Fund manager Schroders is looking to boost its allocation to alternatives through additional investments in private equity, commodities and real estate, according to group CIO Alan Brown.
The fund manager is also pushing through plans to expand into the US markets, Brown said.
Speaking to Thomson Investment Management News on the sidelines of the Liability Driven Investments conference, Brown said that although the private quity industry is facing hard times, it is still worth building up expertise in the area.
“Schroders has a long history of private equity (investments) and I would like to expand that again. At this stage we are keeping all options open.
“From the timing point of view, I agree that private equity is not something you would rush into today but private equity is a 10-year business; you have to be be sensible from the entry point of view but in terms of building capabilities in that space, this could be a rather good time to do it,” the CIO said.
“It is perfectly possible that by the end of this year it is a great time time to get into private equity,” he said.
Brown said the group is “very interested” in alternative classes and the internationalisation of its real estate activities, which started as a UK business, is firmly on the cards.
“We made a small acquisition last year which has made us European and from the securities side we have already been promoting global property securities funds, but over time we see property asset class will be globalised in the same way as equities were 30 years ago,” Brown said.
Schroders, he said, is also poised to be active in the commodities area, although it will be careful not to overdo its investment in the OTC market.
Brown said the agricultural commodities sector is particularly alluring at this point in time.
“We think it benefits from a very positive supply/ demand position. We have the whole issue of bio-fuels, both driven by desire to reduce greenhouse emissions and from the US side reduce dependency from imported energy,” Brown said.
A further key driver is increased prosperity in Asia which is driving demand for commodities such as wheat.
“Another reason is the short-term impact of the climate change in term of impacting yields (harvests), it could boost yields in places like Scandinavia with warmer summers but more generally in the bread baskets of the world, there is potential for problems in terms of yields,” the executive added.
From the hedge funds point of view Brown said Schroders will continue focusing on the fund of funds arena while increasing its distribution effort for its hedge fund operations, the NewFinance Capital.
Brown said that while Schroders was a global player, it is still “underrepresented in terms of clients and assets in North America”, and is expanding its efforts, concentrating on both the institutional market opening to non-US investments while continuing its efforts to gain ground in the intermediary market.
“Interest in non-US investments, particularly after a prolonged period of dollar weakness is quite high,” Brown said, adding that international equities, emerging markets equities and commodities are the most popular non-US investment options.
“The other area where we see demand, but is new to us is is the intermediary space. If you go back a few years ago; we had never attempted to enter the intermediary business in the USA but we believe the conditions are right,” he said.
He backed his argument saying that domestic investors, like institutions, are interested in international investments and on top of this intermediary firms are moving more towards an open architecture structure and are more willing to distribute third party products.
“We already have strong relationships with intermediaries in other parts of the world, so it was quite natural for us to try and expand our relationship into the United States,” he said.
“We are not going head to head with the Smith & Barneys of this world but we hope that they see the value of our funds and hope they include it in their offerings. We started this (expansion) in 2006 and it is going quite well,” he said.
Brown reiterated Schroders‘ interest in bolt on acquisitions, giving North America as an example, but was cagey on the asset classes aspirations for the group. He only said new acquisitions would broaden the group’s capabilities “beyond the equity frontier.”
“We have said we are interested in acquisition of a bolt-on type, but to expand our capabilities and further our ambitions,” he said, adding that Schroders is still still 65-70 pct equity oriented.
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