Wells Fargo Asset Management, a US-based fund manager with a long history in quantitative and index-like low-fee strategies, is making inroads into the Asian Pacific region.
Wells Fargo AM, a subsidiary of the venerable US retail bank which started life in the mid-19th Century carrying gold, other goods and people across America in its famous stage coaches, has already built a client beach-head in Australia and New Zealand. The firm has almost US$1 billion sourced from Australasia, with six Australian and one New Zealand institutional clients. They are currently serviced from the San Francisco office.
That San Francisco office is equally as famous as the Wells Fargo name in the arcane world of quant investing. It was there that a large number of the sharpest mathematicians, engineers, psychologists and even the occasional philosopher, all of them armed with a PhD or other high-level qualification, pioneered what is now known as factor investing and smart-beta strategies in the 1980s.
In 1995, the then joint-venture business of Wells Fargo Nikko Investment Advisers, was bought by Barclays Bank of the UK for US$440 million. The manager, based in San Francisco, had about US$171 billion under management at the time, of which US$150 billion was invested in the US. It was then the largest quant manager in the world. Barclays, which had a more global reach but a troubled funds management offshoot, allowed Wells Fargo to take over and run what was called the BZW funds management business, and changed its name to Barclays Global Investors (BGI). This was subsequently acquired by BlackRock, a New York bond manager which was looking to diversify, in 2009, the US manager paying US$13.5 billion and becoming by far the largest fund manager in the world. It had previously bought Merrill Lynch Investment Managers, in 2006.
Both BGI and Merrill Lynch had established Australian operations but the merger of the two did not go smoothly in this region. BlackRock sued a breakaway start-up, consisting mostly of BGI former employees, now known as Vinva Investment Management, and lost more than $10 billion of Australian client business as a result. The firm eventually settled down under the new ownership and the parent’s sins of the past were forgotten.
(As an aside, quants are not very good at marketing and communications. The name Vinva, for instance, comes from the expression of constructing an optimal unconstrained long/short portfolio: ‘V(inverse) x Alpha’. Alpha (A) is supported by the management of investment risk (V) which is at the heart of the firm’s process.)
Meanwhile, Wells Fargo, in time, rebuilt its funds management arm, and returned to its roots in 2016 with the acquisition of quantitative firm Analytic Investors, which is known for innovative research and for being thought leaders in the factor investing space. Wells Fargo Asset Management now speaks for about US$470 billion under management and the internationalisation of this business has become a priority.
Deirdre Flood, London-based head of international distribution at Wells Fargo AM, said in an interview last week that the “partnership model” had served the firm well in Japan and Korea. In Korea, Wells Fargo has partnered with another joint venture, NH Amundi, which marries the skills of the big European funds manager and local Korean knowledge. In Japan, Wells Fargo has worked with several trust banks. It has been coming to Australia and New Zealand for about eight years, but active in Japan for slightly longer. The business model in Australia and New Zealand is to engage directly with the Institutional client base but the firm remains open to the partnership model to deliver their capabilities to the retail market.
“We aim to bring our specialist expertise and knowledge, such as with target-date funds,” Flood said. “Also, our smart-beta and absolute returns products are increasingly popular. We have also invested significantly in developing a top-quality multi-asset capability. We think we have the best team in that field.”
Flood said that the recent political antagonism between the US and China did not spill over into Wells Fargo’s business with Asia’s biggest consumer of funds management hopes and aspirations. In the institutional world, China is relatively small, still, with only a handful of big pension and sovereign wealth funds. Both Australia and Japan are larger institutional markets. But the west’s appetite to get a foothold in the nascent Chinese retail funds market is enormous. Wells Fargo has offices in Tokyo, Singapore and Hong Kong. Flood said the firm was “not averse to putting boots on the ground” elsewhere, too.
“We have never been more optimistic than we are right now,” she said. “The Australian market and mindset are ones we understand. It’s a fee-sensitive market and with both our high active share capabilities and our factor-based investing expertise we think we are a good match. I think you’ll see us grow our footprint there.”