Wells Fargo Asset Management, the San Francisco-based fund manager, has been growing its international business at a fair clip of late. Non-US-sourced funds under management have reached US$36 billion, or about 8 per cent of the total, after a 22 per cent annual growth rate in what are generally seen as difficult times.
According to Kristi Mitchem, the chief executive, who oversaw the firm’s return to quant investing in 2016 with the purchase of Analytic Investors, international is likely to continue to grow faster than North American operations because of demographics and the changing geopolitical dynamic.
The firm has offices in Singapore, Hong Kong and Tokyo but to date has no plans for an office in Australasia. About US$900 million is currently sourced from Australia and New Zealand. This part of Asia Pacific is being serviced from San Francisco. The firm has about 1,300 staff around the world, including 500-odd investment professionals. The total funds under management was US$482 billion as of June 30.
Wells Fargo was once, probably, the largest quant manager in the world, but that business unit was sold to Barclays Bank for a reported US$445 million in 1995. It was a joint venture with Nikko. Barclays used the acquisition to launch Barclays Global Investors (BGI), which became a truly global firm which was eventually rolled up into BlackRock, along with names such as Mercury Asset Management and Merrill Lynch Investment Management. Wells Fargo Asset Management dates back to 1932 with the launch of one of America’s first mutual funds.
In an interview last week, Mitchem, who has been at the helm since early 2016, and before that worked at BGI too, said that Australia and New Zealand represented the types of institutional markets which suited Wells Fargo’s capabilities and extensive product suite.
The firm has 29 investment teams which tend to operate with some autonomy. In the past couple of years it has built a multi-asset team and also developed further its ESG management. It recruited two senior multi-asset specialists from Schroder Investment Management in February and also Dan Morris from Schroder last year. He is the head of portfolio solutions in the multi-asset team, which is overseen by Nico Marais, the firm’s president.
“We have been running ESG portfolios for some time,” she said. “Previously, most ESG processes and styles were based on negative screens, whereby certain categories of, mainly, equities were being exclude. Now, the aim is to integrate ESG principles into everything the portfolio managers and analysts do.
The rationale behind the new quant team is as a response to continuing fee pressure and also to provide strategies which were more transparent than many active strategies. Ironically, the big American retail bank which owns the asset management company, cited the lower margins from quant strategies as one of the reasons it wanted to vacate the space and concentrate on active.
In 1995, though, the term “smart beta” was not in use and “tilted” index funds were not very common. Smart beta and frisk premia-type strategies are among the fastest growing around the world, including in Australia and New Zealand. The NZ Super Fund, for instance, has a majority of its NZ$40 billion under management in various indexed or smart beta mandates. Australia’s Future Fund, has also been a big investor in passive mandates, although in the past couple of years it has gone further down the alternatives route.
Mitchem said that liquid alternatives, which typically use risk premia assessments, had also been developed at Wells Fargo, along with private debt. The firm has not gone into private equity.
She said that the other main area of product development has been in strategies aimed at the defined contribution (DC) market. Unlike Australia, the US pensions market still has a lot of old defined benefit (DB) funds.
“There are some real differences between the two,” she said, from an investment manager’s point of view. In the DC market the participant is responsible for his or her own contributions, which are not compulsory in the US. DC accounts are exposed to the vagaries of markets, from the member’s perspective, whereas DB funds have mainly plan sponsor funding risk. With DC funds the promoter us dealing directly with consumers in the US, whereas the DB funds tended to have a more sophisticated investment management program.
Greg Bright is publisher of Investor Strategy News (Australia)