BT’s global drive proves doubters wrong

When BT Investment pitched the takeover of London fund manager JO Hambro Capital in 2011, analysts were sceptical.

BT Investment Management chief executive Emilio Gonzalez. Picture: Hollie Adams

When BT Investment Management chief executive Emilio Gonzalez pitched the takeover of London fund manager JO Hambro Capital Management in 2011, analysts were sceptical.

Six years later, the Sydney-based investment management company has more than $91 billion in funds under management and is headed for a significant expansion into the US market.

Gonzalez sees ASX-listed BTIM as an example of Australia’s ability to host global funds management businesses — a fact that US institutional investors are increasingly recognising.

“We now have, in the financial services industry, the ability to have a head office in Australia and exposure across the world in asset management in New York, Singapore and London,” he says in an interview with The Australian.

“It is a reflection of the ­maturity of our financial services industry. Our history has been very Australian, but we have investment managers around the world and 75 per cent of our earnings now comes from offshore.”

BTIM’s funds under management have more than doubled since 2012, when it was $45bn.

Its cash profit has risen from $30.5 million in 2011 to $156m in the year to September 2016.

The company raised $4.4bn in new inflows in the latest year, including $1.9bn out of the US.

In the three months to the end of March, BTIM’s funds under management rose by another $4.2bn to $91bn.

“Our clients are US pension funds, Australian superannuation funds, UK pension funds, sovereign wealth funds, financial planners, private banks and net high-worth family offices,” Gonzalez says. “At the end of the day we manage money according to a certain strategy — whether it is a sovereign wealth fund or a pension fund or a financial planner.

“The only difference is the delivery of that strategy. That’s why it is very much a global business.”

BTIM has 110 of its 270 staff out of Australia. London is its biggest single offshore location with about 80 people, with 12 in Singapore and 20 in the US.

The company’s offshore growth has taken place largely under the radar in Australia with some still confusing it with Westpac’s wealth management arm, BT Financial Group, and others seeing it as a subsidiary of Westpac.

The funds management business was spun out of Westpac and listed on the ASX in 2007. The bank has sold down its stake to 31 per cent and only has one seat on the seven-member board.

Gonzalez says there is an increasing recognition among big US investors that they need to go offshore for global funds management capability.

They have traditionally looked to London and BTIM’s ownership of Hambro has helped its image as a global investment fund.

Gonzalez says a recent league table of international investors put only one US-based fund ­manager in the top 10 of global managers running money for investment outside of the US.

“In the US, they are open to embracing offshore fund managers for international investment,” Gonzalez says.

“US investment is dominated by the US firms, particularly the large caps, the mid-caps are dominated by the Fidelities, the Vanguards and the T. Rowe Prices — but when it comes to global investment mandates outside the US, the market is dominated by offshore fund managers.”

A management restructure last year saw Gonzalez, who joined BTIM in 2010 from Perpetual, promoted to group chief executive, and the appointment in October of former Fidelity Australia managing director Michael Bargholz to run the Australian operations.

While Gonzalez still works out of Sydney, the change allows him to focus on the group’s global strategy.

While BTIM has done well out of the local market, driven by compulsory superannuation, the growth in funds in Australia is now tapering off as the baby boomers retire and the government’s new super policies set to cut new inflows into the system.

It is offshore, particularly in the US, where Gonzalez sees the real potential for expansion.

More than $12bn of its $91bn in funds under management come from US investors but he has a clear goal to increase this.

“In five years the US part of the business will be much larger than it is today,” Gonzalez says. “At the moment it is about 13 per cent of our client base and we want to get it up to about a third. It’s a very deep market. We have an exposure there and we have had some very good success there.”

He does not rule out expansion by acquisition in the US, but the main goal is to expand management in BTIM’s US operations to “bring the talent on board in areas that complement the skills we have already got”.

Last month, it announced plans to expand its US offering into multi-asset investment products with the appointment of asset manager Giorgio Caputo.

Caputo, a former executive with First Eagle Investment Management, will join Hambro’s office in New York this month.

Gonzalez says the move into multi-asset investment products will provide an additional offering for investors in the US and later Europe. “It’s a strategic and measured step into a product range that offers much greater differentiation and capacity in these markets,” Gonzalez says.

“The strategy adds a further $US10bn ($13.6bn) to the group’s investment capacity.”

Gonzalez says Australia likes to trumpet the fact that it has the fourth largest funds management industry with $2.1 trillion in funds but its relative role in the world investment industry is still small.

“The total funds under management worldwide are $70 trillion. Australia is fourth largest in terms of money in accumulation funds but when you add in money from defined benefit funds we are not fourth at all. There is a bigger market out there we can access.”

BTIM’s share price was hit hard with last June’s shock announcement that Britain had voted to leave the EU.

The shares, which had been trading at just above $10 before the vote, fell to a low of $7.28 but have since recovered to about $11 this month as the market has had time to take a closer look at what Brexit means for the company.

Gonzalez says BTIM has a third of its funds in sterling, which is balanced by other offshore ­assets in Europe and the US.

He argues that the fall in sterling has cut the operating cost of its British office and the firm already has structures in place that can be adapted for European clients once Britain leaves the EU.

“Our assets are spread across Europe and the US but most of our expenses are in sterling so the weakening of sterling has been a benefit,” he says.

Gonzalez is also keeping a close eye on the Trump administration and sees the US market as having got ahead of itself a little on optimism about what Donald Trump may be able to achieve.