The new chief executive of Robeco Investment Management isn't playing it safe; he's set some aggressive targets for the rebranded firm, including almost doubling its assets under management over five years.
Many CEOs shy away from discussing specific goals for growing their business for fear of being the fall guy if their firm comes up short. But William J. "Bill" Kelly has laid out some aggressive growth targets for his newly rebranded Robeco Investment Management, the U.S arm of Robeco Group, Netherlands.
Mr. Kelly, who moved into Robeco's CEO slot in February, said his firm has now completely digested and integrated the acquisitions of Weiss, Peck & Greer, Sage Capital Management and Boston Partners, which were made over the last seven years by its Netherlands-based parent, Rabobank Group.
With the framework in place, Mr. Kelly, one of the founders of Boston Partners in 1995, said the acquisition pen has been capped. He said Robeco is focused on building the business organically, and he expects big things from the firms' large-cap value, core fixed-income, quantitative equity and hedge fund strategies in the next five years.
The strategy: local manufacturing with global distribution.
The goal: to go from less than $26.4 billion in assets under management to $50 billion in the next five years.
How comfortable are you with the integration of the three acquisitions? I feel very good about the integration right now. First, it is important to understand that our integration plans apply only to the distribution and support functions. The investment processes of the three firms remain separate and independent. Robeco and Rabobank had a game plan when they came to the U.S. in the late 1990s. That was to really look for small to medium-size managers who were specialists in their areas of expertise and put them on a single platform with a support-based holding company. Now that we have the pieces in place and it's my responsibility to pull it all together, it's not like I'm going to the various operations people and coming to them with a brand new idea. This was part of the strategy. … There are so many people out there in this industry that do acquisitions just for the sake of getting bigger. And at some point, you've got to start to build the organization.
Why define such specific, and aggressive, targets for growth? I have mixed feelings about targets, but I won't back away from these goals. I don't come in on a Monday morning and say ‘We need to be at $50 billion in five years.' I come in on Monday mornings and say ‘What is my strategy?,' and ‘What is my game plan?' Saying I want $50 billion in assets is a bold statement, but it's not an actionable item. Anybody can say that. But it comes down to knowing what I am going to do today, tomorrow, next week and next quarter to ensure that we are going to have some reasonable levels of growth. And all we need is low double-digit growth compounded each year to get to our goal, so the math is pretty simple. But the day-to-day game plan is where the rubber hits the road.
What is the focus of your game plan? The thing I focus on first and foremost is our clients. How is investment performance; are we communicating appropriately and transparently; is there more that we can do to service our clients, in terms of timely reporting, etc. Next there's a focus on distribution — there's more we can be doing with distribution, both in the traditional channels with the consultants and defined benefit plans, but can we do something to complement that with financial intermediaries such as subadvisers and broker channels. And lastly, and this is where Robeco comes into play in a very big way, what more can we be doing to gain business overseas. Global distribution was part of the acquisition strategy. And some of that is now beginning to reap some benefits as well.
Where do you see the most opportunities for growth? The opportunities for growth are many and varied. Our large-cap value product has $4.9 billion in assets, but it has a much greater capacity. I see that product as being a big contributor to our growth. Another area is core fixed income, which is a little over $7.5 billion in assets right now, and it, too, has much more capacity. We also have over $2 billion of quantitative equity, made up of three different products. I see great opportunities with those products, and with managing director Easton Ragsdale and his team putting up great numbers, I think we have the ability to do product extensions there; getting perhaps into a small-cap version of that same product would be a tremendous asset for us. Also our hedge fund-of-funds, our Sage product, is about $730 million, but it has a great capacity to be a multibillion product.
What do you envision as the ideal size for this fund of funds? No reason why that couldn't be several billion dollars over the next three to five years. The track record is 10 years, and they have a very systematic approach to their whole hiring process with managers. They have a well-thought-out distribution strategy that relies on our distribution, as well as some of their own initiatives with third parties. I'm very excited about the opportunities with this product, as well as with our single-strategy hedge funds, which are about $1 billion of our assets. That's an area where we are looking at product quality, and we have closed some of those products, but we very much believe in the single-strategy hedge fund space. And if I look at any opportunities for further product development, it might be in that space.
How do you feel about the overall product mix? We're constantly looking at the products to determine if we have the right mix, and focus on product quality as well. We've made statements that when certain asset levels are achieved in certain products, we are going to close those products. And we've stuck to that. I believe that product quality is one of the most important tenets in being a successful money management firm. We don't just focus on growing assets for the sake of growing assets. Otherwise we'd never close a product.
Do you see yourself doing any liftouts or acquisitions to expand the business? I see us doing more complementary things on the fringe, such as in the single-strategy hedge fund area. But basically the acquisition pen has been put away. Robeco had a very well-thought-out game plan when it came to the U.S. in the late 1990s. They accomplished what they were looking to accomplish by the end of 2002. They gave us very good critical mass and very good product diversity, but … we now need to build. There's nobody out there who could have a strategy that is either pure build or pure buy. You've got to go back and forth, and we did the buying side of it. But now, and certainly over the next five years, we're very much focused on building the business.
What's more important: good performance or good distribution? If I could be granted one wish in life, it would be good performance, because you can do a lot with that. You could have the best distribution line in the world, but unless you have product performance behind it, it's going to fall flat on its face. But most importantly, with good performance, your clients are happy. And with that, there's a bit of a springboard effect. If you have happy clients, you can develop significant relationships with them, as well as their consultants and other defined benefit plans.
You've been adding to the distribution team since taking over as CEO. What's next? As far as distribution, I can make all of these bold statements about these various channels I want to be in, but unless I am willing to back it up with the appropriate amount of resources, it's a foolish thing to have as a strategy. But it's a balance between having very limited resources and sending in an army. And my approach has always been, let's get someone in here to help us learn about these channels, maybe one or two people. And if we start to see some traction, then we will start making further investments in these areas. We're not trying to put all of our chips in the same area. We're trying to diversify where we put these people. On the investment side, I'm very comfortable with the support we have, but bench strength is always on my mind. I'd like to think that people are going to live here forever, but people don't live forever and they don't work forever. So I've got to make sure that we have continuity of product and continuity of investment team. We may look to add to the high-yield team and perhaps credit analysts.