Manager search activity by pension funds and their consultants is picking up, according to Nate Dalton, chief operating officer of the Boston-based multi-affiliate manager Affiliated Managers Group.
New currency mandates are being looked at, in particular, in most territories – not just in Australia where super funds last year suffered badly from the drop in the Australian dollar, prompting funds to re-think their hedging strategies.
Within the alternatives sector, a new line had been drawn between the liquid investments and less liquid, Dalton said during a visit to Sydney last week, which coincided with the two-year anniversary for AMG’s Australian office, under Gregor Rennie.
Credit mandates, too, are being discussed because of the still-wide spreads both within the corporate debt markets and between the corporate and sovereign markets.
But global and other broad-market equity mandates are expected to dominate the next few months of searches as pension funds move to rebalance their portfolios back towards strategic ranges.
The multi-affiliate model in funds management, and its variations, has mushroomed over the past 10 years. While some of these managers also act as incubators for start-up firms, AMG’s strategy is to concentrate on medium-sized staff-owned firms which need to transition to the next generation of management.
AMG has more than 20 affiliates across a full range of styles and asset class specialisation, including firms which appear to compete directly with each other. Seven of the firms are marketed in Australia, either by Rennie, or in one case with its own representation. They are: Blue Mountain Capital (a credit hedge fund), First Quadrant (currency and global macro), Freiss (US growth), Genesis (emerging markets), Third Avenue and Tweedy Brown (both deep value global). Another affiliate, AQR Capital, is represented by its own staff member, Jeff Dunn.
Dalton says that the operational independence of the affiliates is protected both contractually and through the business model, whereby most of the parent’s income is via revenue sharing with the affiliates.
Revenue sharing, rather than profit sharing, removes the temptation for AMG to get involved in the affiliates’ cost base.
“Our core philosophy hinges on three things – autonomy, revenue sharing and retained equity,” Dalton said.
AMG, which continues to be actively searching for new affiliates around the world, looks for established firms which represent good businesses in themselves, irrespective of whether the parent already has a firm with a similar style.