Fred Alger Management of New York and Davis Selected Advisors of Tucson, Ariz. are working to broaden their six-year old alliance to distribute mutual funds and service to their fund shareholders in Germany.
In April, the two fund groups launched a joint mutual fund distribution company to sell both Alger and Davis Selected funds to institutional investors in Germany. The two firms will also be introducing their own mutual fund transfer agency beginning in December to facilitate the servicing of the funds they sell in Germany.
The new institutional mutual fund distribution company has been named Selected Institutional Services, said Jim Connelly, executive vice president at Alger. The firm is one-third owned by Alger and one-third owned by Davis Selected. The remaining one-third is owned by Noramco, a German distributor of mutual funds based in Bollendorf, Germany.
Noramco currently distributes funds to retail investors in Germany through its network of 700 to 800 independent brokers, Connelly said. Both Alger and David Selected have, separately, been in partnerships with Moramco, through which they have sold funds to retail investors since 1994.
Until about 1993, Noramco had been the fund distribution arm for the Templeton family of funds, said Connelly. But when Templeton decided to set up its own independent distribution company in Europe, Noramco sought other funds to distribute, he said.
In 1994, Alger registered three of its successful U.S. funds for sale in Germany. The Alger name was unknown in Germany but these funds had strong track records, said Connelly.
At about the same time, Davis Selected had registered clones of four of its successful U.S. funds in Luxembourg, for sale to retail German investors.
"You take what you do best in the U.S., then bring that to Germany," said Ken Eich, chief operating officer of Davis Selected. The four funds include a large-cap, a financial sector, a real estate and a mid-cap growth fund. They currently have combined assets of $400 million, he said.
More recently, however, executives at both Alger and Davis Selected recognized that there were opportunities in the German institutional marketplace.
"But Namco has no expertise on the institutional side, only the retail side," said Connelly. "We really needed to do something to enhance our distribution through the institutional markets."
The two fund groups decided to pool their resources and start their own institutional mutual fund distribution company in Germany. The company is based in Frankfurt, Connelly said.
The partnership works because the two fund groups have distinct investment styles - the Alger funds follow a growth style and the Davis funds are value-oriented, said executives from both firms. The fund groups complement each other and are not in competition, the executives said.
Both fund groups are poised to take advantage of changes in the public retirement system in Germany. But the two fund groups are also vying to garner the attention of German insurance companies, discount banks (called Hypo-banks) and German savings and loans, said Connelly.
They are also hoping to win the business of some of the large German banks that sponsor "funds of funds" programs. Institutions like Deutsche Bank pluck the best mutual funds then bundle them together into a single fund, said Connelly.
In support of its institutional initiative, Alger has registered three new funds - a small cap, a mid cap and a growth fund, in Luxembourg. They will be sold to institutional investors in Germany. Alger registered its premiere mutual fund in Luxembourg, an all-cap fund, a few years ago, said Connelly. The Luxembourg funds offer many tax advantages for German investors, he said.
Having developed a distribution system, the fund companies began addressing the challenge of servicing the funds, a tougher problem, according to Connelly.
Executives at both Alger and Davis Selected have wanted to offer their own transfer agency service to German investors on both the retail and institutional side.
"To both firms, service has been an extremely important thing and it is even more important on the institutional side," said Connelly.
Both fund firms have been using State Street Bank's Luxembourg affiliate for fund services including transfer agency. But, Alger and Davis Selected will begin handling their own transfer agency for the funds beginning in mid-December, said Connelly. State Street will continue to be the funds' custodian bank and offer other fund services, he said.
The newly-created transfer agent, Continental Fund Services, will be based in Luxembourg. Alger, Davis Selected and Normanco are equal owners. Alger, which has served as its own transfer agent in the U.S., will adapt a version of the transfer agency software it uses in the U.S. for its new German transfer agency operations.
Right now, Continental Fund Services will only provide transfer agency services to the Alger and Davis Selected funds. But Connelly said that he was not ruling out some day providing services to other Luxembourg-based mutual funds.
Alger is also considering expanding its fund distribution efforts into Switzerland, Spain and Italy, said Connelly.
Davis Selected already has two mutual funds registered for sale in Switzerland and is also considering expansion into Spain and Italy, said Eich.