John Hamer, the Australian head of Nicholas Applegate, the San Diego-based equities and bond manager, got the phone call about 30 minutes before he was to have an important meeting with his largest client, AMP. Both his sales office in Sydney and the client service office in Melbourne were to be closed with just a few days notice.
Hamer went through with the meeting and presented the company line: the product was a good one and was unaffected by the withdrawal of the Australian presence. The manager would send people over from California regularly to keep clients informed. It shouldn’t matter that he, who had been head of the business for the past year, nor Melanie Douglas, the long-serving client service manager, were to be made redundant. Should it?
This is an interesting question which international managers who want to tap into the fourth-largest institutional market in the world – Australia – need to consider carefully. Can they realistically service the market from the US, UK or even a Singapore or Hong Kong office? Do Australian super funds need to have someone to talk to in their own country or own time zone?
These questions are not new and their answers have not been clear previously. But given the financial crisis and the changes in funds management which have followed, the questions have taken on a new importance. Funds managers’ businesses are hurting. How much, if anything, do they need to spend on sales and client service to stay in the market?
There are probably a couple of dozen super funds which invest through offshore funds managers which have no presence in Australia, be that direct employees or third-party representation.
Would they rather those managers had someone locally they could talk to in their own time, even though that person probably had no detailed investment knowledge of their mandate? Probably yes. But would they be prepared to pay a bit more in fees to have that service? Maybe. Maybe not. Probably not much.
Perhaps whether or not Nicholas Applegate retains its Australian clients, including a mooted $200 million from AMP, following last month’s Australian office closures will represent a good case study for other managers to consider. However, it will only be a survey of one.
The US firm is a subsidiary of Allianz, which also has Australian offices for its other funds management subsidiaries, PIMCO and RCM, so it may decide to try and use those affiliates to service Nicholas Applegate clients.
Nevertheless, what may well emerge from general funds manager contractions is the view that US or UK managers need an Australian presence not so much to make sales or to provide client service in person rather than via email. They may need an Australian presence to better understand their Australian clients.
Super funds are different to US or UK pension funds. Australia has the highest proportion of defined contribution (DC) funds in the world. But Australian funds are far more sophisticated than other countries’ DC funds. In the US, for instance, DC funds resemble plain vanilla retail-style master funds. They have little or no alternatives exposure, nor any overlay management or even derivatives usage.
The investment strategies of Australian super funds most resemble a cross between US endowments and US or UK defined benefit pension funds.
But Australian funds still have other considerable differences. The Superannuation Guarantee means that they do not have serious liquidity problems, even during a global financial crisis. Super funds invest more internationally than their US counterparts. And the Australian dollar is volatile. Whether or not to hedge the currency and by how much is a big decision for super funds.
The Australian market is changing too. Previously it was considered a heavily advised market where asset consultants were of paramount importance. Increasingly, nowadays, super funds are picking and choosing the advice they receive, with growing internal staffs to both monitor investments and even come up with original ideas.
And then there are always the personalities that go to make up the trustees and fund executives in any market.
It is difficult to imagine a funds management firm in the US or UK being able to understand these nuances of the Australian institutional market.
Good luck Nicholas Applegate.
FEAL’S 10TH BIRTHDAY BASH
The 10th anniversary Fund Executives Association Ltd conference, being held in Melbourne on August 13, will concentrate on green shoots appearing in both the marketplace and the superannuation industry.
Hugh Mackay, the social researcher, will present on the attitudes of ordinary Australians to their savings and their future aspirations.
Satyajit Das, the author of Traders, Guns and Money, will discuss the outlook for the world economy, which will then be analysed by investment experts Jack Gray of Brookvine, David Hartley of Sunsuper, and Tim Hughes of Catholic Super.
Bruce Boundy, managing director of advertising and marketing agency Inqbase, will present his views on how super funds and managers can better exploit new technologies, providing examples of the good and the bad in recent campaigns. He, too, will be followed by a discussion panel consisting of marketing and communications experts James Coyle of AustralianSuper, Linda Elkins of Russell Investments and Paul Murphy of UniSuper.
The FEAL conference is that association’s only regular event which is open to all industry participants.
Investment & Technology is the official magazine for the FEAL conference, as well as being official magazine for the next IFSA conference, also in August, and all AIST events for the next year, including CMSF.