Super fund executives who attended last month’s Watson Wyatt Ideas Exchange conference in Melbourne – and there were nearly 100 of them – were not impressed with the performance of their portfolios of alternative investments. In what has become a feature of the Watson Wyatt event, the fund representatives and 50-or-so managers present were polled of their views on a range of topics.
For one of the questions, the fund representatives only were asked whether their alternatives strategies, since inception, had performed: better than expected, broadly in line with expectations, worse than expected or ‘I can’t tell from my reports’. A total of 55 per cent said they had performed worse than expected and 30 per cent said they were broadly in line with expectations.
Only 6 per cent said they had performed better than expected and 9 per cent could’nt’t tell from their reports. No-one pretended that the polls had statistical significance but the numbers were sufficient to give a reasonable indicator of general opinions. And the funds were not happy with their alternatives.
But traditional managers present could not rejoice at this. In answer to another question, 53 per cent of the investors present said they did not expect the active managers in the room to, on average, beat a passive index over the next 10 years, after fees. Interestingly, 72 per cent of the managers thought they could beat the index.
As Hugh Dougherty, Watson Wyatt’s head of Australian manager research, said: 10 years was a long-enough time to demonstrate skill over luck. The managers’ clients were almost evenly split on whether they had skill. The theme of this year’s Ideas Exchange (they are held about every 15 months in various countries) was “Risky Business” and Graeme Miller, Watson Wyatt’s Australian head of investment consulting, started the day with a quote from Grace Murray Hopper, a navy admiral and computer genius: “A ship in port is safe, but that’s not what ships are built for”.
Risk dominated proceedings. Roger Urwin, the firm’s London based head of investment content, said risk was all about beliefs. And beliefs were personal. “In investments, you usually don’t have a single right answer to an issue,” he said. “This means you need teamwork so that beliefs are shared.” He said that risk and return should get equal attention from a fund’s investment committee. But this is not what normally happens. It takes a special effort on behalf of committee members and investment staff.