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Power of networks: Santander AM’s selection head on going global

Power of networks: Santander AM’s selection head on going global

José María Martinez-Sanjuán feels a certain connection with the business occupying office space directly below him.

Santander Asset Management’s head of manager research and selection talks enthusiastically about the importance of people, networks and of exchanging information quickly and effectively – the very themes which social media giant Facebook holds dear.

The US group, much like Santander Asset Management, has set up its UK operations at the redeveloped Regents Place site in London’s West End.

Martinez-Sanjuán has more professional preoccupations but the key point is a shared one: ‘People are important in this role, this is a people business,’ he says, outlining how he and his colleagues assess potential fund selections.

‘Understanding who is involved in the process of managing a strategy and how these individuals interact with each other is critical,’ he says.

There’s an emphasis on teamwork in Martinez-Sanjuán’ approach which makes him wary not only of star manager culture but of also giving too much responsibility to individuals elsewhere in the investment process. The key for him and his nine-strong team, he says, is to grasp how the whole unit operates.

‘People tend to focus on the lead manager, but this individual is not always that important because the strategy is managed by a team.

‘If you have identified that a particular manager is very knowledgeable in a certain space but also know he has a very good team of analysts behind him, then a sudden loss of manpower in this area would be a red flag for us.’

Strength in numbers

Martinez-Sanjuán practices what he preaches and has built up his own team since he took on his current role in 2011. Having moved across from Santander’s private banking arm in Spain, he is now responsible for three sub-teams operating in London, Boston and Madrid, with assets under influence of €48 billion.

The wide range of investment knowledge provided by this network is crucial to overseeing such huge sums especially as Martinez-Sanjuán has sought to move into new areas to meet growing client needs.

The hire of Alternative Ucits analyst José Manuel López Mayher from International Capital Research in late 2012 was seen as a statement of intent.

‘As we gained institutional clients, we had to deliver new ideas in the alternatives space, such as pure illiquid alternatives, private equity, real estate, infrastructure and private debt. There is a lot of demand for these strategies and in a world of zero interest rates, private debt, in particular, is a good solution for many investors,’ he says.

However, developments here have not been at the expense of Martinez-Sanjuán’ other areas of focus. His team still provides manager recommendations across fixed income and equities to the broader global multi-asset solutions desk, as well as populating the so-called ‘Manager Matrix’.

This is a centralised list of favoured managers and funds, which can be called upon by Santander’s global network of asset allocators. Over Martinez-Sanjuán’ tenure, this list has grown considerably.

‘At one time we were sub-advising less than 80 strategies, now we are covering 312. It is growing as we increase assets and launch more products. In order to diversify the strategies, we need to bring new managers to the table,’ he says.

‘We are covering traditional approaches and also alternatives, so the scope is wider. When I was working for the private bank, my client was just the bank.’

‘Now we have Santander Asset Management as a whole, which is also technically our client. These are my colleagues, wherever they are based, and they are fund managers. If they want to use third-party funds they will have to ask us for names.’

‘A team based in Chile managing mixed assets may want to go to a third party, for example, so they will look at that list; or it could be a group managing pensions in Madrid who want to do the same. The team here in London is also drawing on us to manage funds of funds.

‘We have different clients in different parts of the world and another big customer is the private banking arm I mentioned. We are helping them out with research for different countries. We have private banking in Miami, Spain, Italy and Chile, among others, and they are all using our list. So now you can understand why we have 312 managers.’

Jose Maria Martinez-Sanjuan

2011-present

Head of manager research and selection Santander Asset Management

2006-2011

Head of fund selection and alternatives Banco Banif

2004-2006

Head of multi-manager Banco Urquijo

1999-2004

Portfolio manager Caja Madrid

1999

Portfolio manager Citi Group

1997-1999

Portfolio manager Barclays

No compromise on quality

However, growth cannot be at the expense of due diligence and even as the list has quadrupled Martinez-Sanjuán has retained strict limits on who makes the grade. Selection is split into three sub-teams, specialising in fixed income, equities or alternatives.

Those that pass an initial quantitative screening progress to a qualitative level where meetings and requests for further information can be made. For Martinez-Sanjuán, the key is to remain dynamic.

‘Fund selection must continually evolve, you have to monitor those you recommend and look for alternatives at the same time, and listen to your clients,’ he says.

One requirement that doesn’t change much is size. ‘We are targeting funds of at least €100 million. If you come to us with a strategy that is €20 million we might say we have to wait.

‘Another fairly fixed requirement is the track record. We would normally look for a fund with at least three years. It is difficult to assess a manager within a smaller timeframe. The longer the track record, the better.’

So, do these guidelines rule out boutiques? If a manager moves from one company to set-up a smaller outfit, for example, are they discounted from the process or does past performance play a part?

‘We are selecting managers not funds, so we may well follow a manager through their entire career. If they move to another company, we would consider their track record, but, at the same time when you are creating or joining a new company, you could find yourself in a different situation. The talent may be there but that is not everything.

‘You also need tools and other people around you. You need a company policy that helps you. We would want to check how the manager is settling into the new company environment and we may wait for some time until we feel comfortable.’

One manager he did follow across is Niall Gallagher at GAM, who runs European equity funds. He moved from T Rowe Price in 2009 and the Citywire A-rated manager is among those Martinez-Sanjuán has worked with for many years.

Other favoured names, not necessarily those who have changed jobs, include Andrew Cawker, who runs the Insight – Absolute Insight Equity Market Neutral fund. Martinez-Sanjuán says he has proven a popular choice, having performed strongly in the market neutral space for a decade.

Finding outperformers is important, but Martinez-Sanjuán says the job cannot simply stop when a manager is put onto the Manager Matrix. ‘From a strategy and investment process point of view, there are several reasons why we would put someone under review. A common question here is whether a poor track record or performance is enough to fire a manager.

‘We want to be consistent in our approach and we spend a lot of time understanding a manager before putting them on a list. So a bad short-term track record or performance is not enough, as we have to be patient.

Lessons from history

Away from the office, Martinez-Sanjuán is a keen tennis player and skier but his time is taken up largely by a young family. ‘Cinema is a hobby but I haven’t seen anything recently,’ he says. ‘That is the problem, if you can call it that, of having three small children.’

When he does get a spare moment, he enjoys a good read and is currently working his way through Why Nations Fail by James Robinson and Daron Acemoglu. The book posits why some civilisations have thrived economically and others have not over the course of history.

‘It is very interesting because I like history as well. They are going all over the world and talk about America and what happened to the countries when the Spaniards conquered the south and how it was different to the English influence in the north. It really is a fascinating book,’ he says.

’When I get chance to read it that is.’

‘We realise that some markets will not favour a particular strategy – as long we understand what a manager is trying to do in the long term it may be fine to sit this out.

‘It is not a stated process that if over one month or three months you go from the first to the fourth quartile then you are fired. It doesn’t work like that,’ he says.

However, developments such as style drift or an uncommunicated change in investment policy are a different story. ‘If you are a large-cap manager and start investing in small caps then that would be a red flag for us and we would start the due diligence process to see what is going on. The first step would be to put the manager under review and then to see what happens,’ Martinez-Sanjuán says.

Yield hunting

Looking at the current market, Martinez-Sanjuán thinks there is an increasing interest in fixed income investment. ‘People are desperate for yield and we’re constantly searching for it.’

Here he points to his allocation to Citywire AAA-rated Ariel Bezalel at Jupiter, who runs the Jupiter JGF Dynamic and Jupiter Strategic Bond funds. Martinez-Sanjuán says this pool of talent has become increasingly competitive in recent years.

‘The hunt for yield has led to a growing interest in flexible and strategic bond managers, as well as absolute return and alternative strategies.

‘For example, the private debt market is only going to grow, as we see new funds coming into the market and being successful at gathering money.’

In his search for such strategies, Martinez-Sanjuán says he has been able to leverage Santander Asset Management’s international network. Most notably, his Boston-based unit has been meeting with and recommending senior loan funds following investor interest.

‘Having offices on both sides of the Atlantic is great. The team in Boston recently included some senior loan strategies, which are not Ucits-compliant, but some of our clients can invest in such assets and when it comes to yield hunting this is a must for them, so we added a couple of names to the matrix.

‘The biggest market for senior loans is the US and that means our team has been able to meet with a lot of people involved in this particular strategy over there and the two names we added were US ones. That is an example of how useful it is to have people on the ground.

‘The same goes for London, where there are a lot of managers and conferences. It is not perhaps the same case in Madrid,’ he adds with a laugh.

This article originally appeared in the November edition of Citywire Global magazine.

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