Optimizing Distribution Systems in Asset Management: Institutional Arrangements as Key Factor of Success

340 Pages·2008·1.66 MB·English

by  Philipp Caspar Koch (auth.)

Philipp Caspar Koch
Optimizing Distribution Systems in Asset Management
GABLER EDITION WISSENSCHAFT
Philipp Caspar Koch
Optimizing Distribution
Systems in Asset
Management
Institutional Arrangements
as Key Factor of Success
With a foreword by Prof. Dr. Claudia Fantapié Altobelli
GABLER EDITION WISSENSCHAFT
Bibliographic information published by the Deutsche Nationalbibliothek
The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie;
detailed bibliographic data are available in the Internet at http://dnb.d-nb.de.
Dissertation Helmut-Schmidt-Universität Hamburg, 2007
1stEdition 2008
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Foreword V
Foreword
The content of this book is dealing with distribution systems for mutual funds in
Germany. The production and distribution for these investment vehicles is usually
organised along multiple structural levels: The producers of investment funds avail
themselves of banks and insurance networks as distribution agents, and consequently do
not have direct access to the investors. Both groups, especially in the last couple of years,
have expressed strong interest in optimising the marketing of these financial services. It
has to be taken into account that in Germany – as well as in other countries in Continental
Europe – the producers of investment funds usually are part of banks or insurance groups.
This translates into a very strong integration of value chains related to producers and
distribution agents, resulting in a tendency of banks to sell primarily their own products
to their clients. However, the economic crisis at the beginning of this decade highlights
that profitability in the mutual fund market requires growth (i.e. de facto the acquisition
of new clients). As alternative distributions channels, like for example direct marketing or
distribution via independent financial advisors, play only a relative minor role, this
growth requires the optimisation of existing and exploration of new relationships in
particular with the distribution channel of banks.

The objective of this book is to analyse alternative distribution systems – against
the background of different institutional arrangements - in order to find out whether new,
more open and, hence less-integrated, distribution systems contribute to efficiency in
terms of economic success, in spite of expected problems like information asymmetry,
conflict of interests, and so forth. At first, alternative distribution systems are analysed
theoretically. By applying new institutional economic arguments, it then comes to the
derivation of a sound framework of analysis for outlining optimised distribution systems.

In addition to the theoretical analysis, the author is conducting an empirical
survey. He is falling back on the methodology of comparative case studies, where
strategically relevant cases are made units of analysis. This approach facilitates the
theoretical generalisation of the findings on the grounds of plausibility and logical
reasoning. Deka is selected to represent the organisational form of „hierarchy“, Julius Bär
serves as an example for a hybrid governance structure, and Fidelity Investments
represents the organisational form of a „market“. For collecting data, the enquiry applies
a mix of different methods, most notably qualitative interviews. The analysis turns to
institutional economic arguments to examine how the above mentioned producers choose
and design the organisational form for distributing mutual funds in the German private
investors market. Following the comparative institutional analysis in chapter 4, the author
discusses avenues towards optimising distribution systems for mutual funds.

All in all, this book represents a successful examination of a very topical subject,
giving economic researchers valuable clues and providing various suggestions to
professionals working in this field.
Prof. Dr. Claudia Fantapié Altobelli
Preface VII
Preface
With this publication I am proud for being able now to present my Ph.D.-
dissertation submitted to the Faculty of Economics and Social Sciences of the Helmut-
Schmidt-University Hamburg as a book to the wider public.

In applying new institutional economics approaches of management science (and
organization theory) the focus of this book is clearly on finding out for the asset-
management industry with a model-building intent the way in which measures to
optimize distribution systems are going to improve the company´s success – in this case
is contributing to a sustained improvement in net inflow streams from private investors.
In putting down this work, I very much enjoyed the opportunity to fall back on the
various practical experiences I have been able to pick up so far in doing consultancy
work with McKinsey&Company when serving numerous international clients in the area
of asset management. At the same time, however, there can be no denying that also in my
own case only a strict adherence to the rules and routines of scientific work allows for
generating results with a lasting or sustainable character. In following the “rules of the
game”, there is then the hope to present results not only enjoying and standing out for a
high level of practical relevance, but also are proving to be tenable in the light of rigorous
critique.

Since projects such as dissertations have turned into complex production
processes, it goes without saying that also this effort has its "creditors". Without the
support of a number of different institutions and partners, it would not have been possible
to successfully accomplish this effort. In this regard, my thanks are firstly going to the
mentors of my immediate professional working environment – most notably Dr. Martin
Huber (McKinsey&Company) – but also to the representatives from those asset
management companies, which I have been able to make units of analysis in the course of
my comparative institutional analysis. They have not only provided the critical access but
also made themselves available as thought and sparring partners. In addition, I very much
would like to take the opportunity to express my gratitude to my Ph.D. advisor Prof. Dr.
Claudia Fantapié-Altobelli, who throughout the entire process was extremely supportive
and became an essential “driver” of this project. However, I would also like to thank
Prof. Dr. Hans Koller for his support in the preparation of the final oral exams. Last but
not least, I cannot deny that probably also the remaining traces of a fairly cosmopolitan as
well as sports- and competition-focused "Kinderstube" continuously motivated me to face
and enjoy not only the challenges but also the enticements which typically come with
such a dissertation project.

Finally, I would like to also include Anika Mannig into my sincere thanks, as she
has helped me to bring the whole manuscript in a printable shape.

Philipp Caspar Koch
Overview IX
Overview
Foreword...........................................................................................................................V
Preface............................................................................................................................VII
Overview..........................................................................................................................IX
Table of Contents............................................................................................................XI
Table of Figures.............................................................................................................XV
Abbreviations..............................................................................................................XVII

Chapter 1:
Institutional Arrangements as a Key Factor of Success................................................1
1.1 Outline of Problem................................................................................................1
1.2 Derivation of Question and Objective of Enquiry................................................7
1.3 Concept of Enquiry.............................................................................................11
1.4 Method................................................................................................................14
1.5 Significance of Enquiry.......................................................................................16
1.6 Process of Enquiry..............................................................................................18
Chapter 2:
Concept and Methodology for Optimizing Distribution Systems...............................21
2.1 Identification of Relevance of Alternative Conceptual Approaches...................23
2.2 Derivation of Framework of Analysis for Optimizing Distribution Systems.....48
2.3 Methodology.......................................................................................................80
Chapter 3:
The Asset Management Sector.......................................................................................86
3.1 Market Dynamics in the Asset Management Sector...........................................86
3.2 Opportunism and Service Firm Specificity along the Value Chain
for Mutual Funds.................................................................................................91
Chapter 4:
Comparative Insitutional Analysis................................................................................98
4.1 The Case of DekaBank........................................................................................99
4.2 The Case of Julius Bär Asset Management.......................................................160
4.3 The Case of Fidelity Investments......................................................................214
4.4 Summary of Case Studies.................................................................................271
Chapter 5:
Towards Identifying an Optimized Distribution System...........................................282
5.1 The Optimal Organizational Choice.................................................................283
5.2 The Optimal Organizational Design.................................................................286
5.3 Overall Efficacy of Institutional Arrangements and The Relative
Importance of Fit-Requirements.......................................................................293
5.4 Theoretical Implications....................................................................................299
Table of Contents XI
Table of Contents
Chapter 1:
Institutional Arrangements as a Key Factor of Success.................................1
1.1 Outline of Problem..............................................................................................1
1.2 Derivation of Question and Objective of Enquiry...........................................7
1.3 Concept of Enquiry...........................................................................................11
1.4 Method ...............................................................................................................14
1.5 Significance of Enquiry.....................................................................................16
1.6 Process of Enquiry............................................................................................18

Chapter 2:
Concept and Methodology for Optimizing Distribution Systems.............21
2.1 Identification of Relevance of Alternative Conceptual Approaches............23
2.1.1 Game Theory.......................................................................................................23
2.1.2 Resource-Based View.........................................................................................26
2.1.3 New Institutional Economics..............................................................................29
2.1.3.1 Principal-Agent Theory.........................................................................32
2.1.3.2 Transaction Cost Economics.................................................................38
2.1.3.3 Property-Rights-Theory........................................................................45
2.1.4 Conclusion...........................................................................................................46
2.2 Derivation of Framework of Analysis for Optimizing
Distribution Systems.........................................................................................48
2.2.1 General Structure of Framework of Analysis.....................................................48
2.2.2 Variables of the Framework of Analysis............................................................52
2.2.2.1 Target variables.....................................................................................52
2.2.2.1.1 Cash Inflow Stream................................................................53
2.2.2.1.2 Hold-up ..................................................................................55
2.2.2.2 Contingency Factors.............................................................................56
2.2.2.2.1 Market Dynamics....................................................................56
2.2.2.2.2 Opportunism...........................................................................57
2.2.2.2.3 Service firm specificity...........................................................58
2.2.2.3 Degree of Decentralization...................................................................60
XII Table of Contents
2.2.2.4 Design Variables...................................................................................63
2.2.2.4.1 Instruments for Setting up the Systemic Configuration..........64
2.2.2.4.2 Process-Related Measures to Manage the Relationship.........70
2.2.3 Applying the Framework of Analysis for Deriving Propositions on
Optimizing Distribution Systems..........................................................................74
2.3 Methodology......................................................................................................80
2.3.1 Sampling.............................................................................................................80
2.3.2 Data Collection....................................................................................................82
2.3.3 Data Processing...................................................................................................84

Chapter 3:
The Asset Management Sector..............................................................................86
3.1 Market Dynamics in the Asset Management Sector......................................86
3.2 Opportunism and Service Firm Specificity along the Value Chain for
Mutual Funds....................................................................................................91

Chapter 4:
Comparative Institutional Analysis.....................................................................98
4.1 The Case of DekaBank......................................................................................99
4.1.1 The Choice of "Hierarchy" as Institutional Arrangement for the Distribution
Function...............................................................................................................99
4.1.1.1 Emergence of Performance Gap.........................................................100
4.1.1.2 Perceiving and Interpreting Performance Gap....................................102
4.1.1.3 Responding to Perceived Performance Gap........................................104
4.1.1.4 Upholding "Degree of Decentralization" for Distribution Function...106
4.1.2 The Design of "Hierarchy" as Institutional Arrangement for the
Distribution Function..........................................................................................108
4.1.2.1 Systemic Configuration of "Hierarchy"..............................................109
4.1.2.1.1 Assigning Property Rights to Set Up Governance
Structure................................................................................111
4.1.2.1.2 Building Brand Capacity to Offer Competitive Advantage..116
4.1.2.1.3 Setting up Sales Support Capacities to Secure
Sales Success........................................................................120
4.1.2.1.4 Systemic Configuration as Context......................................123
4.1.2.2 Process-Related Measures of "Hierarchy"..........................................125
4.1.2.2.1 Information-Processing Means for Process-Intervention.....127