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Mandate with destiny for GSAM

Among the handful of companies intending to launch a fund this year is Skandia Investment Management. Although the European equity fund is its first offering, SIM will not manage the fund as that job has been handed to Goldman Sachs Asset Management.

A global giant with mainly institutional clients, GSAM has vast resources and a European equities team that SIM claims is one of the most successful in the world. Twenty-four investment managers and analysts will run the SIM fund. But, despite its impressive credentials, GSAM has virtually zero presence in the UK retail market.

Plan Invest joint managing director Mike Owen says: “From SIM&#39s point of view, I can see the logic in it. But I do not have a feel for GSAM and have no idea about its expertise in running European money. We need to see what it can bring to the party. Whatever that might be, it needs to be different. But I have to say I am not massively curious about it.”

With a market nearing saturation point, Owen says SIM has a job on its hands to persuade embattled IFAs to choose its fund over more established names with proven track records. But there are companies with roughly comparable arrangements which have succeeded.

SEI Investments monitors the performance of individual fund managers and awards mandates to the most impressive. BlackRock International&#39s star manager Albert Morillo, whose team manages around £7bn for various institutions, runs money for SEI, as well as Investec Asset Management, which employs him to manage its European fund.

However, Morillo was regarded as the premier retail European fund manager in the UK for many years before running mandated money for BlackRock. GSAM hardly has the same pedigree.

GSAM has run the National Mutual European equity pension fund – benchmarked against the FTSE World Europe (ex UK) index – since its launch in 1999 with mixed results.

According to research by Michael Philips proprietor Michael Both, the fund is down by around 36 per cent over that period, outperforming by just 4 per cent the Skandia tracker which follows the same index.

Although just over half of the NatMut fund is passively managed – up to 45 per cent of it is GSAM&#39s responsibility – Both says the performance suggests that GSAM is adding little value.

He says: “GSAM has made negligible difference. Half the fund may track the index but GSAM has not made much of its actively managed portion. Investors buy these sorts of funds expecting them to be run by stockpickers when they do not really realise how they will actually be managed.”

Nevertheless, Both believes some companies, such as Frank Russell, which runs money for Scottish Widows, can add real value. But he believes many firms launch funds regularly to compensate for the loss of funds they have closed to cloak poor performance. This increases the pressure on them to play safe and run closet trackers.

Another problem, according to David Aaron Partnership senior consultant Jason Bevan, is that outsourcing deals often impose double charges. He says: “The key concern with these agreements is the element of extra costs that often arise. It is a con that can outweigh the pros. But we do like to have funds managed in the countries that they are investing in, which is the bonus with global firms. Most Fidelity funds are managed in this way.”

The institutional processes that firms such as GSAM employ are often seen as a real bonus in turbulent times. Writing in this week&#39s Money Marketing, Chartwell Investment Management director Patrick Connolly argues that the institutional approach can offer a safer option than retail investing.

He says: “The institutional approach is strongly risk-controlled, taking small bets and aiming to produce performance in a target range of the benchmark. This is in contrast to some other actively managed funds that could outperform or underperform the benchmark by a significant margin. Institutional funds have less risk of major underperformance.”

Institutional funds also minimise the damage when managers leave, as many institutional players have teams rather than star managers. But, as shown by the recent disappointment of Fidelity&#39s global focus fund, which raised less than £2m in the four weeks following its launch, star managers – which that fund lacks – can be vital in pulling in investors.

SIM managing director Jamie MacLeod remains confident that the GSAM-managed fund will attract around £40m by the end of the year. He says: “When you bring any new proposition or investment team to the marketplace, you have a job on your hands.

“But once IFAs take a look under the bonnet, I think they will like what they see. They haven&#39t had a chance to do that because we haven&#39t produced any literature yet as the fund is not launching until May.”

MacLeod says several well-known multi-managers have already expressed interest in the fund, which is the first of three that SIM intends to launch this year with different asset management groups. This first deal with GSAM may not be unique but SIM claims it is the first time that UK investors will be able to access GSAM&#39s processes through an Isa, Pep or unit trust.

As with all global giants, performance is key. If GSAM fails to at least match existing fund groups, its processes and vast resources will mean little to IFAs.


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