It's all about the journey: Nils Bolmstrand, who stood down as Skandia Investment Group CEO in December, highlights the importance of managing investors' expectations. By Angele Spiteri Paris.
Retail investors are used to investing in long-only funds and fixed-income instruments, but Nils Bolmstrand, until recently the chief executive of Skandia Investment Group (Sig), says they should have access to a broader range of asset classes, including hedge funds.
Bolmstrand says: “We will see increased usage of hedge funds and alternatives in retail portfolios. As long as the investors understand exactly what it is they’re going in for, I don’t think there’s any danger in this.”
He says Sig is interested in alternative asset classes and is on the look-out for good managers in the space. “We’re looking for assets that have a low correlation to equity and fixed-income markets,” Bolmstrand says.
Sig is Skandia’s investment management organisation. The firm describes itself as bringing together all of Skandia’s investment research, analysis, portfolio management, open architecture and investment product expertise.
Essentially, the firm is a type of multi-manager, though Bolmstrand is hesitant to describe it as that. This is because, he says, Sig provides more value-add than just manager selection.
“We provide an active management process. We don’t just appoint managers, we manage and monitor those relationships. We manage the allocation process of our global dynamic equity portfolio,” he says.
Several multi-managers or investment platforms in the financial world have some form of internal direct investment capability. Therefore, it is always interesting to see where they allocate to third-party funds or where they choose their internally managed products.
In Sig’s case, it has no direct investment capability. Although some of its investment professionals are called fund managers, they don’t directly manage any money, but rather manage the asset allocation among third-party products.
Bolmstrand says: “We would also consider our ‘Signature’ range of funds [20 single-mandate funds] to be internally managed because it’s an active process. We don’t just appoint a manager, we are constantly looking at our allocations and liaising closely with the managers we select.”
These relationships are potentially even more important within Sig’s two fund ranges – Spectrum and Signature. The Spectrum range provides independent financial advisors (IFAs) with the opportunity to outsource the asset allocation and fund selection process, while the Signature range of funds are more appropriate for IFAs who do their own asset allocation but don’t want to monitor the underlying funds.
“We provide the building blocks, with a variety of asset clases, in-depth investment research and monitoring,” says Bolmstrand.
And to offer that broad range of asset classes, Skandia needs to consider managers that don’t necessarily service the retail client base.
“We’re trying to find the best managers, who often only target the institutional segment, and bring them into a different marketplace. One example is Fisher Investments,” says Bolmstrand.
In September this year, Sig appointed the US-based global and emerging markets specialist to run its new Skandia Global Emerging Markets fund.
Bolmstrand says: “Sometimes we also bring funds or fund managers known in the UK and take them to different markets that we distribute into.”
Sig’s products are available in over 20 countries across Europe, the US, Latin America, Asia-Pacific and South Africa.
One of the investment principles Bolmstrand has been trying to get across is that the investment journey towards a target matters more than some have claimed.
Although some say that short- and medium-term volatility don’t matter as long as an investor’s long-term target is reached, Bolmstrand does not agree.
“The investment journey does matter. People feel better when their investments are doing well and they feel poor when they’re not,” he says.
Bolmstrand explains that managing that journey and the clients’ expectations throughout it is actually about the long-term performance of client portfolios. “If investors are not feeling good about their investments, this negative feeling causes them to step off the journey which will ruin the returns,” he says. But this journey will not be without challenges.
Bolmstrand says: “It’s always a challenge to deliver the returns clients expect. The actual performance is less important than the expectation of that performance.”
Helping to get investors comfortable with certain asset classes is another battle for fund managers in general, and for firms like Sig, hoping to capture the attention of retail investors, this can be an even greater undertaking.
Bolmstrand gives a particular example. He says: “The challenge in southern Europe, for example, is that people got comfortable with equities just before they blew up. Therefore, it will take time for investors in that part of the world to get back to a point where they’re comfortable with equities.”
Considering that the UK is quite a significant market for Skandia, Bolmstrand says that the implications of the Retail Distribution Review (RDR) and making a call around the results of it is another hurdle asset managers are having to face.
Bolmstrand says: “We can’t work it out yet, but as a firm, we believe that at the heart of it, it is a positive development. Having IFAs remunerated in a way that completely removes as many conflicts of interest as possible is definitely a good thing.
“But there is a danger that smaller IFAs will consolidate and move up to service the high--net-worth individual market, leaving a gap within the retail advisory market.”
©2011 funds europe