Russell markets specialist-fund platform to private banks in Asia

Family offices and high-net-worth individuals in Europe and the US have long sought advice on a level similar to that provided to institutional investors. But the situation is a little different in Asia, given the less mature nature of the region’s private-wealth market and the tendency of rich investors to be more short-term-trading orientated than their Western counterparts.

Nevertheless, investment consultants are keen to grab a piece of the action – as reported in AsianInvestor’s May issue – in what is ultimately set to become the biggest regional pool of capital in the not-too-distant future. Like Mercer, albeit with a slightly different approach, US firm Russell Investments has stepped into the fray by starting to offer its OpenWorld funds platform in Asia in the first quarter.

Launched in October 2008 in Europe, the platform offers access to specialist, high-conviction sector- or regional-specialist, high-alpha managers, which Russell has already researched and approved for its specialist-manager offering. OpenWorld has 18 core investment strategies, each run by a single manager. It is already used by institutions such as endowments in Asia and has $450 million in assets under management worldwide.

“We are increasingly marketing OpenWorld to private banks, family offices and high-net-worth individuals,” says Mahendran Nathan, chief executive for Asean, India, Hong Kong and Taiwan at Russell Investments in Singapore. “They are using it for satellite bets for alpha generation within their portfolios, and it’s also being used directly by clients of the private banks.”

Four private banks in Asia are currently carrying out due-diligence and testing on OpenWorld, adds Nathan, who joined Russell late last year.

The platform is only likely to appeal to investors up to a certain size. “Large institutions are usually market-orientated – G5, G7, global balanced, etc; fairly traditional asset classes globally – and are large enough to be directly invested in markets,” says Nathan. “They don't typically need to use a fund platform.”

Managers offered through OpenWorld are boutique, under-researched managers, he says, which means the risk and compliance evaluation is even more important. “For the bulk of these managers, the only asset class they manage is in the specific asset classes we've awarded them to manage.”

Most of these are performance-fee-based managers – they are not benchmark-relative-orientated but alpha-orientated managers, and they only do segregated accounts, says Nathan. “That's how Russell works – we mandate a segregated, discretionary account to manage on behalf of Russell, meaning we become a client of the underlying manager.”

He also highlights the importance for those researching fund managers of understanding why a strategy might be outperforming. “Typically, when we evaluate a manager, it's not all about performance, because a manager may be underperforming because his ideas or style are not suited to this cycle, not because he’s not a good manager,” says Nathan. “And you don't want the manager to change his style to match the cycle.”

Manager performance can be driven by a few things, he adds. It can be because the firm has a very tight and sound investment process, it may be down to the individual manager's skills, or it can be because the manager is in the right part of an economic cycle for its approach, whether that might be a growth, value or other type of market, says Nathan.

That's where Russell comes in, he says. “We try to choose the managers that are going to outperform in the future cycle; over the next year or two,” says Nathan. “It's about identifying the part of the cycle we're going to be in.”

Russell offers asset consulting, management and implementation services and has $140 billion in AUM as of June 30.