By Jonas Wäingelin, NordicInvestor
Fredrik Wilander heads the external manager selection team at DNB Asset Management. This four person-team works in close connection with the bank´s tactical asset allocation unit, looking for best-of-breed managers to either bring in competencies that are missing within the bank or to complement asset management skills already present within the walls of DNB. In an interview with Nordic Investor, Wilander discusses the investment process underlying DNB’s manager sourcing and selection, what strategies are currently in demand and how the team has integrated ESG into the investment process as of late.
”We manage Norwegian, Nordic and global equities internally. Norwegian and global fixed income is also managed by the bank´s own trading desks. The reason we hire external manager is either to complement our internal investment management teams or to add specialist manager skills not catered for by DNB, global high yield bonds would be one example”, Fredrik Wilander explains from the DNB office in Oslo.
Wilander joined DNB in late 2015, having previously had a role as chief investment strategist and head of asset allocation at Nordea in Sweden. DNB looked to structure the selection capabilities into one team, while still drawing on the competencies built in-house when it comes to manager due diligence and performance analysis. The team members include portfolio managers Frode Veiby and Lena Öberg as well as analyst Kjetil Aga.
We have today approximately 20 different external mandates that have been sourced by our manager selection team and that will guide the fund selection of advised client portfolios
DNB asset management runs 60 billion USD in mostly long-only fixed income and equity mandates, part of which is managed within so-called balanced portfolios where funds are actively allocated across asset classes based on the views of the bank’s tactical allocation team.
”We have today approximately 20 different external mandates that have been sourced by our manager selection team and that will guide the fund selection of advised client portfolios in different parts of the organisation namely private banking, life, platforms and institutional mandates. A majority of the external mandates are regional and global equity strategies, but we have three credit-linked strategies as well.”
The hedge fund allocations of DNB make out a relatively small part of the total allocation and is held in a multi-manager structure. The hedge fund portfolio makes a separate bucket as compared to the 20 external mandates previously mentioned. The selection on the hedge fund side is done from Stockholm by Lena Öberg, who has worked in different hedge fund selection roles within the bank for the last ten years.
”The hedge fund portfolio currently consists of 10 managers and is as of now exclusively used for internal discretionary mandates. The portfolio is not the same as the hedge fund-of-fund called DNB Global Hedge that we previously offered as stand-alone fund. The current hedge fund portfolio is diversified across strategies such as global macro, equity long/short and CTAs and serve as a minor component in the discretionary portfolios we run in-house.”
Demand-driven manager sourcing
The work of the external manager selection team at DNB is guided by what is currently in demand from the wealth management, life and platform organizations.
”That could be either on request from the private banking side or from the tactical asset allocation unit. There are also other parts from within the organisation that could make us initiate a search, but it is always demand-driven”, Wilander explains.
Once requested to start a search, Wilander and his team put together a universe matching the strategy in question.
We are not aiming to find a magic formula to sort out the best manager, but rather look for a number of different angles in order to understand the profile of the strategy.
”When we have decided on a short-list of managers, we reach out to these managers and request additional information. A very important aspect is that our initial analysis of the fund matches our impression of the information received, it needs to confirm the likelihood of us receiving the risk/return characteristics that we anticipated on the grounds of our quantitative analysis.”
Once the selection team has decided on the final candidates, they go on to make on-site visits, preparing material to be presented to the investment committee that has the final saying on who to select for the mandate.
”We label it the preferred manager, which means the investment committee has given us approval to appoint a specific candidate given its assessment of our quantitative and qualitative analysis. It is then up to us to reach out to the manager to negotiate terms and fee levels.”
Once appointed, the manager gets monitored continuously to make sure performance and risk characteristics are in line with expectations.
ESG in focus
Since Wilander joined DNB in 2015, there has been an increased focus on ESG, and that has intensified over the course of 2018.
The team is continuously implementing changes that integrates ESG more deeply into the selection process and to make it a formal part of the qualitative analysis and due diligence meetings.
Answering NordicInvestor about the strategies that has recently been added to the list of preferred managers, confirms the ESG focus.
”In 2016 we added a global equity strategy using ESG characteristics in selecting the companies they invest in, that mandate is run by Hermes Investment Management. Among other strategies we have added in recent years is a European equity strategy from Wellington, a global high yield bond strategy from Muzinich & Co. and a strategy focusing on emerging market bonds managed by Neuberger Berman.
Wilander says that ESG is an integral part of DNB Asset Management’s internal management as they have a dedicated team looking at responsible investments and how that is to be implemented across the mandates they are running.
On our end we make sure that the managers we select do not invest in companies that falls outside of the ESG-compliant universe, that is more about exclusion than inclusion
”The responsible investment team supports our internal teams with ESG-analysis of companies, potential exclusions from the investment universe, and active ownership. On our end we make sure that the managers we select do not invest in companies that falls outside of the ESG-compliant universe, that is more about exclusion than inclusion. We also have tools for scanning our portfolios in order to evaluate the level and direction of a range of ESG metrics.”
Thematic strategies in vogue
Responding to how the offering of external managers has changed in recent years, Wilander highlights a shift from macro strategies, which have been a dominating strategy since the financial crisis, to thematic ones.
On the thematic side, sustainability has been a reoccuring focus area of many newly launched funds, Wilander argues.
“Nordea continues to add to its Stars-range, Kames Capital and Allianz are quite active in marketing their Global Sustainable Funds, and we recently met with Impax Asset Management that presented their thematic equity fund focusing on environmental markets. DNB also launched a Low Carbon Global Equity Fund last year”, he says.
A theme that is in demand right now is disruptive technologies inlcuding artificial intelligence, robotics and fintech.
”We are seeing high demand for funds that are using new technology such as machine learning to manage positions as well as for funds that invest directly into sectors benefiting from disruptive technologies. For example the Picket Robotics Fund has seen a lot of inflows”
In the hedge fund space, the team sees changes in that very specific strategies are now sought-after. The hedge funds are also making life easier for investors by bringing off-shore structures into the UCITS framework.
“Just in the event-driven space we have seen several recent launches. For example BlackRock launched their event driven strategy managed by Mark McKenna in UCITS, and Kite Lake which springs out of PSAM and Cheyne has raised quite a bit of assets with a UCITS Event fund”, Wilander concludes.