Research is a tough business, and many research providers contemplate different business models to scale their business. One potential business model is asset management, which itself poses multiple options ranging from setting up a fund to going to work for the buy side. One option that has always intrigued us is building asset management products from research offerings. When we heard that emerging markets specialist Riedel Research recently set up a Unit Trust, we asked for more information. The following is provided by the firm, ESE Advisory Group, which worked with Riedel Research set up the program.
Earning Basis Points on Your Research – Riedel Research, a Case Study
Ever considered expanding into the money management? Setting up a mutual fund or hedge fund requires a big investment and an equally big commitment. There is, however, another way. By creating model portfolios based on your unique investment philosophy and working with the right investment manufacturing partners, you can enter the asset management game relatively cheaply, quickly and with minimal impact on your current research business.
ESE Advisory Group, LLC outlined this idea in a blog entry published here a year ago — and early in 2009, the founder of Riedel Research, David Riedel, decided to take us up on it. We thought we’d report back on how it’s been going.
The first step was to identify the best tools Riedel Research had available for creating model portfolios that would also work as investable products. We focused on one of Riedel Research’s core investment themes, which is the rise of the emerging markets consumer.
The popular emerging markets indices and investors’ concentration on BRIC countries emphasize commodities and exports. However, Riedel sees the next wave of emerging market growth coming from the growing power of domestic consumption. Of particular interest are countries with young, rapidly growing populations and accommodative governments looking to stand on their own, which represent the third phase of emerging markets growth. In Riedel’s view, the first growth phase occurred in the 70s & 80s, and was focused on manufactured exports; the second began in the 90s, continued right up until the last year, and centered on commodities and BRIC countries. The third phase is upon us now and is centered on strong domestic demand.
After helping Riedel hone his message, ESE gathered feedback from other investment professionals. The feedback was positive and the next step was to immediately begin building a formal three year track record. The merits of an Active ETF were discussed, but the decision was made to present Riedel’s thesis to UT (Unit Trust) manufacturers, because they represented the quickest path to launching the first Riedel asset management product.
ESE arranged a series of meetings, and Van Kampen was impressed enough with Riedel’s proposal to agree quickly to a five-year deal under which they’ll continue to utilize Riedel Research as portfolio consultant for their core Diversified Emerging Markets Unit Trust. Under this arrangement, Riedel Research will earn basis points on the assets gathered by financial advisors who offer the Unit Trust to clients.
The Unit Trust was launched on July 30th and, as of this writing, Riedel’s performance has been extraordinary. After just two and half months, the Van Kampen Emerging Markets portfolio has returned some 20%, ranging between 300 and 500 basis points over its benchmark.
Next up will be ETFs – either the creation of an active ETF or development of a passive index based on Riedel’s Third Phase investment philosophy that will become the foundation of an ETF. Once again, a manufacturing partner will be found and basis points earned on invested assets.
Near-term, the focus will remain on building a three year track record while earning money from basis points – all with only minimal changes to Riedel’s ongoing core research business. As with any asset management-related business, the key success factor is attracting assets. The more assets, the more fees generated. Building assets takes time and effort, but the annuities from the assets–once collected–represent pure profit for a research firm which is leveraging its core intellectual capital.
Nine months into its new business line, Riedel Research is well on its way!
For more information about Riedel Research, or to download the Riedel White Paper on Third Phase Emerging Markets investing, visit www.riedelresearch.com. For more information about working with ESE Advisory Group LLC, please contact Ken Ennis, CEO at (516) 665-3300, or firstname.lastname@example.org.
— Burt Shulman, Founding Partner, Chief Marketing Officer, ESE Advisory Group LLC
— Ken Ennis, Founding partner, Chief Executive Officer, ESE Advisory Group LLC
ESE Advisory Group LLC is a consultancy specializing in providing support to wealth management intermediary and technology companies. Among their areas of specialization, they have particular expertise in helping independent research providers leverage their analytical expertise to build and sell portfolio and asset allocation models.