There are not many investment firms that have entered the UK retail sector over the last few years but Wellington Management felt it could fill a gap in the market.
The US firm opened its products to the financial adviser market in September 2019 after reaching a distribution agreement with wealth manager Raymond James.
The UK company’s advisers have access to Wellington’s products; which include equity, fixed income, alternatives and multi-asset.
Its investment vehicles were only available to institutional clients in the UK before this deal.
Reasoning
Matt Knight, head of UK distribution at Wellington Management, told International Adviser: “The UK is a key priority market for us as part of our broader long-term strategy to develop Wellington Management’s wholesale offering across Europe.
“We felt there was a gap for a more global investment offering, which played to our core strengths across fund distribution and sub-advisory solutions.
“Couple this with the structural tailwinds in the UK wealth management market and you’re seeing a particularly interesting opportunity today.
“Not only have banking and pension changes driven appetite for wealth management services, but there’s also a real shift away from the traditional home bias of many managers and funds.
“Fund selectors are taking a more global approach to asset allocation and wanting to partner with asset managers that can provide this broader investment capability.”
Expansion
Having now entered the UK retail market, what is next for the investment manager?
“Over the past decade, we have been committed to expanding our presence across Europe more broadly, and today we are operating in all major European distribution markets; including Italy, Germany, Switzerland and Spain,” said Knight.
“For us, it’s key to have a local presence. So, we focus on building our capabilities, team and local understanding first and then developing our infrastructure and investment capabilities.
“Beyond Europe, Asia is a key market for us, where we are currently seeing a significant amount of growth.”
Ambitions
The move from institutional to retail investments is a big step and one that was not rushed.
Wellington has a long-term plan how to grow in the sector, but what is its ambitions?
Knight added: “We believe sub-advisory partnerships will become increasingly relevant for distribution, so that’s an area of focus for us.
“As a large global sub-advisor, being an outsourced service provider for portfolio management is very much in our DNA, but it’s particularly interesting to see the fund providers in the intermediary market moving in this direction.
“Historically, these relationships tended be the domain of institutional investors and were really focused on product completion, be that a replacement or complement for existing strategies.
“But with regulatory changes driving a focus on costs and demanding that firms provide clients with more value for money, the trend towards outsourcing investment management of funds offered in the retail market has accelerated with clients looking for more sophisticated solutions.
“It’s meant that we’ve seen more firms looking for sub-advised solutions, particularly where they are seeking to scale efficiently and have very strong distribution networks.”
Institutional-like investing
The institutional has started to have a huge influence on the retail space.
More and more firms are offering private equity and hedge fund opportunities to the masses.
So, will this be something that Wellington will look to do?
“Investment themes and strategies that were traditionally the preserve of the institutional market, or originated there, are starting to permeate the retail investor base as they move away from more traditional models,” Knight said.
“It’s something we believe in doing, where it can be done, and we’re seeing huge demand. Hence, we have worked hard over the past few years to make our existing institutional-calibre investment capabilities available to distributors in intermediary markets.”
Future of the retail space
So, what trends does Wellington see in the retail space?
“I’d point to four big investment themes where we are seeing particular demand: thematic strategies, especially fintech, healthcare and global innovation; alternatives, where we’re looking at how to bring these into a Ucits format; fixed income; and sustainability,” Knight said. “It’s especially interesting to see how fixed income and sustainability are dovetailing more and more.
“For example, many private banks and wealth managers are looking at our Global Impact Bond strategy as a key tool to use as part of a core fixed income allocation. And we think this trend is only going to increase in the coming years, particularly given the generational wealth shift that is driving a lot of the interest in more sustainable portfolios.
“Looking ahead, understanding the impact of climate change, especially the physical risks, is going to be increasingly important.
“Fund selectors should be asking managers how they are quantifying this and hold firms to account here. We don’t think enough investors are focused on how climate change is impacting countries, industries and companies and understanding how their investments may be exposed.”
