FRANK RUSSELL DONS BERET IN EUROPE PUSH: JOINS WITH SOCIETE GENERALE TO MARKET ITS FUNDS

Frank Russell Co.’s metamorphosis into a manager of managers — with a sideline in consulting — is nearly complete.

As proof, look at the Tacoma, Wash., firm’s latest and most important deal, with Societe Generale. Russell and the French bank’s money management arm, Societe Generale Asset Management, will offer Russell’s multimanager funds to institutional, high net-worth and retail investors across continental Europe under an exclusive 50-50 joint venture.

Called SG/Russell Asset Management, it will offer a variety of pooled products, initially in international asset classes. Over time, all asset classes will be included.

The move marks a major step forward in Russell’s development of its multimanager fund business. The backing of one of Europe’s leading banks provides enormous distribution capability for Russell’s fund business.

Consulting is “a flagship, it’s not the core of our business any more,” says Michael Phillips, Russell’s president and chief executive officer.

About 75% to 80% of Russell’s profits are derived from investment management, Mr. Phillips says. But those assets are nearly all U.S.-sourced: Some $35 billion of its $38 billion in multimanager pooled funds are from U.S. investors. Russell officials project that European-sourced assets will nearly double to $2.5 billion by the end of the year from $1.3 billion, while total assets are projected to push $50 billion by then.

Over the long haul, Europe promises greater growth.

“Our expectation is our non-U.S. net cash flow will equal or dominate cash flow we get from the U.S. business,” says Len Brennan, who heads Russell’s London-based international operations.

SG/Russell will help fuel the growth. The joint venture will market across continental Europe except for the Netherlands, where Russell already has a significant presence.

Britain, Japan too

Russell officials are working on similar distribution deals in the United Kingdom and Japan, and will consider other opportunities in continental Europe. The firm also has distribution agreements in Canada, Australia, South Africa, Kuwait, Hong Kong, Barbados, the Channel island of Guernsey and France.

Managers for the SG/Russell funds — which will operate under a Dublin-based umbrella fund — have not been named, but are expected to include many of the same managers in Russell’s existing funds, such as J.P. Morgan Investment Management of New York, Capital International Ltd. of London, Schroder Investment Management Ltd. of London, and Boston’s Fidelity Investments.

At first, eight funds — including global bond and junk bond offerings — will be made available in Europe.

Observers clearly view the venture as a way for Russell to build its higher-fee investment management business. But some wonder why Paris-based SoGen would offer Russell funds in competition with its own asset-management capabilities.

In the past two years, its asset management arm has been attempting to build a money management business in Europe, the United States and Japan.

Key moves include purchasing 85% of Tokyo-based Yamaichi International Capital Management after its parent collapsed, and forming a London-based operation with star managers Nicola Horlick (formerly of Morgan Grenfell Asset Management) and John Richards (previously with Mercury Asset Management) as joint managing directors.

is it smart?

“I’m a little puzzled (as to) what they’re achieving,” says Jacques Cacheux, deputy general manager for competitor BNP Gestions in Paris. “On the one side, they are saying they want to develop their own product. On the other side, they will sell Frank Russell products.”

Others, however, think the strategy could work. “I think the marketing people at SoGen are quite happy to have a lot of options to pull out of their kit bag,” says another consultant. Another source suggests making Russell products available to clients could encourage SoGen portfolio managers to ratchet up their performance.

Officials from Societe Generale Asset Management did not respond to requests for comment.

While consulting still is important for Russell, the biggest growth clearly comes from selling retail funds, Mr. Brennan says. Russell has pulled in $2 billion from them worldwide in the past 12 months.

Crain News Service