Opportunities and Challenges within The Nordic Asset Management Industry

Over the last 12 months, we have conducted a number of Nordic Sales leadership hires for our clients.

Below, we summarise our perspectives on this market.

Whilst European AUM has increased steadily following the market crisis of 2008, growth has been predominantly driven by three key developed nations – Germany, France and the UK, who account for 62% of the EUR 15.4 trillion European AUMi. Such a concentrated market has seen many Asset Managers look to other geographies, albeit comparatively close, in the search for growth.

With a market size totalling € c450Bn AUMii, the Nordic region continues to represent a very attractive and potentially lucrative geography for both foreign and domestic asset managers alike. With the exception of Finland, net flows have remained positive since 2009, albeit the absolute amount of AUM has been reducing over this period. Growth has been fuelled predominantly by existing investors from existing products despite initial market sentiment in 2011 that new clients would be the catalystiii.

Indeed, there now appears to be a tangible belief among the market that new business opportunities will decrease driven by investor consolidation, increased regulation and a continued trend to ‘insource’ more investment responsibility. This is more acute in the Institutional market and forcing many players to further consider the “Retail” and “Distributor” sectors in greater detail. A 2012 survey of CEO’s across Nordic Asset Management franchises showed 39% of respondents felt Retail and 48% Distributors would drive future growth. Interestingly this compared with 19% and 40% respectively the previous yeariv.

Asset Class overview

Treating the Nordic nations as one is a tempting and oft chosen option by many foreign entrants to the region. However, whilst there are some similarities and trends across the countries, opportunities and challenges vary significantly country by country. Consequently there is an increasing premium on business leaders with local specialist investor knowledge.

Specific asset class trends and in depth analysis of asset allocation is best left to the local Investment Consultancies, and the aim of this article is not to attempt to provide that depth of insight.

However, some broad based Investor themes do seem to emerge across the region, including:

  • Market Volatilityv.
  • Eurozone and Global Equities in demand.
  • Emerging Markets, both Equity and Debt are still attractive.
  • Appetite for Private Equity seems to have diminishedvi. Real Assets, both listed and unlisted continue to be appealing.
  • Fixed Income exposure decreasing in ‘traditional strategies’ i.e. Corporate Bonds etc.
  • Uptick in demand for ‘unconstrained’ Fixed Income strategies providing absolute return and stability. Short duration Fixed income funds strategies moving from domestic towards international exposure.
  • High Yield strategies remain attractive as do Senior Bank Loans/Private Creditvii.
  • Alternatives – Generally limited by the regulatory constraints on exposureviii. However, increasingly Investors are seeking to classify them as variations on Fixed income allocations or ‘alternative beta’ to surmount thisix.

Shared Factors for Success

So what are the some of the critical factors for success given this landscape? Based on conversations with senior business leaders, we believe that they include:

  • Product diversity.
  • Efficiency and depth of marketing materials, client service and reporting.
  • Strength of ‘Brand’ – Credibility and Trust.
  • Quality of Distribution Teams.

Many market participants have mentioned that while a local presence is important it is not critical for success. A demonstrable commitment to the region, though, is of paramount importance. Investors are increasingly wary of foreign asset managers who they believe may merely be ‘testing the water’ in the Nordics and not fully committed. To that end, specialised and locally denominated products are another area to differentiate and gain new market share.

Foreign entrants differ in their opinions on where to base their Nordic representatives although the three geographical options are:

  1. Locally within the Nordics (traditional preference for Stockholm although this may be changing).
  2. London.
  3. The Netherlands (typically where firms cover the ‘Netherlands and Nordics’ as one due to geographical proximity).

Of course, there are a few exceptions to this but they are very limited in number.

The Talent Implication

In light of the factors for success above and market challenges, we have clearly observed a need for firms to raise both the quality and content of their distribution teams during recent mandate completions.  Gone are the days of clients requiring consummate networkers who have an excellent client base but questionable levels of content and product knowledge. This is largely due to the changing client relationship, with sales professionals seeking to assume the role of an ‘adviser’ focused on solutions rather than ‘selling product’. Increased liabilities, regulatory burdens and challenged returns are weighing heavily on Investors’ thoughts.

Consequently there has been a noticeable trend for individuals moving from portfolio management into distribution positions and also for an increasing migration of sell side talent to Investment Managers. This latter category has traditionally proved out of scope from a compensation perspective although with the recent problems encountered by the Investment Banks this is now not always the case. Obviously the ability to commercially and culturally assimilate is vital with both these groups and needs to be assessed.

Recent completed searches for clients have shown us that the following skills and experience are in high demand within both the Institutional and Retail/Distributor channels:

  • Multi-jurisdictional experience across the Nordics.
  • Ability to influence key decision makers all the way up to Board level.
  • Significant depth and level of contact with the larger global Intermediaries.
  • Experience of fee negotiation, often on a global basis.
  • Ability to co-ordinate the fund sales efforts of country specific sales teams (predominantly for Retail/Wholesale channels).
  • Cross Asset-Class knowledge and expertise.
  • Ability to operate autonomously.

i EFAMA – Asset Management in Europe 6th Annual Review 2013
ii Source - The Swedish Investment Fund Association
iii “Nordic Fund Industry Outlook 2012”. An Advent Software and Perspera white paper
iv Ibid
v See Richard Tyszkiewicz, Head of Northern Europe BFinance: “The themes of unpredictability and volatility are still there whether it’s in equities or bonds.”
vi See the November Quarterly Investor Survey by Nordic Region Pension and Investment News. “Only about 30 per cent of respondents plan to increase allocations, compared with 60 per cent in the last survey”. Solvency II is a significant consideration weighing on Investors.
vii See Nordic Investor Survey 2013 by Danish Consultancy Kirstein.
viii One example being Norway where Alternative asset allocation is limited to 10%.
ix Research by Danish Consultancy Kirstein supports this