John Hancock's Hartstein Aims for Growth Ahead
April 6, 2009
While most mutual fund companies struggled in 2008, John Hancock Funds finished the year in solid standing, buoyed by a strong first half and careful strategic planning. President and CEO Keith Hartstein recently spoke with Money Management Executive's John Morgan about the key areas that drove Hancock's record $8.5 billion in sales, some regulations he would like to see changed and his outlook for the rest of 2009 and beyond.
MME: What are you doing to help John Hancock stay relevant in these turbulent times?
Hartstein: We have an award-winning marketing group that has done an outstanding job anticipating things. We launched a volatility kit in April of last year, and in June we dedicated a section of our website as the "Volatility Center." That volatility kit had huge demand. More than 300,000 brochures were requested by advisers and distributed in 2008, a lot of it in the fourth quarter. We are in the midst of coming out with a complementary piece called "Where Do We Go from Here: A Plan for the Changing Financial Landscape." We expect that will be very well received as well.
In something we call "History Lessons," we've armed our wholesalers with presentations on the history of bear markets, bull markets and market recoveries. There's another one called "Creating Confidence in the New World," that deals with the whole issue of how to deal with clients' emotions and the lack of confidence they may have in their portfolios.
It is very much a focus of ours to be relevant and to be more than just a provider of financial products. We want to be a real partner to the financial advisers who sell our funds.
MME: What were some of your best-performing areas in 2008?
Hartstein: 2008 was our third consecutive record year for sales. Given everything that happened in the market in 2008, a record year in sales was nothing short of remarkable. We did it on the back of a strong first half, but then things fell dramatically, especially in the fourth quarter.
We closed two fund adoptions in 2008. In April, we completed the adoption of the Rainier Large Cap Growth Fund and in December, we closed the adoption of the Robeco Boston Partners Large Cap Value Fund, what we now call the John Hancock Disciplined Value Fund. That added two core products, both four-star funds-one in large-cap growth, one in large-cap value - to our product line, and brought in two new subadvisory relationships that we're very pleased to have.
The other thing that happened in 2008 is that we completed the refinancing of our auction-rate preferred securities on our closed-end funds. One hundred percent of our auction-rate shareholders got back 100% of their money, with the last checks going out in early July. To date, we continue to be one of the only major fund companies to completely solve its auction-rate preferred situation. All in all it was a busy year, and then dealing with the whole financial markets coming unraveled was a whole other thing.
MME: What drove your record sales in the first half of 2008?
Hartstein: Our record sales were driven by the wholesaler expansion initiative we started four years ago.
We took our number of wholesalers in the field up from 28 in 2004 to about 55 at present. A lot of those folks weren't added at once; they were feathered in over the last several years. It takes 18 months or so for a wholesaler new to your company to really begin to hit their stride and gain critical exposure. You see a ramp-up in their sales after they've made the rounds a few times, and that's what took place in the first half of last year. Ameriprise became our distribution partner a couple of years ago, and they were our No. 1 seller of mutual funds in 2008. That relationship has really come a long way, as well.
We continue to have a long-term objective of being a top 10 player in the retail mutual fund space. We plan to do additional adoptions of funds in specific asset classes with proven and repeatable strategies, long-term track records and of course capacity to grow.
MME: What were some disappointing areas in 2008?
Hartstein: Profitability. I am responsible for the bottom line, and our bottom line took a significant hit. We did a pretty good job managing our bottom line in terms of expense management, but still, as fast and as furious as the decline came, there wasn't a whole lot we could do about it. Everybody in the industry certainly saw lower revenue than in 2007. In our case, it put us in the red for the year.
MME: What are some areas of the market that concern you the most, and what are some possible solutions?