fighting for the high ground

Gone are the garish billboard advertisements of the pre-crisis era, replaced by more sober displays extolling the long-term benefits of diversification and investment solutions. Indeed the soft-sell has become so soft it can be extremely hard to detect. Take ‘thought leadership’ – an approach developed by some larger pan-European houses, which aims to demonstrate investment expertise to professional fund buyers via a range of forums, while minimising the promotion of specific products or services.

Legg Mason is among a handful of groups openly employing the strategy. The firm even unveiled a dedicated Global Thought Leadership website in January, featuring written and video commentary from in-house and external contributors, alongside market analysis and reader polls. In August, the company further developed the approach by launching a Global Bond Masters platform – “an all-encompassing resource for advisers and professional investors looking for commentary, expert analysis, and exclusive content” from its Brandywine and Western Asset fixed income subsidiaries.

According to Justin Eede, Legg Mason’s head of European sales and client service, fund groups can no longer simply “go into an office with a pitch-book”. Clients increasingly demand educational support, he says, including regular communication from the portfolio management side of the business, in the form of white papers and market commentary.

Eede explains: “A lot of the research that came out of the crisis in ’08 and ’09 suggested clients do not want to have product thrown at them – they want to benefit from the intellectual capital contained within asset management firms.

“Often you get strategists or analysts sitting in dark rooms, anonymously, behind the portfolio man- agers, who do not get seen or heard. They are some of our brightest people and have some of the most interesting things to say. This is one way of bringing that content out to an audience in a non-aggressive manner – to provide support for what our clients are doing. We can provide an extra service to clients, without actually touching on the idea of selling anything.”

Online platforms are just one tool to get information across, and traditional face-to-face presentations also play an important role. Recent examples include a talk given by Michael Mauboussin, the chief investment strategist at Legg Mason Capital Management, a subsidiary of the Legg Mason group.

“We did not expect much of a response but we had about 50 people in the room,” Eede recalls. “And we figured it out – it was because we were not selling anything. It is a sign of the times. You need to be working in partnership with your clients – understanding their needs as much as possible, and matching those needs with what you have in your product range.”

Nudge nudge

While the thought leadership mantra is education rather than products, companies can tailor the content they offer investors to encourage interest in certain areas – an approach similar to ‘nudge’ psychology theory, which proposes that the choices people make can be influenced by altering the context in which they are made.

For example, Eede says Legg Mason plans to use the thought leadership website and white papers to raise awareness among its European clients of equity income strategies, as an alternative to low-yielding fixed income assets. Once investors have been educated in this area, the firm will follow by launching a pair of US equity income funds.

Recent performance

On the existing Legg Mason offering, Eede expects continued strong appetite for low-volatility products in the range. He notes that two “blockbuster” funds of recent years – Brandywine Global Fixed Income and Western Asset Global Multi Strategy – are long-only but run with a total return mind-set, and says absolute return-labelled strategies launched by the two fixed income subsidiaries will grow in popularity.

Global Absolute, which is managed by the group’s alternatives specialist, Permal, will also appeal to cautious investors, Eede predicts. “Given how many crises there have been in the past ten years, people may have longer memories this time around,” he adds. “There will be demand for low volatility products with more predictable outcomes for some time to come.”

Eede oversees offices in Frankfurt, Geneva, London, Paris, Madrid and Milan – some of which act as hubs for servicing other countries – and employs a three-stage growth plan across the markets in which Legg Mason operates. Phase one involves building what he calls a “beachhead” – where the firm targets “quasi-institutional” investors such as funds of funds, discretionary asset managers and private banks. Phase two – where the majority of his markets currently sit – focuses on developing a strong client service reputation, while selectively pushing into the next level down in the quasi-institutional space.

And phase three sees the group going deeper into the advisory segment. “That is where we are starting to work with the promotori in Italy, IFAs in the UK and, to an extent, some of our advisory banking partners in Spain as well – where we are trying to build products which suit the end user in those particular markets,” Eede says. “We have to understand what it is that Mr and Mrs Carlos really want from their investments. That is something we are taking very seriously from a marketing point of view, from a sales point of view, and from a client service point of view.” 

Legg Mason has been so successful in gauging the needs of Italian investors that inflows from the country into its fund range have grown at a quicker rate than from any other European market, in percentage terms.

Dolce vita

Eede says: “We have enjoyed much greater success [in Italy] than we thought and the team has grown from one person to four during that time. We are pleased with the success there – not just in terms of the money we have raised but also the different channels we are raising money from.

“We started off with the discretionary asset managers, and we recently received our first trade from one of the largest advisory banking platforms, which we made an agreement with a month ago. Success can come in large chunks and can be quite undiversified in its nature. But within Italy it has come from a number of different sources, and that gives us cause for celebration.”

One of Legg Mason’s phase-two markets – the Nordic region – also performed above expectations during the past two years, he adds, and a permanent base could be established there if inflows continue.

Rise or fall?

Looking at the long-term picture for the industry, Eede says there is enough room in the market for active fund managers able to produce “genuine alpha”, over sustained periods of time, despite the growing challenge posed by providers of low-cost passive strategies. However, which houses survive and which fail, will increasingly depend on their ability to engage with clients.

“We work in a commoditised industry,” Eede adds. “There are a lot of good products out there, and we think we have some of the best. But there is no more public an industry than ours, because the results can be measured easily against each other. The quality and frequency of communication – how you bring your clients in, how you make them a part of your company, and how they benefit from intellectual capital – will be crucial to success over the next few years. We are doing that pretty well but we can do it better. And that is what we are striving to do, all the time.”