Seiichi Fukuyama, Head of Asia Pacific for MLIM talked to FinanceAsia about the rationale for this new umbrella fund range that will be called Merrill Lynch International Investment Funds (MLIIF).
FinanceAsia: How does this move fit in with the overall merger of Mercury and Merrill Lynch?
Seiichi Fukuyama: Several stages are required after an acquisition to achieve a united business and this is the final stage of the Merrill Lynch merger with Mercury Asset Management. We started with two asset management businesses; MLAM (Merrill Lynch Asset Management) and Mercury Asset Management (MAM), both with very different backgrounds and philosophies. Re-branding was key as we needed to gain a joint understanding of the philosophy which would drive the two businesses. We agreed our goal was one global brand back in 2000 but it has been a fairly gradual process towards integration under the Merrill Lynch Investment Managers brand. Now, the only thing remaining unresolved is Mercury Selected Trust, which will finally be combined into one Merrill Lynch umbrella fund from July 1 2002. This will create a single offshore product range underpinned by one global administrative platform.
The internal management structure has already been through the process of integration over the past few years but this move will hugely simplify distribution, administration and marketing both from our perspective and the perspective of our third party distributors who are currently dealing with two product ranges from MLIM.
What will be incorporated into the one fund range and how will it be different?
MLIIF will provide both growth and value products, sector funds, fixed income, regional funds, small cap to large cap but there will be a few gaps as we are focusing on what we are good at and we can't be good at everything. At one time MLIM was aiming to offer everything but we realized that this is not viable and the MLIIF range demonstrates a more selective philosophy with a reduction in funds from 72 to 61 erasing overlaps and legacy products. All 61 are actively managed products so one area we are not covering is passive funds and although we will still have Japan and the US funds we will not cover other single country funds. We won't have a cash fund but that is due to the regulatory issues in Luxembourg.
However, even with these omissions the range is unique in its breadth and the ease of switching between products. We are one of the first companies in the world to position ourselves as style free offering growth and value and we don't see anyone really competing in that space so there is an interesting question of whether the other big fund companies will follow our lead or stick to a style bias.
Are Asian investors interested in Style?
There used to be an investor bias towards Asian equities but now people understand the benefit of diversification both with style and regionally. They learnt about the growth story after the technology bubble and have started to branch out to global and international funds driven by their need for diversification. So we see that specialisation is growing in Hong Kong but not to the extent of the US yet.
How are distributors reacting to the new MLIIF umbrella?
Distributors have been very supportive which has actually helped fuel the process of the merger. We have had positive feedback on the use of the Merrill Lynch brand name, which is seen as a more powerful brand. We have definitely benefited from the time lapse since the ML acquisition that has allowed the market to get used to the change. The process has involved a lot of investor shareholder voting and they have been supportive throughout. We feel distributors have oversold guaranteed products and are looking for some new ideas so we are hopeful of a good reception for MLIIF.
Will you sign up more distributors?
We are very selective and tend to use mostly international players with whom we have global agreements. As we have no direct sales strategy our partnerships with distributors are very important and we're keen to ensure they share the same values and that they are in line with our strategy. We are constantly evaluating the distributors we want to work and haven't signed up as many as possible like some other fund houses.
Has there been a change of culture over the past few years?
We operate on a different business model now, MLIM is neither MLAM or MAM; it is a new place with more product opportunities and with greater confidence than either to grow and to be big. A lot of integration work has taken place to ensure that you take the good parts of the old Mercury and MLAM for example, we recognize that Mercury had the stronger investment culture for institutional business. MLAM had a number of interesting products like the value products, their U.S. fixed income business is strong and more varied than Mercury and there is more of a retail culture for mutual funds. However a lot of new people have come from the outside since the acquisition and are helping to shape the new culture with influences from their previous lives as well.
Has integration issue helped drive losses of Fund Managers in Europe?
I don't think so. There are different and valid reasons for the losses, issues of the golden handcuffs coming off three years after the acquisition, new trends with hedge funds attracting a lot of talented fund managers and being one of the top players means we are always been scoured for talent by headhunters.