Schroders and Standard & Poor's have launched a product for financial companies that will offer their investors access to Standard & Poor's fund research capabilities combined with Schroders' investment skills. In this joint initiative, Standard & Poor's will conduct fund research and analysis and will recommend funds for selection. Schroders will provide asset allocation, portfolio construction, risk management and performance measurement. Schroders' international wholesale network will also provide marketing and sales service. The service will be available globally excluding North America.
The global fund of funds market has been growing by 35% to 40% per annum and is now close to US$300 billion. By 2007, it is expected to total more than US$700 billion as investors turn to best of breed products which also offer greater diversification. The Schroders/Standard & Poor's service is a sub-advisory service. It will provide a turn key solution through which brokers, banks and other financial institutions will be able to offer custom-made fund of funds portfolios combining Standard & Poor's fund research and analysis with Schroders' in-house risk management tools.
Branding for the sub-advisory service will be flexible. The distributor will be able to choose whether to use a combination of Schroders and/or Standard & Poor's brands, or whether to market on a private label basis under its own name. Robert Hegt, director of Schroders, says that so far there's been a mix of institutions wanting to use their own name and others wanting to use Schroders/ Standard & Poor's. "We're talking to one of the biggest players in Italy and they're quite happy to use their own name. At the same time in the UK we are in discussion with an institution, and a few in the Middle East, that are interested in using our name," Hegt says.
Since the services launch in late September the response has been, in Hegt's words "amazing". Initial expectations were for this product to be of interest primarily to small to medium institutions. This has indeed been the case, but what has been surprising is the interest from large institutions as well he says. These institutions are launching their own fund of funds products and talking to Schroders about managing it for them.
Hegt also says they have had interest from pension schemes, "For defined contribution schemes it is actually an ideal product. In Europe, including the UK, we have had discussions with pension schemes and we hope to do so here in Asia very soon." As to when the first institution will sign up, Hegt is hopeful the first deal will be signed before Christmas and to see the first funding early next year.
Commenting on the launch Massimo Tosato, Group MD Retail, Schroders says, "This service represents a strategic diversification of Schroders' business into a fast growing area of the savings market. Most importantly, it will enable us to offer our clients a broader range of investment solutions."
Paul Aaronson, executive managing director, Standard & Poor's says, "Investors have long relied on Standard & Poor's independent fund research, analysis and advice for their portfolio decisions and we are delighted to now offer, along with Schroders, a customized value-added service that meets the specific needs of fund of funds' distributors. This arrangement between Schroders and Standard & Poor's will be a powerful combination in a rapidly growing marketplace."