the Danske family of funds.
Mikkelstrup highlights the importance of thorough screening, particularly for the funds that are in-sourced and sold as Danske products.
“When picking funds, we have two dimensions. We have a proprietary quant model which carries out an initial sweep of the whole market. Then we take a more qualitative approach and look at the investment philosophy, the management team and the track record of each manager,” Mikkelstrup says.
“We like to have an angle on the quant side first and then go in and see if we believe in what they’re telling us – if it sounds credible,” he says. This provides Danske with the information needed to make an informed decision and to believe in the managers it chooses even when markets are less than favourable.
As a general rule, Mikkelstrup picks external managers on the basis of their regional strength. “I would probably not, for example, pick a Nordic manager to run an Asian equity mandate,” he comments.
“We ourselves can add value in the Nordic market because of our local presence and our knowledge of the local market. Therefore, we look for those strengths in other managers. It would be very difficult to be a good manager in the Far East if you’re sitting in Europe, I would think.”
He says that at present, Danske does not have any of its Nordic peers’ in sub-advisory roles, but does have two local providers on its unit-linked platform.
© 2008 Funds Europe