The head of all international business development at Wells Fargo has the responsibility of taking a brand that is one of the biggest and best-known in the US and introducing it to the rest of the world.
And he is happy for this to happen in its own time, as the swings of the local markets dictate. Part of the reason for this is that he sees himself and his company as part of a larger picture. And looking at the world as a whole, there are far bigger problems than which fund to put on a platform.
“A lot of countries have ageing populations,” he says. “To a frightening extent in many cases. Societies have a tough time dealing with the problem – in Europe they were looking at different solutions in different countries: moving the retirement age from 65 to 67 for instance. But no one wants to do it.”
Job title: Managing director, international business development, Wells Fargo Asset Management
Ludger Peters began his investment career in 1990. Prior to joining Wells Fargo, he was with Montgomery Asset Management, where he was responsible for the sales and marketing of the company’s investment capabilities to investors outside of the US.
Before joining Montgomery, Peters worked at Commerzbank in Frankfurt, Germany, where he developed and coordinated Commerzbank’s asset management activities internationally.
From 1990 to 1994, Peters was the Czech and Slovak Republics’ representative in the firm’s investment banking department in Prague.
People are living longer and healthcare costs are inexorably rising. People will need to invest more, have more money for their retirement. But many countries – and individuals – are simply not ready for this.
“The problem is that if you are the kind of person who says ‘I think I need to do something’ then you’ve probably already done something. You don’t have to be worried about those people. You need to be worried about people who don’t think they have a problem. That’s when governments step in.”
The US picture
“Here in the US you have 401K plans and a big DC [defined contribution] market. If you have a DC market, it puts a lot of responsibility on the participant in the plan. But investors do not always make the right choices. So having a big DC market has put a lot of burden on the finance industry – you need to make sure that the client who uses your product, understands the risks.”
For instance, a large group of US end-investors went heavily into equities in 2007 then pulled out in 2009. They were taking a strong interest in their own investing and it resulted in severe damage to themselves. A little bit of knowledge can be a dangerous thing.
“Target date funds have done a really good job because they are often a default option. They may not be the best performing way of investing but they give a very solid underpinning to someone’s retirement.”
So, as various European countries continue to struggle with a lack of pension provision for their citizens, Peters has the more practical issue of making Wells Fargo known to the pension fund managers. The company works a lot with consultants and, despite the worries some people have that consultants can become an excuse for institutional investors to defer decision-making and responsibilities, he is a fan.
“In my experience, consultants bring a lot to the table,” he says. “I think it is a very valuable service. It’s such a specialised world. It’s a service that requires focus. They look at the trends, allocation models, risk, and manager research – what differentiates the good, the bad and the ugly. It’s always good to have professional focus.”
However, that does not mean that fund management houses don’t need as much contact with the end-investors. It is only through regular contact that you can keep up with the trends. One of which is the move away from product and toward ‘solutions’.
In the past you might just have individual asset allocations and you would provide product. Now, we see a shift more to a dialogue between product provider and client
Managing director, int’l business development, Wells Fargo AM
“You don’t talk about product,” Peters explains. “Instead, you look at the overall environment and you have much more of a dialogue. In the past you might just have individual asset allocations and you would provide product. Now, we see a shift more to a dialogue between product provider and client. In this environment, for example, you look at low interest rates and you might see what income-orientated solutions you can offer.”
One example is short-duration high yield, which Peters is very impressed with. “If you look at the record, in 2008 the strategy was down only about 5%. That is stunning. The whole high yield market was down on average 18% to 19%. So the short-term version is a very defensive strategy.”
Peters believes that emerging market income strategies have an interesting future, even if EM equities at the moment is a very bearish area.
“There were obviously some good reasons to be cautious on EM,” he confesses. “There was concern in some of the BRIC countries, especially China, because they had a change in leadership. You had concerns that growth would slow down. But, as the dust has settled, while growth has come a little down, the latest figures coming out of China are not bad at all.”
Peters does not believe that all the EM outperformance came from quantitative easing – and he thinks the region remains attractive.
Wells Fargo is currently focused on Western Europe. The firm has a Luxembourg umbrella with 13 funds (see table), cherry-picked from its large US range. So what has worked well so far, and what hasn’t? “Well, our most successful fund has been our US all-cap fund. That is soft-closed.”
Even though the Luxembourg fund is a manageable €1.2bn, the overall strategy is $12bn (€9bn). And with its exposure to small caps, it has run out of capacity. However, the same team has launched a second fund with no small caps and so no limitations in size. Despite the fact this fund was created to satisfy demand from investors, everyone wants the fund they can’t have.
“Of course, the reason we have the small caps in the all-cap fund is because they add value – so if you give people a choice between the all-cap and the mid- and large-cap fund, they want the all-cap, because it has performed better!”
Another of Wells Fargo’s biggest products is its EM equities fund. “This is now slightly more out of favour – sentiment has gone against emerging markets. But if you look at the underlying growth and companies in those markets, they are okay, so I think there is going to be a rotation back into EM.”
In for the long haul
At the other end of the scale, Peters has introduced some funds that have not yet had traction. This doesn’t worry him, because of his time horizon. “In the short-term, some of these strategies don’t work,” he admits.
One that hasn’t worked at all as yet is precious metals. “It’s a very good strategy but we brought it to Europe last summer. The price of precious metal equities is highly correlated to the gold price.” With the gold price having plummeted, the fund has not performed and has picked up no new assets.
But Peters is sanguine – in countries that have a fear of inflation, the strategy could do well. At some point. “I said before we take a long view,” he says. “I should say that sometimes we take a very long view.”