And how portfolios finally get put together because that’s a big differentiator. Firms have to be willing to do that but then likewise we have to be prepared to spend a lot of time with them. I have gone to a manager and spent two days with them which is hardly scratching the surface. Dennis Sams: We have to have that transparency of the explanation. Take Madoff, for example. Madoff, wouldn’t get legs in Australia because none of us will deal with anyone who doesn’t prove to us what they’re actually.

Greg Bright: But you could have invested in a fund of funds which did? Dennis Sams: No, we wouldn’t have. If there was a barrier between us we won’t invest. We’re not likely to go into funds of funds for that very reason. Matthew Ross: We haven’t heard much about the people side of funds management. Maybe it’s because quant managers talk about their processes a lot. But the one thing I’d say, dealing with the full spectrum investment managers, is that my quant clients have been the most stable.

Greg Vaughan: One advantage in having a stable team is what we were talking about earlier, mixing judgement with process. That delineation between what is objective and what is subjective, is hard to make when people first start out. The longer they’re with a process they all start to sing off the same hymn sheet in terms of those issues. Greg Bright: I’d like to turn the conversation briefly to fees. Matthew, do you have an observation on fee levels between the types of managers?

Matthew Ross: I think the 130:30 funds have offered pretty good value for money if you look at it on a fee-adjusted basis. I’m a big fan of performancebased fees. I think that traditional managers charging 40 basis points for what was, in the bear market, less than 200 basis points tracking error in a lot of funds, is a pretty big number. I prefer to see performance-based compensation. I don’t think there’s enough of it in investment management. I think that’s one of the main reasons why the quant funds have had a large market share of Australia’s traditional money.

On an after-fee information ratio basis, they’ve probably offered the best value for money. I’d say the quant managers are 10 to 15 basis points cheaper than a traditional long-only manager and have generated an equal or higher information ratio over the long term. Kristian Fok: The fees issue is a big issue, because what’s happened is that as new things get put in, everyone promises better and better returns, the fees are being incrementally increased but the reality is the delivery is probably less than expected.

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