Last month Robeco was sold to Orix, a Japanese financial services group, for around €2 billion. The sale of the investment firm which was once regarded as one of the very best in the world will probably make its founding fathers roll over in their graves. Nevertheless, Robeco’s history contains many valuable lessons and may in fact provide inspiration to those who believe this industry is still in need of change.
1929 – 1992
For more than six decades the Netherlands was home to an iconic asset manager: het Rotterdamsch Beleggings Consortium, known as Robeco, founded in 1929 by several prominent local businessmen who decided to combine their capital to minimize costs and make it possible and affordable for the general public to diversify their investments.1 Robeco acquired its stellar reputation because of its disciplined investment philosophy and unique ownership structure: until 1992 Robeco was one of the few client-owned asset managers in the world. This means investors not only owned the underlying investments but also the investment management company itself. In other words Robeco’s funds were not managed by an external fund manager with a conflicting profit motive (revenue to the manager = costs to the investor), but by managers who were hired and paid a salary by the investors themselves. In such a structure management is focused solely on serving its clients’ (= its owners’) interests at the lowest possible cost.
Robeco’s history shows what such an alignment of interests can do: the annual management fee for the flagship ‘Robeco Fund’ stood at a mere 0.11% in 1964, less than 1/10 the fee of the average US equity fund at that time. Thanks to those low investment costs, Robeco was able to offer superior performance to its loyal and growing group of clients.2 Its cost leadership also kept a lid on the management fees in the Dutch asset management industry as a whole, which, with average fees of 0.38% for the leading Dutch funds as late as 1992, were among the lowest in the world.
1992 – 2013
In 1992 Robeco externalized its management company and profit maximization for shareholders became a key objective. The consequences of these changes were profound. The management fees of the Robeco Fund increased from 0.25% to 1% over the next 10 years. An increase of 400%, partly paid in kickbacks with no benefit to its investors! In its wake the fees of Robeco’s Dutch peers increased by more than 300%, despite growing competition.
Moreover, after enforcing investment discipline for more than sixty years, marketing of new ‘hot’ funds, aimed at chasing hypes and satisfying the latest craving of emotional investors, became the name of the game. The number of Robeco funds grew from a handful in 1990 to over 160 by the late ‘90s. Performance deteriorated and more than 100 of these new ‘sexy’ funds were subsequently closed down. With these changes, trust in the formerly pre-eminent firm started to decline, along with its investment performance. The transformation was beneficial for its new owners for a short while. However, by 2009 Robeco was loss making and had lost its unique position. When it turned back to profit in subsequent years, it was time for Robeco’s shareholders to say goodbye and sell the company.
Let’s hope the lessons of Robeco’s history will be taken to heart and some day soon a modern version of the original client owned firm will be established. An investment firm whose main goal is serving its clients, not profiting from them.
We wish you lots of investment peace of mind, Marius and Jolme