Dimensional Opens London Office to Target European Institutions
June 17, 2002
Since 1981, Dimensional Fund Advisors of Santa Monica, Calif., has based its investment style on academic research. Earlier this year, the firm decided to try to replicate the success it has had in the U.S. in Europe. Dimensional hired David Salisbury, former chief executive of Schroders, in March to serve as chief executive of DFA Ltd., its London office. In April, Philip Nash joined DFA as marketing director from Barclays Global Investors.
Mutual Fund Market News' Andrew Brent recently discussed DFA's new European initiative with both Salisbury and Nash. An edited version of their conversation follows.
MFMN: When did DFA open the London office?
Salisbury: Dimensional has been in Europe in the form of a joint venture since 1986 and then directly through its own subsidiary since 1991. But that has only been managing European investments for U.S. clients. So it's literally with my arrival on the first of March and then Philip's arrival that we have started the business development effort for local clients.
MFMN: What prompted DFA to begin going after European clients?
Salisbury: Firstly, I think the fact that we've built up a pretty good track record in managing money in Europe over the past nine or 10 years. That's important, number one. Secondly, our academic approach is attractive to institutions in Europe, which are increasingly looking for scientific solutions, rather than active management. And we've also had an operation in Australia for five years that is beginning to be quite successful. I think David Booth and Rex Sinquefield, who founded Dimensional, thought that they could repeat the same success in Europe.
It also happened to be the case that while I was at Schroders, we provided capital to Dimensional to establish themselves, and I personally sat on the board for eight years before Schroders sold its investment in 1996. When I left Schroders last August, David Booth picked up the phone and said he was interested in talking with me about a venture in Europe. We immediately began looking for a marketing director and found Philip.
MFMN: In terms of offering products to European institutions, can you use DFA's existing products or do you have to register new ones in Europe?
Salisbury: Good question. We could sell the existing products in Europe, but our U.S. funds are heavily invested in U.S. securities and our international funds tend to be non-U.S. European investors interested in domestic funds would want to invest in European securities and those investing in international funds would want to include U.S. stocks.
We have decided to set up a family of funds in Dublin, Ireland for European investors and may set up another series of funds in the U.K. specifically for English investors because English investors find funds domiciled within the U.K. more attractive.
MFMN: How many funds are you planning to launch?
Salisbury: We are launching three small-cap value funds each for the U.S., the U.K. and Continental Europe; two market-wide value funds for Continental Europe and the U.K.; and a global short bond fund.
These initial six funds, domiciled in Dublin, are approved and available, although they are not yet funded because we're only just starting our marketing campaign. We wanted to have something in our quiver before we started.
And we also have quite a successful history in fixed-income management, so we may offer those types of funds as well.
MFMN: Within Europe, is it possible to have a single marketing strategy for the entire region? Or is it crucial to have a separate strategy from country to country?
Nash: I think the answer to that question is both yes and no. I think there is a single strategy that one can adopt and implement in reaching the institutional market. There are a significant number of influential institutions operating in Europe with sizable assets that are up to speed with what's happening in the U.S. investment marketplace. We regard these highly sophisticated institutions as a very attractive target segment for us, given that Dimensional is a sophisticated academic investment manager with high quality products and research.
However, Western Europe is still a highly fragmented region, and the country factor is still very heavily dominant in the savings and pension market across Europe. There are many different regulations throughout Europe, and investors there have markedly different investment behavior. You can see this by looking at the exposure to equities on the part of U.K. institutions and compare that to the equity exposure on the part of French or German institutions, and it is very different, indeed. There are lots of perfectly good reasons why that is the case, such as various tax and accounting codes.
MFMN: Will this mean that you will have to approach institutional investors in each country differently?