February’s buy out of Robeco, the Dutch fund manager, by ORIX Corp., the Japanese financial services group, and the rebranding a month prior of SAM, its Zurich-based sustainability subsidiary, as RobecoSAM, asks questions on the future direction of both. What plans does ORIX have for its new acquisition? Why the RobecoSAM rebranding? And how will the two until now relatively separate asset managers work together under the joint moniker, particularly in areas like ESG integration and corporate governance? In January, Robeco – while still firming up its subsequent sale – re-branded SAM and folded its corporate engagement and voting services into the RobecoSAM entity. A month later, Robeco was sold by parent, Rabobank, to ORIX who paid €1.9bn for approximately 90% of the total issued shares, a purchase price equivalent to 1.14% of assets under management (AUM). ORIX’s background is predominantly in lease financing. Such a significant move into asset management is relatively new terrain, although it made initial sorties into the funds business in 2010 with the purchases of Boston-based alternatives manager Mariner Investment Group and Vietnamese fund manager Indochina Capital. ORIX has yet to outline its plans for Robeco. So far, there appears no intention to cut, reform or reshape its new acquisition. Robeco CEO, Roderick Munsters, says he hopes to win funds business in Japan on the back of the deal. The RobecoSAM hybrid is anarrangement of significant interest to RI professionals given its position as a leader in responsible and environmental thematic investing. It’s instructive to look back at Robeco’s purchase of SAM in 2006 to see why Robeco might have arrived at the new RobecoSAM label. On buying SAM, then Robeco CEO George Möller had high hopes for business accumulation. In clean tech alone he predicted that the newly allied managers could generate 20-25% annual growth. SAM had been growing at 45% per annum for the previous four years, so the claim had substance. Prognosis is, of course, easier than business reality, and the investment scene has changed enormously since 2006. The 1.14% of AUM paid by ORIX for Robeco looks a snip compared to Robeco’s €80m purchase of a majority stake in SAM in 2006, which valued the latter at 18.3% of AUM, according to our calculations. The bulk of RobecoSAM’s revenue has traditionally come from pure asset management, but the sum doesn’t include other revenue generating parts of the SAM business including the index licensing joint venture for the Dow Jones Sustainability Index, owned by S&P Dow Jones Indices, where it does the research, and which gives the firm significant profile. This latter service is being built out. The two launched the Dow Jones Sustainability Emerging Markets Index (DJSI Emerging Markets) in February. Speaking to RI, Michael Baldinger, Chief Executive Officer at
RobecoSAM says there are further new joint indices to be launched shortly, but declined to elaborate. Robeco had historically paid more for other asset manager acquisitions: in 2001 it paid US$490m for Harbor Capital, a Chicago-based fund of funds manager, at a purchase price of 2.9% of AUM. But today, Harbor throws off 40% of Robeco’s annual earnings. By comparison, SAM’s commercial promise has fallen short of expectations. Fast forward seven years and SAM made good money in 2012, but sources say the margins are not large. Baldinger says the business is “profitable”, but notes that the real value of RobecoSAM for the Robeco group is much more than just its financial results, but as an internal centre of sustainability investing (SI) expertise; indeed the SI tag is an internal re-labelling itself. Robeco has €180bn in assets, of which Baldinger says about €100bn has integrated ESG information in one form or another. RobecoSAM will now drive this ESG integration across all asset classes for Robeco as well as looking after its own thematic funds, private equity and index business. Baldinger said he spent a considerable amount of time prior to the rebranding with the Managing Board of Robeco evaluating the market and developing a broader vision of what clients are looking for: “Clients have become more sophisticated than just buying a themed fund. They might be looking at engagement and voting, private equity, or monitoring the sustainability impact of their investments. A major Swiss institutional client has been working with us on what was, quite frankly, at first an obligation to do responsible investment, and now they are starting to see value within the work we are doing together. We’re looking to drive a more holistic approach to sustainable investment and to become a preferred partner for sophisticated solutions.”But even with a big parent offering the potential for greater distribution, the rate of RobecoSAM’s asset growth has not come close to the heady years at the start of the millennium; notably so in the last couple of years as the environmental sector has suffered. While RobecoSAM does well at generating revenues on the funds and mandates it has, the business development assumed in the 2006 acquisition price hasn’t materialised. While the long-term investment case remains intact, Baldinger concedes that the thematic funds of RobecoSAM with small/midcap companies go through volatile short-term cycles. He says that what were relatively unrivalled strategies (RobecoSAM’s Water Fund was one of the first in the market) back in 2001 now face greater competition: “This means for us that you have to have more for your offering and you need to measure both performance and the impact that the investments have; you could call it ‘performance plus’. Regarding solutions, we don’t want to be consultants in this area but we can build on Robeco’s investment expertise and we may also need to add some people here in Zurich for engineering and innovation of additional sustainability products.” SAM’s assets under management have increased from E2.2bn at the end of 2006 to E2.8bn at the end of 2012 (latest available figures), a 27% rise including market appreciation. This figure includes so-called ‘assets under advice’, a less lucrative proposition than directly managed assets. Adding SAM’s private equity line (€0.7m) and indexes licence business (for €5.1bn of assets) takes total business to €8.6bn. Back in 2007, George Möller pointed to distribution via Rabobank for SAM’s future success. He said the network of the Dutch agricultural bank – a natural constituency – was as strong a market as any for sustainable products. In fact, Rabo had been gradually trimming its reliance on
Robeco (and its subsidiaries) for investment products from 100% in 2001 to just 30% in 2012. Rabo, it seemed, no longer needed a captive fund manager in the days of open-architecture. Better rather to build up its balance sheet after the 2011 loss of its coveted AAA rating; hence the sale of Robeco to Orix. SAM appears to have suffered because of Rabo’s long-term policy. But arguably Robeco itself did little to boost SAM’s distribution within the group’s domestic, and strongest market. Robeco has a historically strong position in the Dutch retail investment market: almost 14% of total sales go into its funds. Yet prior to the RobecoSAM tie-up, Robeco sold more of its own labelled responsible investment products than those of SAM. Former staff at Josefstrasse, RobecoSAM’s Zurich headquarters, grumbled for years that Robeco’s global sales team had not properly focused on selling its products. The RobecoSAM deal should go some way to clearing up that marketing issue. Superficially, the distinction between product has now disappeared with the rebranding. All of its funds will appear together – no longer under R for Robeco or S for SAM – on distribution platforms and consultants’ databases. RobecoSAM, will continue to have its own revenue and income lines, but with the more formalised brand backing of the bigger parent. However, while the transfer of Robeco’s engagement and voting services into RobecoSAM makes sense, it also remains part of Robeco’s mainstream ESG integration process for all assets, not just its sustainable themed funds. That begs the question as to where engagement and voting responsibility will lie given that there are currently no plans to merge or trim the investment teams in either Zurich or Rotterdam. The departure in March of Erik Breen, Head of Responsible Investing at Robeco and a corporate governance specialist, whose governance functions were taken on by Edith Siermann,Robeco’s Head of Fixed Income, added to the confusion. Baldinger says the decision to switch the reporting lines of the Governance & Active Ownership department to RobecoSAM centres and aligns its expertise in the field of SI within the group. He says the Governance & Active Ownership function reports to Zurich, despite Edith Siermann and the team being based in Rotterdam. Baldinger says Siermann, CIO of Fixed Income at Robeco, has been a long-term supporter of sustainability within Robeco’s business, which he says is more important than the geographical location of the role. “Edith’s hat as CIO Fixed Income is key to successfully integrate ESG information into Robeco’s investment products.”
“Back at the beginning of the RobecoSAM business one of our first large investors came from Japan and we’re hopeful that it can become a home market for us also.”
The energetic and committed Baldinger is bullish about prospects under the new owner: “Back at the beginning of the RobecoSAM business one of our first large investors came from Japan and we’re hopeful that it can become a home market for us also.” International expansion will certainly be key to answering whether a re-branded RobecoSAM can realise the promise within the ORIX stable that Robeco saw in it when it first bought in.