PGIM Investments has seen the assets under management in its UCITS fund range in Europe double from 4.8 to 9.6 billion US dollars in the past 1.5 years. This increase is mainly due to new inflow and to the fact that the American asset manager, as an active house, charges competitive fees.
Yvo van der Pol, the head of PGIM Investment in the Benelux and the Nordics, stated this in a conversation with Fondsnieuws, the Dutch-language sister publication of Investment Officer Luxembourg. Of the 28 investment funds that the house has poured into a UCITS structure, 8 are available in Belgium, 20 in the Netherlands and 14 in Luxembourg. One of the reasons for the registration in Europe was that these were strategies that were very popular in the US home market.
A challenge, Van der Pol admits, is that currently no more than three of the 28 registered UCITS funds fall under Article 8 of the EU SFDR Directive and can be labelled ‘green’.
Without ESG you will be left out
“We are busy increasing that number”, asserted Van der Pol. “It is true, if you do not have it in order that your funds fall under Articles 8 and 9 of the SFDR Directive, there will come a time when you can no longer sell your funds in the European Union. But as you know, the discussion in other countries is not so black and white. But the increasing demands of the customer force you to adapt. Because if you don’t come along, you run the risk of being left out.”
Van der Pol added: “ESG/SRI has come to dominate the Belgian marketplace through the Febelfin label and a lot of clients taking the label as a base-case minimum requirement for their investments. The label is also recognised in Luxembourg, but the local Luxflag label is also a strong contender for local distribution. Now with SFDR in place, it’s yet to be seen where the focus will be going forward.”
Van der Pol emphasised that ESG integration is high on the agenda. “PGIM attaches great importance to this. We have now developed our own ESG score for each title and/or issuer. It is a model developed by PGIM itself, which 110 own analysts work with. With that database we not only look back, but we can also look ahead.”
Seven independent boutiques
PGIM is making strong progress in Europe, partly thanks to its advantage of ‘economics of scale’. The asset manager is part of the American insurer Prudential Financial, so that many (bond) investments are for their own book, with risk management stored in the house’s DNA. Fixed income is the core domain, in which a substantial part of the USD 1,500 billion assets under management is invested.
PGIM represents seven independently operating boutiques, which are wholly owned by the house: PGIM Fixed Income, Jennison Associates (growth stocks), PGIM Real Estate, QMA (quant), PGIM Private Capital, PGIM Global Partners and PGIM Investments — each of which stand alone, but use the common service of PGIM Investments for marketing, legislation and regulations and compliance.
With regard to fixed income, Van der Pol said that the discussion with customers mainly revolves around the ‘search for yield’. “Some parties are abandoning fixed income altogether and are turning to alternatives. Others look for aggregated solutions, for example in Emerging Markets Debt and High Yield, and expect us to think deeply about them,” says Van der Pol, who previously worked for Goldman Sachs Asset Management for almost ten years. For example, PGIM offers multi-asset solutions within fixed income, depending on the client’s risk profile, he said.
A challenging market
Despite the successes achieved, Van der Pol spoke of a challenging market. “In general, there has been a sort of institutionalisation of the business. Clients have become more complex in their approach for offering the best service for their own clients. Their screening and selection processes have become more vigilant as well as the willingness to form strong strategic partnership. Large established players that have a wide range of qualitative products in different asset classes of course tend to be at the top end of their preferred list. Similar to the Netherlands, the first steps have been taken to look at setting up mandates (e.g., BNP AM Select, FundChannel) with the pressure on fees after MIFID 2 and the ease with which a tailored product that fits the client’s needs can be implemented.”
Local presence has become key to servicing clients, said Van der Pol. “A large part of the Belgian market is dominated by a few banks/private banks. Not only is it key to speak to the different teams to see what their needs are but also to offer support and be their key contact person. A considerable market share is taken by independent financial advisors that can select any fund for their clients through a Unit-Linked solution at a Belgian or Luxembourg insurance company, it’s important to be positioned and recognised as a strong qualitative asset manager in order for them to partner. Finally, about a dozen independent wealth managers mainly offering discretionary services to their HNWI clients represent the fund distribution landscape in Belgium.”
“In Luxembourg, many large international banks have a subsidiary with local portfolio managers and advisors and can have support in local language or access products designed for the local market. On the other hand, the market consists of many family office and asset managers who require a personalised approach in order to be successful in doing business.”