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It was the shock felt round the world. Ben Bernanke’s suggestion earlier this year that the Federal Reserve Board might begin to reduce its bond purchases roiled emerging markets. Currencies and stock prices fell sharply from Brazil to Indonesia as the prospect of tighter global liquidity prompted panicky investors to withdraw massive amounts of funds from those countries’ securities markets.

For Devan Kaloo the market’s indiscriminate reaction to a possible shift in U.S. monetary policy was a signal to buy, not a reason to rush for the exits. Kaloo oversees more than $60 billion in assets as head of global emerging-markets equities at Aberdeen Asset Management in London, and in recent months he and his team have been adding to existing positions in Brazil, India, Indonesia and Turkey, four of the countries hardest hit by the recent turmoil. It was a gutsy contrarian call considering the severity of the selling pressure, but the manager puts more faith in Aberdeen’s bottom-up stock-picking capabilities than in the sometimes violent swings in sentiment toward emerging markets.

“The most exciting times for us are periods of great volatility,” says Kaloo. “It means good companies and bad companies are getting dumped. There’s no distinction being made about the quality of companies. And that should ideally be an opportunity for us to capitalize on.”

Kaloo’s sangfroid in the face of market turbulence is emblematic of his firm’s fundamental approach to active equity management. It’s also the reason Aberdeen is the winner of Institutional Investor’s first-ever European Investment Management Award in the Emerging-Markets Equity category.

II screened hundreds of managers and picked the leading ones based on short- and long-term performance and Sharpe ratios, using data from fund information provider eVestment. We then consulted with a select group of European fund sponsors to identify the winners in 20 investment categories spanning equities, fixed income, alternatives and emerging markets.

For many of these companies, the secret of success is sticking with tried-and-true formulas and resisting the increasingly short-term focus of financial markets.

“If you change your process, you’re dead,” says Martin Gilbert, chief executive of Aberdeen, which is based in its namesake Scottish city but runs most of its £202 billion ($327 billion) in assets out of London. “We just have to weather the storm of fashion. We keep fully invested and don’t try to trade. Just buy good companies and hold them.”

The elevated volatility in equity markets since the 2008–’09 financial crisis has been a boon for Cevian Capital, an €8.5 billion ($12 billion) activist hedge fund based in Stockholm and the winner in the Hedge Funds category. “I see a lot of other people out there change their strategy: They become much more short-term,” says Christer Gardell, the firm’s co-founder and managing partner. “We stayed long-term, and with the capital base we have, we’ve been able to take advantage of the short-term panic that’s been out there in the markets.”

For other money managers the turmoil of recent years has prompted some strategic rethinking. Robeco Group, which wins top honors in Pan-Europe Fixed Income High Yield, has cut noncore areas and refocused its business around five strategic themes, including sustainability and quantitative strategies. Pioneer Investments, the asset management arm of Italy’s UniCredit, is seeking to buttress its fixed-income business against a possible bear market in bonds by developing absolute-return strategies. “It’s more difficult to build a diversified portfolio,” says Giordano Lombardo, Milan-based CIO at Pioneer. “We are going to be forced to go into the territory of alternative assets.”

Pioneer, winner in the Pan-Europe Fixed Income Corporate category, believes interest rates have bottomed out in most developed markets, bringing to an end a 30-year bull market in bonds. “It’s very unlikely we are going to see further declines in interest rates,” says Lombardo, a former head of equity research at UniCredit who took over as CIO of Pioneer in 2010. “That is the major challenge we have in front of us.” At the same time, institutional investors still have a strong appetite for fixed-income instruments to match their long-term liabilities.

In a bid to reconcile those two trends, Pioneer has been making a push into the absolute-return space. In December 2010 the firm launched the Absolute Return Bond strategy, which invests cash in Treasury bills or equivalents to preserve capital and then takes positions in derivatives markets, including foreign exchange and credit default swaps, in a bid to generate alpha. “You have to have confidence in the structure,” says Tanguy Le Saout, Pioneer’s Dublin-based head of European fixed income. “You should not be afraid of derivatives.”

The fund, which aims to deliver a return of Eonia (the European overnight interest rate) plus 3 percent before fees, has attracted more than €300 million, most of it coming in this year. The firm is preparing to launch sterling- and dollar-denominated versions of the fund shortly.

Pioneer has also found strong demand for its short-term corporate bond fund, which seeks to minimize the risk of higher rates by investing in securities with durations of no more than three years. The fund has brought in more than €1 billion.

Le Saout, a former equity options arbitrageur at Dresdner Bank who came to Pioneer in 1999 and ran government bond trading and investment grade bonds before taking charge of European fixed income in 2010, says the firm needs to approach today’s market more like a macro hedge fund, such as Brevan Howard Asset Management, than as a traditional long-only bond buyer.

This sort of innovation is striking for a firm whose ownership was in doubt less than three years ago. UniCredit had put Pioneer up for sale in a bid to raise capital at a time when many European banks were looking to exit asset management, but the bank couldn’t find a suitable buyer or price. Although UniCredit halted the auction process and confirmed its ownership in 2011, Pioneer still needs to offset weakness in the Italian market, the source of nearly half of its assets. The debt crisis in Europe, which continues to haunt Continental bond markets and the overall economy even though the European Central Bank has averted the threat of a euro breakup, weighs heavily on the firm’s growth prospects in Italy and the region as a whole.

Three years ago Pioneer opened a London office to combine its emerging-markets equities and fixed-income teams, which it has been expanding. The firm has also stepped up its efforts to attract institutional clients in Latin America and Asia, including opening an office in Mexico City last year. “The idea is to diversify the source of business,” Lombardo says. “We really see ourselves as a global firm.”

The Netherlands hasn’t suffered anything like Italy in the euro crisis fallout, but Robeco faces plenty of its own challenges in trying to generate growth. The €189 billion-in-assets Dutch fund manager has sharpened its strategy since recruiting Roderick Munsters as CEO in 2009 to turn the firm around after years of subpar performance.

In 2010, brandishing the slogan “select, cut, grow,” Munsters adopted a five-year plan of slashing underperforming areas and focusing on strategies where he felt the firm had a distinct advantage. Robeco is targeting five: socially responsible investing, food and agribusiness, quantitative strategies, inflation products and investment solutions — the last a broad-based advisory service with multimanager investment capabilities.

The new emphasis “gave us more focus and more clout in those five strategic areas,” says Hans Rademaker, who as head of the investment division since 2010 serves as Robeco’s effective CIO. The strategy also should help Robeco achieve its goal of boosting its institutional business to 60 percent of assets from 50 percent in 2010, he adds.

Winning clients, of course, ultimately depends on performance. In its efforts to improve returns, Robeco is stressing the importance of its in-house research. The firm’s quants have identified a number of strategies geared toward specific factors, such as low-volatility equities, that are proving increasingly popular with investors. That kind of fundamental research is critical to helping the firm keep its eye on the long-term horizon and not be buffeted by the short-term turbulence in markets. “We think we can add value only if we can look through the cycle and not follow the herd,” Rademaker says.

Robeco has responded to market turbulence by strengthening the liquidity of its portfolios. The firm has increased the cash position in its high-yield portfolios, which totaled €3.2 billion as of June, to 10 percent currently from about 3 percent before the crisis. It has introduced so-called swing pricing in its funds, under which redemption prices for investors can fall if there is a surge in withdrawal requests. Such a mechanism helps protect remaining investors in the fund and reduces the risk that Robeco could be forced to dump assets at fire-sale prices to meet redemption requests.

“The liquidity element has become very important, especially in the fixed-income market,” Rademaker says. “These markets look liquid on normal days, but they can go illiquid quite rapidly.”

So far, the firm has had little need for such mechanisms, but that could change if markets turn more volatile. Rademaker believes the sell-off in global bond markets from May to July of this year offered a taste of what’s likely to happen when the Federal Reserve actually begins to reduce its bond purchases. “We will face some periods of high volatility going forward,” he says. “It’s wise to have some protection to preserve the wealth you have created over the past 30 years.”

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Related Topics: European Investment Management Awards· asset management· European debt crisis