How the UK's newest arrival will crack the funds market - and keep costs down

US giant Federated Investors has officially begun its mission to crack the UK market and outlined the canny tools it will use to drive its expansion.

The firm is one of the largest asset managers in the US with just over $360 billion in assets under management, but earlier this year it announced its intention to move in on the UK. 

Speaking to Wealth Manager , vice chairman of Federated Investors Gordy Ceresino said he had been working for  several years to find the best way to engineer growth of the business outside the US and has decided partner with distributor Bury Street Capital rather than open a dedicated UK office.

Ceresino explained that taking on a distributor which already has existing industry relationships would help in a marketplace which is driven by independent financial advisers and a multitude of smaller wealth firms, unlike America which has more larger, dominant players.

He said: ‘The UK market is fairly similar to the US from the standpoint of risk and reward in the marketplace. But the difference is that the US is predominantly driven by brokerage firms like Merrill Lynch and Morgan Stanley, through wholesale distribution.'

‘What you find in the UK is that it is driven by independent financial advisers as well as wealth managers.’

Building a regional sales force – which many wealth managers have sought to develop in recent years - is a costly business and this was also a factor behind choosing a local distributor.

‘The cost of building a sales force, compare that to Bury Street, it just made more sense from a fiscal standpoint,’ he said. 'By the time I got the office and got the people in place I could lose six months in momentum.'

The firm hired external consultants to assess its fund range and advise on which vehicles would be most appropriate for the UK market. The group finally settled on income strategies, including the Federated Strategic Value Equity (Dividend) and Federated High Income Advantage funds which access the US high yield market, as revealed by Wealth Manager earlier this year. The latter fund has provided a 16.7% annualised three-year return and a 6.7% yield to maturity.

The Federated Emerging Market Debt fund is set to follow shortly, as is the Federated Total Return Bond fund.