William Blair & Co. is looking to tap into the growth potential of the Asian market, specifically China and Japan, over the next 10 years — both in terms of investment opportunities and a growing investor base.
From an investment perspective, "we've seen growth in Europe, but in the last five years we've seen growth in Japan, and overall our Asia footprint has broadened," said Stephanie Braming, global head of investment management at William Blair.
Earlier this year, the firm opened a research office in Shanghai "to serve as a home base in the growth of China A shares," she said. The office eventually will become a full-service office so the firm can "match our investment capability with our distribution."
The firm is including distribution in that equation because of what Ms. Braming sees as a burgeoning client market for Chicago-based William Blair in those Pacific Rim markets as well as Australia.
"The investor base will continue to change as more people globally see increases in income," she said. "That's not just retail; there will be institutional wealth creation as well. You can see it in Asian tourism. More Asians have disposable income that they use to travel. That trend will continue. As we go forward, from the perspective of who will be the investors, there will be more Asian investors. The challenge for an active firm like William Blair is to keep pace with that growth."
Overall growth at William Blair, which had $61.6 billion in institutional assets under management as of June 30, has come from its global equity and multiasset strategies in equities and fixed income, which account for two-thirds of the firm's AUM, Ms. Braming said. She added that the firm is well-placed to continue to increase its international investment footprint as a fundamental investment firm she referred to as "a global boutique."
"With changes in public markets, new ideas, innovation, investment is still a long-term focus with liquidity risk," Ms. Braming said. "Globally, investors will focus on niche strategies where firms have a demonstrable edge."
Although William Blair considers itself a fundamental manager, Ms. Braming said the firm has also leveraged technology and data analysis to enhance its traditional investment strategies.
"We have used systematic tools in our investment process since the mid-'90s," she said. "We look at high-quality companies with what a fundamental investment firm would focus on, and then use systematic tools to improve our vision. I think about data and quantitative tools as a method to help us improve our vision and remove the individual biases that everyone has. I do believe the advances in technology, in data storage and computing power, have provided a spark to investors. But not everything that you can measure adds value. What we look at in technology platforms is short-term oriented, more tactical than strategic."
Advances in technology and data use in the past 10 years, along with what Ms. Braming said was "the changing investment landscape, the change from defined benefit to defined contribution, the consolidation of the consulting business, and the growth in Asia," has affected portfolio construction and "requires mental flexibility. You have to hang your hat on what you believe as an investor, but also be certain in how you get there, and technology now can help to improve your vision when there are all these changes happening."
Another advancement, Ms. Braming said, is incorporating what's been done by other industries or companies that William Blair has analyzed into its own investment analysis process.
"We learn lessons from other industries," Ms. Braming said. "Think about the consumer sector as retailers have been feeling a lot of pressure, and how that's changed the industry over time and affected their business models. Now you apply the lessons learned from that industry, which is to keep a finger on the pulse of what customers want. That's how we go about deciding to invest in new and interesting strategies; how can we better reach our customers and meet their needs? We don't compare ourselves to other asset managers but we look across other industries to see if we can apply what we've learned in the investment process to our business."
With Willam Blair being an active investment firm, Ms. Braming said she's not surprised institutional investors have moved toward passive investments and exchange-traded funds in an extended bull market. "The rise of passive investing and ETFs has been because over the years, active hasn't generally lived up to alpha generation," Ms. Braming said, although she added that 86% of William Blair's 28 various active strategies outperformed their benchmarks net of fees since their inception.
"But the industry as a whole is still subject to trends. It all comes down to delivering value and knowing the client's objectives and outcomes. Being biggest is not always being the best. Being smaller teaches us to be creative with limited resources, and not follow the crowd."
Another change Ms. Braming said she's seen is the rise of outsourced chief investment officer businesses among investment consultants. "We benefit as well from that, because being on an OCIO platform requires investors to have a long-term view," she said.
The firm's efforts to get on OCIO platforms are similar to getting on consultants' lists for selection by asset owners for separate account mandates. "We need to know what the fit will be in a portfolio, whether with consultants in OCIO or with plan sponsors in a separate account." What has changed with the growth in OCIO: "As more assets move to OCIO, there's fewer (separate account) searches out there. That has led us to adjust a bit."