Jean-François Hautemulle reshuffled the fund selection process at UniCredit Private Bank. Based on a truly pan-European approach, he tries to promote transparency and avoid bad surprises.
This means that interviews with fund managers are conducted by two fund selectors from different countries.
“We want to be agnostic. Our recommendations stand for everybody in the network.” Eventually, on a pan-European basis, his team puts 160 funds for 23 core asset classes on a recommendation list. “This leaves enough place for everybody to actually manoeuvre.”
Transparency and competition
But Hautemulle does not bet solely on a simpler business model to harmonise the fund selection process across Europe. “We have ten partners for practical reasons. We want an in-depth relationship and open communication.”
UniCredit wants to get something in return from the ten asset managers in exchange for the preferred treatment in the network: more transparency and competition. It is important to know how to work with the partner, Hautemulle argues. “Preferred Partner programmes often do not mean very much.”
At UniCredit, selectors insist on transparent and timely communication. This is especially important when a fund on the recommendation list is suddenly underperforming. Situations such as these would show whether the Preferred Partner scheme works.
To make sure it does, communication goes both ways. “We are very transparent about how we make choices. The quarterly basis product catalogue is sent to all partners so they know which funds they are competing against.”
This has already fostered competition among partners, says Hautemulle. “We are also outspoken when we add funds on watch lists due to a lack of performance. Sales people are not very happy to see this, but at the end of the day, it is very transparent.”
The steady information flow between the selectors and the partners would thus facilitate understanding of the risk in client portfolios and generate new ideas for analysing particular funds at the same time.
“We need to be aware of the positioning of the funds in relation to our views on asset classes,” he adds. “We always have to ask ourselves whether the fund is positioned in a way that fits our recommendations for client portfolios.” These views are set by the global investment strategy (GIS) team, which reviews the asset allocation decisions on a monthly basis. Without regular updates and communication, it would be tough for the team to assess whether a fund still fits well with the GIS targets.
But the relationship could go even further in the future, Hautemulle hopes. Up to now, the relationship with the Preferred Partner has remained solely in the area of asset management. But some of the firms which the team at UniCredit work with have more services to offer.
For example, asset management giant BlackRock has established itself as a provider of risk management tools for portfolios, while expanding the flourishing business with exchange-traded funds. Others, such as JPMorgan, have major private banking units. In these areas “we could learn an awful lot from them [the preferred partners]”.
Today, Hautemulle still judges the success of the newly structured model at the portfolio level. This means being informed about a fund manager’s strategy. This is of the utmost importance for one of the main tasks of the fund selectors at UniCredit: “To make sure ‘Oops!’ moments rarely happen.”
Given the economic turmoil of the past few months, ‘Oops!’ moments occurred at some of the most widely distributed funds in the UniCredit network. The selectors have a clear guidance to work with. “We tend to go for two quarters of underperformance before we pull the plug on a fund. The preferred partners know that.”
Yet not all bad performance is equally bad. As the views of the GIS matter for the selection, the team might keep faith with funds that underperform for the “right reason”. One of them was the Templeton Global Bond Fund, managed by Michael Hasenstab.
The flagship bond fund grew to a size of more than €30bn in 2011 and has managed to outperform its peers decisively. According to Morningstar, between 2007 and 2010 Hasenstab was able to beat his peer group by a wide margin, yielding five per cent more than comparable products per annum.