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For Robeco, 2010 was a year when not only clients but also the company itself enjoyed attractive returns. After a strong rebound in 2009, financial markets continued to offer investors a favorable environment. In addition, it is pleasing to note that - albeit helped by the euro weakness - almost all investment products showed positive returns. At the end of 2010, total assets under management amounted to EUR 150 billion. This is an all-time high for Robeco and stems from growth of 11% in 2010, following on from the strong recovery in 2009 (+22%). For 2010 a net profit of EUR 181 million was posted, following a loss of EUR 11 million in 2009.
The solid performance of 2010 continued into Q1 2011
In Q1 2011 Robeco experienced favorable inflows into US premium equity, high yield and emerging-market products. Institutional investors outside India continued to show appetite for Canara-Robeco products. Outflows were reported across regions and capabilities, but these were not significant. At the end of Q1 2011, the assets under management remained at EUR 150 billion, resulting from a combination of net cash inflow, positive market returns and the negative effects of the weaker dollar. A shift in investor appetite towards higher risk assets was evident in the gross cash flow.
The year 2010 proved to be one in which most developed markets saw positive growth again, supported by heavy government spending and very low interest rates. Emerging markets continued to surge ahead with close to double-digit growth figures. From this perspective, and taking a longer term view into account, it makes sense to redefine both types of markets to either 'low growth' (western economies) or 'high growth' (most of which are located in Asia or Latin America).
In general, 2010 was a year where some investors returned to the market, redeploying their risk budgets. Many of them remained sidelined however, uncertain about the sustainability of economic growth. Clients did demonstrate a higher degree of risk-appetite again, which coincides with Robeco’s relatively optimistic longer term view on investment risks being rewarded. A word of caution seems appropriate, however. Given the scarcity of commodities, continuous growth in high-growth markets, demographics and indebted governments we may very well witness the return of inflation and with that the end of the Great Moderation. This would reverse an almost 30-year period of falling interest rates; something to carefully consider in every longer term investment policy.
2010 marked the start of a new strategic period for Robeco. The interests of our clients will be given center stage and Robeco will offer a compact and competitive range of responsible and actively managed investment strategies and pension solutions. Thinking consistently in the best interests of clients means that Robeco can and will advise them on how to cope with the risks attached to the reemergence of inflation.
The creation of a product range geared towards either hedging inflation risks or benefiting from them is one of five areas where Robeco will try to make a difference for its clients. In doing so, Robeco will come up with creative solutions.
Clear market leader in the Netherlands
Robeco intends to have doubled its institutional market share in the Netherlands by 2014. To this end, the institutional sales team for the Netherlands has been strengthened and in the second half of 2010 a dedicated Investment Solutions department was established, combining all Robeco’s pensions and insurance expertise into a single department. Investment Solutions strives to offer pension funds and other institutional investors everything they need to face the challenges of the present and the future, which include population ageing and longevity and looming inflation.
In addition to the current independent manager-selection process, the proposition for fiduciary management is being upgraded in several ways. These include implementation of Dynamic Strategic Asset Allocation (DSAA), determining and maintaining long-term risk-/earnings expectations including macro-economic scenarios, the inclusion of an independent risk-management check and the rationalization of reporting.
One of the first solutions the department has developed is the Robeco Premie Pensioen Instelling (PPI, a defined-contribution pension institution). PPI is a means of implementing pension schemes not only in the Netherlands, but also in other countries, and is therefore well suited for European multinationals. It will enable Robeco to offer collective defined-contribution pension services directly to these companies, which stand to benefit from a substantial easing of their administrative workload and lower costs. PPI will supplement existing pension providers, pension funds and insurers.
Products: Achieve a competitive sustainable advantage
For the next few years Robeco expects to achieve a sustainable competitive advantage by focusing its product-development activities on five themes. 1. Responsible Investing - integrated into all investment products and supported by SAM’s expertise; 2. Inflation products - a fund family that offers protection from inflation risks and products that enable investors to actively take advantage of inflation, building on existing skills; 3. Food and agricultural funds - a product range for the institutional market with diverse risk-return profiles, which is being developed together with Rabobank; 4. Pension and investment solutions; 5. Research and quant products - building on Robeco’s long-standing expertise in this area. These five themes will form the starting point for all entities, asset classes and product lines within Robeco Group.
Expanding synergy with Rabobank
Cooperation between Rabobank and Robeco has gradually increased over the years, and the synergies that already exist can still be expanded. In the coming years Robeco and Rabobank will increasingly join forces in terms of business development, both in the Netherlands and internationally, in the retail as well as the institutional market. Food & agri business will be one of the spearheads in the intensified cooperation between Rabobank and Robeco.
It is Robeco’s ambition to be recognized as a thought leader and the provider of choice of sustainable F&A investment products, combining Rabobank’s unique expertise and network in the F&A business and SAM’s expertise on sustainability investing with Robeco’s investment skills.
Responsible Investing and Corporate Responsibility
Robeco considers ESG integration - integrating environmental, social and governance (ESG) factors into investment-analysis and decision-making processes - to be one of the most important elements of responsible investing. ESG integration improves risk/return profiles and corporate risk assessment, leads to more comprehensive company assessments and enables us to discover new investment opportunities more quickly. Currently ESG integration is applied to over EUR 60 billion of Robeco’s assets under management. This represents more than 88% of the assets which are in scope for ESG integration.
Enhanced engagement means entering into an active dialogue with companies that violate the principles of the UN Global Compact, with the option of excluding such companies from investment portfolios if the dialogue does not produce the desired result. It should be noted that in certain countries, at the request of clients, the exclusion policy is not applied. By the end of 2010 Robeco had a list of more than 80 companies that qualify for enhanced engagement. Robeco's Responsible Investing department has already started a dialogue with 21 of these companies and this number will increase in 2011. Emerging markets have been in Robeco's overall engagement program since 2010, so our engagement themes include companies from both developed and emerging markets. However, Robeco has certain themes that focus specifically on emerging markets, such as sustainability reporting by companies in South Korea, South Africa and Brazil. In 2010 Robeco started engagement activities for credit investments. By the end of 2010 around 30% of all engagement activities on portfolio holdings were related to the credit portfolios of Robeco and its clients.
Robeco’s US operations enjoyed a good year in 2010. More specifically, Harbor Capital Advisors realized excellent performances for its clients and saw its assets under management grow to EUR 45 billion (+31%). Robeco Investment Management was very successful in terms of cash flow and profitability, and three-year track records are strong.
Robeco Middle East celebrated its tenth year in the Gulf in 2010. It takes time to get a foothold in the Middle East, but in the course of the last ten years the Bahrain team has strongly established Robeco's reputation. Canara Robeco, Robeco’s joint venture in India which was established in 2007, has developed well. Assets under management and advice amounted to almost USD 1.5 billion at the end of 2010 and Canara Robeco’s portfolio managers are ranked among India’s best. In mid-July, a large Dutch pension fund invested EUR 100 million in Robeco’s locally managed Indian Equities strategy, giving the joint venture with Canara Bank a substantial boost.
Robeco Greater China has made progress in extending its reach in terms of distribution in the Greater China Region. In Taiwan, Robeco started distributing its funds through strategic partners Shin Kon Life Insurance and Fubon Bank. Robeco’s Hong Kong office has recorded gradual and steady inflows from our private-banking partners.
A USD 500 million mandate for the SAM Smart Energy strategy has cemented Robeco’s position as a recognized institutional asset manager in China.
Business development 2010
Global business development (in EUR billion)
AuM at opening date
|Net cash flow||-3.4||3.4||-6.7||7.5||3.9||3.6|
|Other gains / losses||-1.5||-0.1||-1.5||-2.5||-0.5||-2.0|
|AuM at closing date||149.6||81.0||68.6||134.9||67.1||67.8|
Growth in assets under management
At the end of 2010, total assets under management amounted to EUR 149.6 billion. This is an all- time high for Robeco and stems from growth of 10.9% in 2010, following on from the strong recovery in 2009 (+21.9%). The continual recovery in the financial markets in 2010 affected Robeco’s assets under management considerably. The increase is the result of a positive net investment result of EUR 19.6 billion and a net cash outflow of EUR 3.4 billion. The investment result also includes a positive contribution of EUR 3.0 billion caused by the appreciation of the US dollar. The annual dividend payments and interest distributions are included in ‘Other gains / losses’.
Net cash flow
In terms of net cash flow, the year was mixed. The net cash outflow of EUR 3.4 billion was mainly the result of significant outflow caused by rebalancing and strategic re-allocation by a small number of institutional clients. It affected mandates with relatively low fees. The retail cash inflow was strong, particularly into the mutual funds of Harbor Capital Advisors in the US. Also in Europe, the cash inflow from retail clients was strong and well-diversified. The net cash flow was negatively affected by the fact that some (structured) products and investment concepts terminated. As previously announced in 2010 Beon in Groningen withdrew the mandates it had awarded to Robeco, but, despite this and other outflows from a small number of institutional clients, cash inflow was very good, particularly in equity products. Cash-flow revenues significantly improved for Robeco in 2010.
EUR x million 2010 2009
Assets under management (EUR x billion) 149.6 134.9
Management and performance fees 932.8 665.0
Operating income 763.6 512.2
Operating expenses -482.3 -528.0
Operating result 281.3 -15.8
Non-operating result -24.7 13.8
Taxes -75.3 - 9.0
Net result 181.3 -11.0
For 2010 a net profit of EUR 181.3 million was posted, following a loss of EUR 11.0 million in 2009. Operating income increased by a substantial EUR 251.4 million to EUR 763.6 million (+49.1%) in 2010. Both higher management and performance fees, in total EUR 932.8 million (2009: EUR 665.0 million), contributed to the increase in income from asset-management activities.