By Hamlin Lovell, NordicInvestor
A new team for the Nordics told NordicInvestor how their expanded suite of products can run the gamut from the lowest cost passive strategies out to alternatives.
Invesco has rebuilt their team exposure since June 2018, making Stockholm a base for the Nordic region, and hiring Stefan Behring to head up institutional relationships. Philip Von Platen reports to Behring, and Mattias Hagen has been recruited to run the wholesale business. “The goal now is to become known to all of the largest tier one and two clients: the largest 60 asset owners in the Nordics” says Behring.
He is really coming back home, having spent seven years working at Invesco up until 2007 – and been at JP Morgan Asset Management in the interim, also servicing Nordic institutions. “It was a great opportunity to come back as the firm is quite different now: a lot larger and with more institutional quality strategies” he says. The company has broadened out its offering substantially, ranging from low cost ETFs, factor-investing, quant equity, discretionary active equity, out to alternatives including real estate, senior secured loans and private credit.
With assets of USD 950 billion, Invesco is close to the trillion-dollar club of the world’s largest asset managers and is a full-service provider with global reach. At the same time, it embraces the “multi-boutique” business model whereby specialised, autonomous investment teams each has a degree of independence; one difference with other multi-boutiques is that nearly all strategies come under the Invesco brand name. Infrastructure, sales, risk management and compliance are handled centrally, leaving teams the freedom to exercise their entrepreneurial mindsets and keep growing. Independence at the corporate level matters too: growth has been mainly organic and where there have been mergers, Invesco has been the acquirer.
Thanks to acquisitions including Source and the acquisition in 2018 of Guggenheim, Invesco now ranks as the world’s fourth largest ETF provider globally. From Source, most of the offering is passive, though there are also some active, quantitative strategies packaged into ETFs. “We are focused on becoming a lead provider, with our S&P 500 ETF one of the lowest cost products, and costs coming down on the US fixed income side too” says Behring. Invesco has no policy against security lending in physical ETFs, but more often runs synthetic ETFs using swaps with a number of counterparties. “For instance, in EM this offers the advantage of a collateral upgrade for an emerging markets ETF, as we get EM exposure from a basket of developed market equities plus a swap”, he explains.
ETFs apart, Invesco does offer some benchmark-conscious products, including enhanced index-plus products using quantitative techniques. At the other end of the spectrum, managers such as Invesco Perpetual take a much more active stance in their very long term, fundamental, bottom up stock-picking that has generated impressive multi-year track records across UK, European, Asian and Emerging market equities.
In alternatives, Invesco is a big player in real estate, with some $40 billion of its $65 billion of assets being directly invested into property strategies including core, value-added and opportunistic styles, which are used as building blocks for institutions’ real estate allocations.
In senior secured bank loans, Invesco runs $40 billion and was the largest manager by transaction volume in 2017, globally. Invesco does run one of the largest loan ETFs though for this asset class, Behring suggests that, “an active approach makes more sense, as tracking a traditional cap-weighted loan index implies having the highest weighting to the largest debt issues”. Of course, smart beta and factor-based loan indices could determine weightings on a different basis; though Behring admits that, “factor investing is in its infancy for fixed income”.
In private credit, Invesco has recently launched a stressed and distressed credit strategy focused on the small and mid-cap spaces, but there is no need to wait for a downturn as good deal flow is already on offer. Invesco’s private credit strategies typically have half the lock up of a private equity fund.
Behring has a direct dialogue with institutions, and generally does not need to navigate gatekeepers in the form of consultants. Compared with the UK and US, where pension fund trustees make extensive use of consultants, they play a smaller role in the Nordics and are more likely to be working on ad hoc projects than retained ongoingly or asked to provide manager buy-lists; though some smaller institutions have made use of OCIO functions run by local consultants.
“There is some degree of fee sensitivity in the Nordics, but clients are also reasonably flexible and open minded” says Behring. For instance, a barbell approach substituting passive for active managers on the liquid side, can free up some of the fee budget for strategies such as private credit, without increasing the weighted average fees across the whole portfolio.
Private credit in particular is attracting more interest. Sweden has traditionally been characterised by an equity culture, including private equity, and an appetite for real assets, but this is gradually changing as clients dip their toes into private credit – an area where Swedish allocators are an at earlier stage than those in Denmark and Finland. The Finns in particular have large programmes in private credit.
“The Nordics have for long been leaders in ESG, which has moved on from a simple negative screening approach towards a requirement for ESG to be an integral part of investment strategies” says Behring. Invesco is blazing a trail towards implementing ESG in alternatives including credit, where analysts are producing ESG scores for companies they lend to, both via loans and private credit. This is quite innovative as even managers with long standing ESG policies for equities are only just starting to think about applying ESG to credit.
Similarly, “factor investing is well established in equities, and it will be interesting to see how it evolves on fixed income” says Behring.
Alternatives in the Nordics are moving into the mainstream, as a new investment law for the AP pension funds lets them allocate up to 40% in alternatives, starting in 2019 compared to the previous rule of 5% in illiquid strategies, excluding real estate. Meanwhile the minimum allocation to investment grade bonds has gone down to 20% from 30%.
As Fed rate rises have increased the costs of hedging USD denominated strategies back to EUR, SEK or DKK up to 2.5% or 3% per year, Behring is seeing renewed interest in European investments.