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It’s a brave fund manager prepared to release new products during the current global financial downturn, let alone launch into a new market altogether, yet that is precisely what Barclays Capital has done in Australia.
Relatively new to the Australian funds management marketplace, having made a quiet entry last year, Barclays Capital is the investment banking division of Barclays Bank Plc. The other businesses under Barclays’ worldwide umbrella are: Barclays Global Investors (BGI) — the asset management division with over $31 billion in funds under management in Australia; Barclays Wealth — the wealth management division; and Barclays Global Retail and Commercial Banking.
Allen McCristal, Barclays Capital head of distribution (Australasia), dismissed the notion of poor market timing in launching specialist funds into the Australian market, instead believing the market is ripe with opportunities for his business and brand. Perhaps a brave claim, but one that he adamantly defends.
“We believe now is a perfect time to be rolling out a new business, with new products and services,” McCristal said. “There were probably a number of competitors thinking of doing the same thing who have since re-evaluated rolling out their offerings.
McCristal claimed the launch into the Australian marketplace was based on two reasons: firstly, due to client demand from both the wholesale and retail markets for Barclays Capital’s investment solutions services, and secondly, the success of similar business models in various overseas markets.
Point of difference
Sitting within Barclays Capital is its client facing Investor Solutions business, which is the manufacturer and distributor of funds and structured investment products. The Barclays Capital Investor Solutions team in Australia is headed up by Caroline Saunders.
McCristal conceded that differentiating this part of the business from that of Barclays Global Investors (BGI), which already has a strong retail presence in the Australian market, will be a challenge for his team.
According to McCristal, while BGI’s philosophy tends to be more geared towards setting up a fund and growing it to a substantial size, Barclays Capital will be a lot more flexible in offering investment solutions — be this funds or services — to both the retail and institutional parts of the market.
“So what we’ve got in Barclays Capital is a funds management capability within the investment banking business.”
But, isn’t this still at odds with BGI?
“Not at all,” said McCristal. “Over the past number of years, most people have seen the convergence of funds management and investment banking. Both very much cross over into each other’s market.
“We saw the need in Australia to set up — in an efficient and expeditious manner — a responsible entity that sits inside the investment banking part of the business which is supported by Barclays Capital Funds Solutions.
This responsible entity is called Celsius Investments Australia and delivers our retail offerings. By having Celsius we can satisfy dealer group demand. For example, if a dealer group approaches us with the potential for a $50 million raise on a protected equity index-tracking fund, we can put that through the responsible entity and deliver it to them within six weeks.
“However, BGI might not necessarily do that because it’s too small a transaction. So what we’re trying to do is come up with more solutions for our clients, thus the name Investor Solutions — we’re a solutions-based business. We have a multi-asset class focus, so we can do everything from equities, to commodities, to fund derivatives and hybrids.
“This flexibility means dealer groups can approach us to build something quite specific for their clients. We can do this as a ‘white-label’ service or badge it ‘Barclays’, depending on what the client wants.”
Funds
While Barclays Capital Funds Solutions has the ability to develop, manufacture and deliver ‘white label’ products, it is also offering the market its own stand-alone funds. One of its new funds being released into the market is the Barclays Diversified Fixed Income (BDFI) Fund.
According to McCristal, the fund was designed specifically to plug a hole in platforms where a lot of diversified fixed income funds were simply not performing.
“That’s another reason why it’s unique to have this type of business within an investment bank — we can offer a solutions-style of business.”
With the CORALS Commodity Fund — a fund designed to capture alpha from the commodity markets — already firmly entrenched within the retail market, and the recently launched BDFI Fund, Barclays Capital has a number of other funds it intends to launch into the marketplace.
On the horizon is a protected product that is equity-based and will feature a protection mechanism that locks in the highest gains up to a certain percentage. McCristal is hopeful that the product will be ready to launch into the market in June.
He also confirmed that Barclays Capital was looking into the possibility of launching an asset allocation fund called RADAR. This fund has already been launched globally, with McCristal’s team currently testing the local market.
McCristal’s expectation is to roll out a maximum of four new funds a year, but he is quick to add that this will depend on investor demand. The products will be both locally manufactured and imported.
In an increasingly crowded funds management market, McCristal willingly concedes that Barclays Capital will have a job on its hands differentiating itself from its competitors, but believes his business will stand out because of its uniqueness.
“We offer a flexible and scalable solutions-based business. We are also offering products that are verging very close to those in the ‘alternative’ space because they are more quantitative and rules-based. They don’t have physical managers, so there’s no human intervention. As such, we have removed emotion from the decision-making process.”
With the recent launch of Barclays Capital’s Diversified Fixed Income Fund, McCristal is adamant that under the current tough market conditions, it is essential that product manufacturers build products that do actually perform in bear markets.
“We think that it’s more important to have positive performance against your peers over the last two years than it was to have positive performance over the last 15 years. That’s why we are building funds that are performing in the current market cycle, but which will also perform well when the cycle changes,” McCristal said.
“We’re in a unique situation where we are able to operate like a boutique but with the backing, expertise and resources of a global institutional bank.”
McCristal is also confident about the two revenue streams in place for Barclays Capital Investor Solutions; the first being developing and launching its own products, and the second being where it provides services to third-party funds.
“A big part of our point-of-difference is our willingness to work with other fund managers, be this as a wrapper, leverage provider, using offshore platforms to build fund of funds, or as a swap provider,” McCristal said.
Despite the current malaise in the financial services sector, McCristal remains upbeat about his expectations for growth of Barclays Capital.
“We’re actually very excited about this year,” McCristal said. “We’re one of the very few investment banks who are in a growth phase.
“The full integration of the former US business of Lehman Brothers was finalised late last year and that has brought with it a huge capability that we didn’t have before.
As such, our distribution model is bigger and better. Our index group, which some of these funds are going to be based on, is now probably the best index group globally. That’s because Lehman really controlled the beta index sector and these are now Barclays’ indices, whereas previously Barclays mainly developed an alpha index business outside inflation. So, now we’ve got this great diverse family of indices.
“On the institutional side, this provides us with an opportunity to work with a lot of the larger funds on efficient synthetic beta strategies. But likewise, on the retail side, a lot of strategies stemming from our index group can be rolled into domestic funds, so that’s exciting for us as it brings with it liquidity and transparency.”
But faced with the current recessionary environment, is McCristal at danger of being too bullish in his expectations for growth?
“You’ve got to be positive but also careful and cautious at the same time. And that’s why our business has changed. We’ve changed into more of an advisory-style business. We’re not just going out to the market saying ‘This is what we’ve got, would you like to buy it?’. Those days are gone. Now it’s all about getting closer to your client and asking them what problems do they have, or what issues are they facing and what we can do to solve them.
“That’s why I’m so bullish about the future, because Barclays Capital now has better capabilities as a result of the Lehman’s acquisition, which allows us to actually solve around 90 per cent of any client’s problems.”
