Kames launches against tide in indirect advisory waters


Start-up takes on multi-manager giants in competitive UK advisory market, reports Jane Roberts


In the past four years investment managers large and small, including BlackRock, Cushman & Wakefield and Henderson, have shut their UK multi manager businesses in the face of cost pressures and competition from bigger operations. But Kames Capital has bucked the trend by setting up an indirect property team from scratch.

Day: “Property multi managers have fallen down a number of times in focusing only on real estate funds and that little market”

Kames, Dutch insurer Aegon’s investment manager, launched the business early last year after taking on Mark Bunney, Matt Day and Tony Yu, who report to head of property Phil Clark. The trio were senior UK fund managers at ING’s Select multi-manager arm, before ING’s takeover by CBRE, so have knowledge of the market and previous form working for a Dutch company.

Day, who has 11 years’ experience as an indirect property fund manager and used to run UK fund of funds Osiris, now at CBRE, says Kames called its UK indirect property business just that, rather than multi-manager, for a reason. “Property multi managers have fallen down a number of times in focusing only on real estate funds and seeing that little market,” he says. “It’s a ‘where I sit is the best place to be’, silo approach.

“We have experience in listed property, derivatives and debt. Kames has a Hague- based global REITs fund we can lever off. When we joined we chose a multi-asset group to be able to understand the different perspectives, relative across markets.”

Aegon already has indirect property investing experience via TKP Investments, a Holland-based multi manager for Dutch and international pension funds, which it bought in 2004. TKPI manages three real estate funds, including one of Europe’s first (see panel). So while the new team has a UK focus, Kames has an international capability and can tap resources such as research.

Bunney: “That was one reason why we set up, because people wanted to see more competition [among multi managers]”
Despite this track record, some fund managers and investors question how the Kames team can build a new business here, when a few powerful companies dominate the almost-saturated UK indirect advisory market: few new mandates come up.

The obvious opportunity might be mandates seeking to move manager, at a turbulent time for both market performance and manager consolidation. “That was one reason we set up, that people wanted to see more competition,” says team head Bunney.

They have advised on a couple of segregated accounts that have underperformed: “the consultant wants a second opinion for the client – what would we do?” adds Day

Working with pension funds

Bunney says another business area has been working with “pension funds with mixed portfolios and some indirect property that don’t use multi managers – they’ve been doing that on the side of the desk. For example, giving advice on what to do on a vote, or if they want an exit.”

Can this lead to clients signing up for a discretionary service? “We hope so, if we show we add value,” says Day. They haven’t signed any discretionary mandates yet, but several are in the pipeline, one being close.

But Bunney doesn’t believe all pension funds want to cede discretionary control, especially “as mismanagement of some indirect investments has left them nervous”. They advised one investor that doesn’t want to devolve management of a £50m indirect portfolio to discretionary managers. “It’s not a question of fees; advisory fees can be pretty comparable to discretionary ones,” he says.

Winning business was a priority when they joined, but further down the line they plan to launch an indirect product. But in the early days, Bunney says, “It’s also about demonstrating our service to consultants and getting ratings from them – they know us from ING. We didn’t expect to start winning mandates until years two and three, so we are pleased with progress.”

The team are evangelical about unlisted funds’ need for liquidity and transparency. “We’re about delegating control to the fund manager; ultimately we exercise control by looking to sell if we don’t like what they are doing,” says Bunney. “We do lots of research and always have a view on where secondary market fair value is. If we communicate that to brokers we get more business from them.

“We maintain as liquid a portfolio as possible. A chunk of funds in the Pooled Fund Index are open-ended, so have liquidity, while a number of closed-ended funds trade – half a billion was traded in the past 12 months. We did 900 secondary trades while at ING (across 28 mandates).

“Some people still think liquidity means getting out at net asset value, but it does not,” Day adds. “There is a general lack of transparency in Europe.”

Dutch parent was pioneer on fund of funds scene

Aegon’s Dutch multi-manager arm TKP Investments manages two open-ended property funds of funds, the European TKP Real Estate Fund (TREF), and an Asian fund, plus the Listed Index Real Estate Fund.

TREF, launched in 2000, was one of the first European funds of funds. At around €970m, it is also one of the largest. It invests in unlisted funds across Europe and the UK and in direct property through joint ventures.

“TKPI’s philosophy matches ours… they haven’t got drawn into buying risky funds,” says Kames’ Matt Day. “They haven’t had redemption issues or had to close TREF.”