While many money management firms are looking to diversify their strategies and offerings, BlueBay Asset Management LLP's CEO is very happy to stick to his fixed-income specialist script.
One thread runs through a conversation with Erich Gerth, whose one-year anniversary in the top job at the $60 billion firm is fast approaching: focus.
"We're completely comfortable being in the specialist space," Mr. Gerth said. "Growing an ETF business is not of any interest to us. We are an investment organization, (we can) innovate in the spaces we're in, and continue to sit at the convergence point between traditional and alternative" money management.
BlueBay's heritage lies in hedge funds, alternatives and long-only strategies. And while the focus remains on playing within the fixed-income spectrum, BlueBay's strategies span alternative and mainstream asset classes covering emerging markets, multiasset credit, investment grade, leveraged finance and convertibles.
"In the space that we compete in, it's multiple trillions (of dollars). In active fixed income there is so much to play for, and so if we continue to focus" on the investment thesis, Mr. Gerth believes the London-based firm can continue to be successful. That requires staying relevant to clients and their needs, and capitalizing on resources afforded by its relationship with parent firm Royal Bank of Canada, he said.
"We don't have to chase assets under management," in particular when it comes to the increasingly important part that alternative asset classes play in institutional investors' portfolios, since "it's completely embedded in our DNA," Mr. Gerth said.
The first fund BlueBay launched was a hedge fund; the second a long-only strategy. But the firm in the past was perhaps better known for its hedge funds and hedge fund-style of investing.
"We have witnessed their metamorphosis from boutique-style hedge fund manager to a more diversified asset management business, in terms of the type of strategies that they offer, moving to more long-only strategies, diversifying the client base and being more captive in launching public open-ended funds," said one consultant with knowledge of the firm, who spoke on condition of anonymity.
With that has come a development of its business model, said the consultant, moving into a world that is "more about asset gathering." However, the person said BlueBay executives "still believe that alpha is what they want to deliver ... The way they differentiate themselves is not on price but on quality and value, and the alpha they deliver."
The hedge fund link is a legacy Mr. Gerth is happy to hear acknowledged by peers and clients.
"I do (hear us referred to as a hedge fund). But I like that." Mr. Gerth recalled attending an awards ceremony solely focused on hedge funds, sitting at a table with the largest hedge fund firms in the industry where BlueBay's presence "doesn't seem unnatural to them," and taking part in a long-only money management conference, feeling "very comfortable there."
Of course, there is a challenge to being a fixed-income player, albeit a specialist. "If we are just thought of as a fixed-income specialist," there is a group of firms that "dwarf" BlueBay. "But in that same group of fixed-income specialists, there's a much shorter list that can successfully move along the continuum from one end to the other, and feel comfortable at both those types of events. That's what we are trying to achieve, that is our unique proposition," Mr. Gerth said.
While all assets under management are fixed income, alternatives comprise 25% of that total.
More evolution than revolution
Mr. Gerth joined BlueBay as global head of business development in 2012 after three years as CEO Asia-Pacific and global business development at Aviva Investors.
At BlueBay he replaced Alex Khein, who also was co-CEO of RBC GAM, and left the firm to pursue other interests — but not before spending time as an adviser at the firm and aiding the transition to Mr. Gerth's leadership.
"The advantage I have had is that this can be more evolution than revolution. Many firms when they bring in a new CEO, it's the old person out, new person in. One of the prides of the organization has always been succession planning," he said.
Mr. Gerth's appointment to the executive board in 2014 meant he was involved in the direction of the firm and the execution of strategy prior to taking the reins.
BlueBay's focus is shaped by two priorities: continue growing the alternatives business and what the firm internally calls its "tilt to RBC" — finding the synergies that come with being part of a larger organization. As part of those synergies, BlueBay wants to continue to expand distribution beyond core markets — Europe, Middle East and Africa and Japan — and into North America in particular — where leveraging parent firm RBC comes in.
"Certainly RBC is providing a partnership they can leverage," added the consultant. He said the firm is not a pure European money manager — BlueBay is known to pitch for global work — and "the intention and trajectory is … to become a global player, both in terms of client base and in product offering, and they are on their way."
The "focus" thread is again evident in discussion of Mr. Gerth's ascent to CEO.
"The business development piece helps because it keeps you very focused on clients — but I think the skill that I levered more is the fact that I've worked on a global platform for quite some time and I've managed people," he said.
He also is focused on diversity of experience, culture and thought. Hailing from Chicago, his career locations span the States, Europe and Asia — but he says London is his favorite city. "Just like the reason I love living in London is why I like working at a firm like BlueBay — people are from all over the place, people love what they do."
Keeping employees engaged includes spending time with groups of staffers, trading ideas and asking what could be done differently. In the past year, he's also worked to keep employees up to date on strategy and how the firm is doing. Many firms, he said, keep company financials "captive at senior level — I try to make sure everyone at the firm knows how we're doing every month. For people to feel they have the ability to do something they have to know where things are — if every person ... knows what's going on they can make thoughtful decisions to help execute the strategy," he said. Of course, a common language of fixed income also helps.
The London headquarters houses the "overwhelming majority" of employees. Mr. Gerth, who always takes the stairs to his fourth-floor office, recalled meeting an employee who was to climb to base camp at Mount Everest: "That's part of working at a smaller firm, I get to know this."
Also keeping focus are three "filters" for any new ideas: investment; does the idea make clients' lives easier; and is it efficient business-wise?
Mr. Gerth said a good example is potential footprint expansion. "Our model is high engagement with clients," particularly for alternatives clients who demand that. "There are only so many days in the year (a portfolio manager) can travel ... so every time we expand geographical footprint, we are stretching these people. Are you making lives easier by doing that?"
That doesn't mean there isn't room to innovate — Mr. Gerth still wants the firm to produce new ideas, strategies and satisfy client demand.
One example is client-driven calls for environmental, social and governance factor integration into strategies, with the recent launch of a high-yield ESG bond strategy. Another relates to technology.
"We will use the advances in technology to improve the outcome of our active managers," Mr. Gerth said. "I do not foresee creating a separate product line based on quant ... I think there's a number of ways that we can use technology — but it's not as either to replace or to compete with what we do. We think there's enough to do in our current space, but we are constantly striving to put our portfolio managers in the best possible position to succeed, so leveraging technology is one of those things that you have to do."