Annual report Robeco Groep NV 2002

Despite difficult market circumstances, Robeco Groep NV (Robeco) achieved cash inflow of EUR 2.4 billion over the year 2002. Robeco successfully completed its US acquisition strategy aimed at establishing a full-service platform for the US institutional market. Robeco's European indirect fund-distribution strategy is being implemented, with new local sales offices established in Spain and in Germany. The entry into the European alternatives market has also progressed well, with EUR 1.0 billion in net cash inflow of alternative products.

 

As Robeco has adapted its organization to the changed market environment and the consequent decline in revenues, the focus was on cost control during 2002. Nevertheless, the operating income from current business decreased in 2002. The net effect of additional operating income from acquisitions (EUR +36 million) and the fall in operating income of the existing business (EUR -21 million), is an increase in Robeco's operating income from EUR 105.5 million to EUR 120.7 million. Net income declined mainly because of additional interest expenses, a higher tax charge and the inclusion of a minority interest. The corporate income tax charge increased substantially in 2002, and represents a normal tax level going forward. The 2001 effective tax rate was influenced by an incidental tax facility. In 2002, Robeco recorded a minority interest for the 40% held by the former partners of Boston Partners as well as the 51% interest held by the founding partner of Transtrend.

 

Total assets under management fell by EUR 6.4 billion to EUR 98.1 billion, which was the net effect of investment results (EUR -7.9 billion) and the depreciation of the US dollar against the euro (EUR -8.4 billion), and new assets from acquisitions (EUR 8.9 billion) and regular net cash flow from clients (EUR 2.4 billion). Non-regular cash outflows resulting from the closure of the Rodamco North America and Haslemere funds and dividends and interests paid contributed a negative EUR 1.4 billion to the development of assets under management.

 

Due to the additional assets of Boston Partners, institutional assets under management currently represent a larger share of the total assets under management (60%) compared to 2001 (56%). The acquisition of Boston Partners has not only provided Robeco additional investment-management capabilities, it has also increased the geographic diversification of the assets under management. Currently, 40% of the assets are managed by the US operations. This represents only a minor increase compared to 2001, as the relative weight of US dollar-denominated assets under management was negatively impacted by the weakening of the US dollar versus the euro.

 

The entry into the European alternatives market progressed well, as Robeco Alternative Investments has generated over EUR 1.0 billion in net cash flow in alternative products. Assets under management in structured products and hedge funds have grown to EUR 1.6 billion and EUR 2.2 billion respectively, mainly due to inflows from retail and institutional European investors and the acquisition of Transtrend in 2002 (EUR 370 million acquired AuM). The venture-capital assets under management decreased due to significant write-downs in the underlying portfolios, in line with the general adverse market conditions for venture capital in 2002. As at year-end 2002, alternative assets under management amount to EUR 5.4 billion, an increase of 17% compared to year-end 2001 (EUR 4.6 billion).

 

The institutional assets under management remained stable, amounting to EUR 58.7 billion as at year-end 2002. The acquisition of Boston Partners partly offset the loss of assets through negative investment results. Despite adverse market conditions, Robeco has been able to generate EUR 1.1 billion of positive net cash flow from institutional clients. This has mainly been achieved by inflows of insurance assets of the Rabobank Group and by the European institutional sales force.

 

52% of the total institutional assets under management (EUR 30.6 billion) are derived from the US operations. EUR 13.5 billion of the assets under management from the European operations consist of Rabobank Group-related insurance and central treasury assets.

 

Positive net cash flow and acquisitions could not offset the loss of retail assets due to weak equity markets and the depreciation of the US dollar versus the euro. The total retail assets fell from EUR 46.0 billion to EUR 39.5 billion, EUR 3.5 billion of which was due to the depreciation of the dollar.

 

Harbor Capital was able to attract a significant amount of net cash flow (EUR 0.9 billion) into its high-performing equity mutual funds. Harbor Capital introduced two new series of funds in 2002 that are more suitable for sale through intermediaries to the retirement and general retail markets. The structured products of Robeco Alternative Investments were in demand with retail investors, resulting in net cash flow of EUR 0.6 billion in alternative products.

 

The retail operations are mainly located in Europe, where approximately 80% of the total retail assets are managed. Scope for significant growth in the retail market exists, as Robeco is well positioned on the basis of its brand name, service concepts, current indirect distribution network and long-term performance track record.

 

In 2002 Robeco was able to enhance its investment-management capabilities through the acquisition of a 49% stake in Transtrend, a managed futures hedge-fund manager in Rotterdam, the Netherlands. In the USA, Robeco acquired a 100% stake in Sage Capital Management, a fund-of-hedge-funds manager in New York, and a 60% stake in Boston Partners Asset Management, an institutional value-equity manager based in Boston. Furthermore, Robeco has successfully developed its in-house investment management in the field of alternative investments, with notable successes for the structured-products and private equity fund-of-funds units. In order to realize synergies from the acquisitions, various projects are well underway, such as the development of global value-equity asset management based on the expertise acquired with Boston Partners Asset Management, and the development of global fund-of-hedge-fund capabilities in a joint effort between Sage Capital Management and the Rotterdam-based existing fund-of-hedge-fund operations.

 

Besides investment-management capabilities, distribution is a key factor in successful asset management. In 2002 the embedded value of the Robeco brand was leveraged, and both direct and indirect distribution strategies have been pursued. The European indirect fund-distribution strategy is currently being implemented, with new local sales offices being established in Spain in 2001 and in Germany from January 2003.

 

Robeco's business units are grouped into two main business groups according to the core capabilities, i.e. investment management/wholesale distribution and retail distribution. Wholesale distribution consists of direct sales to institutional clients, as well as European indirect mutual-fund distribution. The close relationship between wholesale distribution and investment management requires these two activities to be integrated within one business group.

 

Robeco Asset Management (Europe) comprises the European investment departments, the departments responsible for serving institutional clients and the indirect mutual-fund distribution activities in Europe. No significant changes were made to the investment-management process in 2002. The current investment process is well suited to provide long-term investment outperformance for clients. Robeco Asset Management has the necessary building blocks in place to execute its strategy. Whereas the focus was on building the organization in 2000-2001, this has now shifted towards the execution of the strategy. A thorough product review has been executed, whereby certain unprofitable mutual funds which lacked the necessary critical mass were merged or closed. Currently Robeco has distribution agreements in place with leading financial institutions in Austria, Belgium, France, Germany, Italy, Luxemburg, Spain and Switzerland. Robeco has local sales-support offices for indirect mutual-fund distribution in Belgium, France, Germany, Spain and Switzerland. Robeco's brand name is a distinctive factor enabling access to distribution.

 

Thanks to two acquisitions, the Robeco USA business unit expanded further in 2002. The acquisitions of Sage Capital Management and of a 60% stake in Boston Partners Asset Management allow Robeco, in conjunction with Weiss, Peck & Greer, to offer a complete range of products for the US institutional market. These companies' institutional sales activities have also been integrated within Robeco USA. During 2002, the first successes in terms of cross-selling between the companies within Robeco USA were realized. The product range of Robeco USA will consist of growth- and value-equity investments, fixed-income investments and alternatives (such as hedge funds, funds of hedge funds, private equity and venture-capital investments). With the current positioning of Robeco USA a full-service US institutional platform is available to serve as a basis for future growth.

 

In early 2002, Weiss, Peck & Greer sold its securities-clearing activities to Bank of New York. Furthermore, in order to strengthen its private-equity business, Weiss, Peck & Greer entered into a partnership with Brynwood.

 

Robeco Alternative Investments (RAI), founded as a business unit in 2001, is the alternative investments platform in Europe, offering structured products, funds of hedge funds, single-strategy hedge funds and private-equity funds of funds. During the past two years, RAI has been building its investment-management capabilities and has secured existing distribution channels within the Robeco - Rabobank organization. Now that these are in place and performing well, RAI will further develop its distribution in 2003. Due to its innovative products, which include CDOs open to retail investors, RAI has been a highly profitable business unit in 2002.

 

To access the immense US mutual-fund market and to profit from a unique and very successful business model, Robeco acquired Harbor Capital Advisors (HCA) in 2001. HCA's area of expertise is (traditional) manager selection and packaging. HCA markets funds under its own brand name and sells directly or through leading third-party investment platforms. During 2002, HCA reinforced the distribution of its well performing mutual funds. New share classes have been introduced to allow HCA to expand into the retirement-savings area and broaden its retail segments in the USA. Furthermore, a new shareholder IT system has been introduced and the sales staff is in the process of being expanded.

 

The direct retail activities of Robeco consist of Robeco Direct in the Netherlands, Banque Robeco France and Robeco Bank Belgium. Robeco Direct services more than half a million retail clients. Robeco Direct in the Netherlands aims to consolidate its position and enlarge the scope of its current client relationships by implementing distinct service concepts along the lines of client segmentation. As part of this process, Robeco Direct has introduced a new organizational structure to create a more sales- and client-oriented organization. Banque Robeco in France was challenged to cope with the adverse market circumstances in 2002 and has adapted its organization accordingly, with more focus on one-to-one client relationships than on general marketing initiatives.

 

Robeco Bank Belgium opened in February 2002 and is still in a start-up situation. Building up assets and transaction volume is taking somewhat longer than expected, due to the general market circumstances.

 

Within the Rabobank Group, the business unit Rabo BeleggingsAdvies serves as the center of competence in supporting more than 1600 local Rabobank outlets in their investment advisory activities. Through these local outlets, Rabo BeleggingsAdvies services more than one million retail clients investing in mutual funds and individual securities. Based upon the Rabobank strategic plan, Rabo BeleggingsAdvies has two strategic objectives: improving profitability at local bank level and seizing additional market share. In line with Robeco Direct, Rabo BeleggingsAdvies has reassessed its client segments and is in the process of introducing innovative service concepts for each of these segments.

 

 

IRIS, the Institute for Research & Investment Services, is the independent research institute serving Rabobank and Robeco. IRIS advises on more than 500 individual securities worldwide. In 2002, IRIS was named the most credible retail investment adviser in the Netherlands in a study by Erasmus University Rotterdam. IRIS will provide its research to Rabo BeleggingsAdvies and Robeco Direct as part of the new client service concepts.

 

Robeco provides discretionary asset management products and services, as well as a complete range of mutual funds to a large number of institutional and retail clients worldwide. Robeco's product range encompasses fixed-income and equity investments, as well as balanced accounts, money-market funds and alternative investments.

Robeco distributes its funds for the retail market directly, and through other financial institutions. Several of its mutual funds, including the flagship Robeco N.V., are listed on major European stock exchanges such as Amsterdam, Paris, Frankfurt and London.

 

As well as from its head office in Rotterdam, Robeco services its clients from its European offices in France, Belgium, Luxembourg, Switzerland, Germany and Spain. In the United States, Robeco has offices in New York, Chicago and San Francisco (Weiss, Peck & Greer), Boston (Boston Partners), White Plains (Sage Capital Management) and Toledo (Harbor Capital Advisors).

 

Robeco is the center for asset management with full operational independence within the Rabobank Group. The combination of the highest credit ratings from the major international rating agencies and the highest Sustainability Cluster Score within the banking sector reflects the high added value Rabobank has always offered its investors, members, clients and employees.