The heart of what Capital Group has done for 85 years in the US is mutual fund distribution through financial advisors to individual investors and they want to do that in Europe and Asia as well. Hamish Forsyth, Capital Group’s CEO for Europe, explains in this interview with Funds Society his plans for the continent. Always, with a long-term view and being aware of the regulatory and political challenges: “If Brexit was to materialize, with modifications, the management company in Luxembourg could take on the role currently played by London”, he says. But he believes there are opportunities in Europe and Spain, specially for companies stable and conservative as Capital Group.
How do you assess the development of Capital Group in Europe in the last years?
We have been in Europe since 1962 and we have built, particularly through the 1990’s, a meaningful size institutional business; historically our focus has stayed on the institutional market. Since the financial crisis we have been working hard on a plan to develop a mutual fund distribution business. The heart of what Capital Group has done for 85 years in the US is mutual fund distribution through financial advisors to individual investors and we want to do that in Europe and Asia as well. We are physically present now in support to that mutual fund distribution business in London, Zurich, Geneva, Frankfurt, Luxembourg, Milan, Madrid, Hong Kong, Singapore, New York and Miami.
In which markets will Capital Group focus on in 2016 and which are the favorite ones for boosting its business?
This is like with my children, I have no favorite one.
The uncertainty because of elections in Europe and geopolitical risks (Brexit, elections in Spain, rise of populism in Austria): How could it affect to your business development strategy in Europe?
Let´s distinguish between portfolio impact and business planning impact. So, there are lots of things that could affect stock markets, bond prices, and I´m not worried about that so much, I am not a portfolio manager; I leave that to the portfolio managers. For me, as CEO, my focus remains on the factors that could impact our business development strategy. Obviously, Brexit is one of them. We have a strategy throughout the EU that it is based on our UK company and our ability to passport our services from the UK. And if the UK leaves, we presumably will have to find another way of doing that. We have a small management company in Luxembourg today that takes care about our funds (domiciled in Luxembourg) and if Brexit was to materialize, with modifications, that management company could take on the role currently played by London.
Political uncertainty mostly is not affecting our business planning but regulatory uncertainty certainly does. We are in an era of significant regulatory changes and we spend a lot of time thinking about that.
In the case of Spain-Iberia: How are your goals working since the office was opened?
We came to Spain in 2014 to stay. Our goals and measurements of success therefore go beyond AUM and sales objectives. Our initial objective was twofold: firstly, to get to know the local market and distributors needs better and secondly, for us to start introducing CG investment process and capabilities. We trust this approach will help us building a solid, balanced long term business in Spain which is our ultimate goal. 2015 was our first full year in Spain and we feel we have progressed well in our efforts to introduce CG in the local market.
How do you see the positioning of international asset managers in Spain? Are there opportunities?
We had a faster than expected progress last year, which was our first full year with the team in Madrid. Since then, we have also hired a dedicated marketing manager for Spain, so the team has grown. Like everybody this year has been harder; it has been a hard year for mutual fund sales across the board in Europe and our challenge continues to be to find really first class organisations we can do long term business with.
Another important thing to stress, is that now Capital Group is known for the right reasons. We are not only just one of the biggest asset managers in the world. Apart from that, we are very different compared to other big asset managers. In this sense, the feedback we are receiving from clients is very good. We received a very warm welcome from Spanish investors. We trust our investment philosophy and our conservative and long term approach fits well with Spanish investors.
We could say we are a slightly old fashioned, rather conservative asset manager. What we have seen over our 85 years is that people who come to know us well appreciate us greatly. We are not a firm which is necessarily going to dazzle you with star products, a star manager or an outstanding short term investment result because this is not what we are looking for. What we are looking for is long term sustainability of good investment results. This is something that people have to come to learn about us and part of Mario and Álvaro’s jobs in the ground. In this context, and given our way of managing money, it’s important that we present the firm and our investment process before we sell our products.
In the last years, many asset managers have entered Spain; do you think that the Spanish market is crowded now? Where is the market niche for Capital Group?
Yes, we think it´s a crowded market. In the short term, inflows in the Spanish market have attracted a lot of new asset managers chasing short term inflows. Our view is more long term oriented. We think there is a long term opportunity for asset managers in the Spanish market and, in particular, for stable, conservative international asset managers like us.
How many products are currently registered in Spain and which are your latest news? And which products will you bring in the near future?
All of our Luxembourg funds, which are about 20 products now, are registered for distribution in Spain. Spain is an important market for us. We are on the process at the moment of bringing to Europe a number of our long standing American mutual funds. This is the heart of our firm, the family funds called American Funds. In October last year we brought a global equity portfolio, the New Perspective Fund launched in 1964. This month we are bringing our oldest mutual fund, The Investment Company of America, a US equity fund with an 82 year track record which launched in 1934. And later this year we are bringing New World Fund, an all country fund looking to get exposure to emerging markets through multinational companies.
We will continue to bring American funds to Europe and they can be an important manifestation of what we were saying earlier about the long term sustainable nature of what we aim to do.
Are you planning to expand your Iberian team in the mid-short term?
As we mentioned early, we have hired recently a new country marketing manager, Teresa García. One of the goals of our local presence is to provide the best service and support we can to our clients and distributors. That´s what drives the size of the team and currently we are happy with the current size of the team.
Many people argue that the environment will become more complicated for asset managers in the forthcoming future, due to the margin compression, the increase in costs, new regulation, and competition from passive products… Which are in your opinion the most important challenges for the AM industry, especially for Europe, in the next years?
The first thing I would say is that I remain rather positive. Regulatory change has often been very helpful for asset managers, and for us as a firm; and the creation of the single European market for mutual funds, the UCITS directive has given international players like us the ability to distribute one fund cross border in many countries, this is an incredible privilege and one we have taken advantage of.
Regulatory changes have resulted on margin compression and lower fees. As a firm, we believe very strongly in the importance of good advice. We think investors have better financial outcomes when they have worked with a good financial advisor but as I said, in a way, we look forward to a world where it is clear the investor is paying for that advice and it is not being bundled into our investment management fee. A world eventually where it is clear who is doing what for what fee is positive for us as a firm.
The most important challenge for us as an active asset manager has to be results. Linking back with something I´ve said earlier, if fees come down, in the end, it makes it easier for us to do a good job of producing investment results after fees.
Some American and Canadian asset managers are coming to Europe and expanding their product ranges with UCITS products, is this a long-lasting trend? Why?
I think it probably is. If you want to expand as an asset manager and you’re based outside the EU, I think expanding in the EU is always going to be an obvious move because of what we said earlier about the size of the client field, and because of the ability to distribute one set of funds across multiple markets in the EU and beyond. The UCITS magnet as a place for people to start is pretty good. We are not part of the UCITS magnet. We arrived to Europe in 1962 and launched our first fund in Luxembourg in 1969, so our commitment to cross boarder distribution of mutual funds in Europe predates UCITS by a couple of decades. However I think this is an explanation for why so many fund managers are arriving now.
You recently hired a new sales person to cover NRC Markets. How are you positioning yourselves?
Regarding NRC regions, indeed we now have a team of two front line sales people, one based in New York and another based in Miami, covering the main NRC territories in the USA. So, we feel now we are one step closer to the market.