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A new dimension to UK fund management

US fund management group Dimensional is launching into the UK this year, determined to make an impact on a retail market nearing the point of saturation.

With almost $40bn in assets under management and a track record going back more than 20 years, Dimensional seems confident of making its mark but is likely to find the UK market cluttered and far from hospitable to newcomers.

Bates Investment head of research James Dalby says: “It is incredibly difficult for firms starting from scratch in the UK to make an impression. It is a tough marketplace and although firms do try to differentiate themselves from the others, there really only so many ways they can cut it. That is not even taking the stockmarket into account.”

Over the past few years, several sizeable US investment organisations have entered the market and punched well below their weight. Alliance Capital, Franklin Templeton and Putnam Investments are three heavy-hitting US players which have failed to establish a firm foothold in the market. But their lack of success has not prevented others from trying.

BestInvest deputy managing director Jason Hollands says: “US firms are cash-rich and often see the UK as a bridgehead into Europe. But it is a very different sort of culture here and even many of the European businesses do not prosper. They just cannot understand why the UK is welded to the unit trust sector, for instance.”

Despite the bleak prognosis, Dimensional can take heart from Fidelity, one of several US companies which have adapted themselves successfully to the market. A more recent example is MFS, a firm that is probably unknown to many IFAs but is gradually climbing up the ladder without being an overnight sensation.

The reason MFS seems set to succeed, according to some IFAs, is that it eschews the star fund manager culture that is particularly prevalent in the UK market, preferring a more team-based approach. Its European equity fund, for example, is run by nine analysts rather than a single fund manager. At a time when more and more funds are being hit by the departure of a star manager, IFAs say this approach appeals to clients who are becoming increasingly aggrieved at having to switch their investments on a regular basis.

Dimensional is seeking to differentiate itself by putting emphasis on its low-risk, added-value investment approach. Senior partner of communication skills Rod Duncan will look to IFAs to see how Dimensional&#39s proposition is likely to fare in the UK.

He says: “I have seen too many mutual fund companies launch themselves and their product on an unsuspecting retail market. My aim is to meet with senior financial advisers to solicit their views on the proposed product range. I will then feed back those views to Dimensional so that they deliver what the market wants at launch.”

IFAs remain fairly pessimistic about Dimensional&#39s chances, pointing out that it is not the only fund manager to launch into the UK on the back of a low-risk strategy. But what may count in its favour is the personnel behind the launch.

Both Duncan and Dimensional Europe CEO David Salisbury are well known in the IFA community and have been around the block enough times to know what it takes to succeed in the UK. Salisbury was Schroder chief executive until last year while Duncan was Schroder Unit Trusts deputy managing director and sales & marketing director for 11 years.

Roberts Clark director Jo Roberts says: “They know how the business in this country works and they know how to punt their wares successfully. Their previous positions with Schroder should ensure they get a good hearing with the multi-managers which, if Dimensional&#39s products are good, will help raise brand awareness.”

While many IFAs have not yet heard of Dimensional, most know Salisbury and Duncan, which Roberts believes will be pivotal to its success or failure. Some recent successful retail launches have prospered partly because of huge marketing budgets but also because the faces behind the companies have track records in the UK.

Artemis, for example, is thriving because of its small but talented investment team while New Star – marketing power notwithstanding – has an employee roster which would make most other fund managers green with envy.

Nevertheless, IFAs are not likely to gape in wonder when Dimensional launches in the autumn. It is not the fault of the company – only perhaps New Star can claim to have caused a genuine commotion at launch – but more a reflection of market which has a surplus of funds and, arguably, too many investment houses.

Dalby says most IFAs face a real struggle to keep track of who is managing what at the moment, let alone concentrate on yet another launch.

Dimensional must prove it has something different to offer or, if not, do something similar but do it much better than anyone else. It just has to hope that IFAs are paying attention.

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