Dynamic asset allocation, enhanced asset allocation, strategic overlay, stractical investing: call it what you like, there’s a new kid on the block and it’s occupying the minds of super funds, asset consultants and funds managers alike. With super funds beginning to value downside protection more than incremental return, asset consultants and multi-managers have seized the opportunity by offering a service that moves away from “set-and-forget” strategic asset allocation (SAA) by taking intentional tilts over a medium term time horizon. KRISTEN PAECH reports on the investment phenomenon that has given consultants a new lease of life.
It has almost become irresponsible for a super fund to set and forget its strategic asset allocation, according to Fiona Trafford-Walker, managing director of Frontier Investment Consulting. Using a rollercoaster analogy, Trafford-Walker says the idea of a fund strapping itself in and hoping for the best does not make sense any more. “If you’re well strapped in and you’ve got a good stomach, that’s fine, but if you’re not well strapped in and you’ve got a weak stomach then it’s not fine, and the thing with a rollercoaster is you can’t get off in the middle,” she says.
Frontier has been actively managing clients’ assets for about 10 years, according to Trafford-Walker, but has only recently begun labelling it dynamic asset allocation (DAA) in response to the jargon’s entry into the investment lexicon. She says the last 12 to 18 months, in which super funds suffered unprecedented declines in assets under management, have highlighted to the market that there is “probably a better way to think about managing your asset allocation”.
She points to a wave of new request for proposals (RFPs) for dedicated asset allocation advice, including setting the strategic asset allocation (SAA), investment objectives and policy work and subsequently carrying out quarterly market reviews. “You are finding more funds talking about [DAA]; we’re doing more RFPs for asset allocation services, for example – we never did those before,” Trafford- Walker says. “We prepare a quarterly market review and that goes out to every client so they can check: are we on track to achieve our objectives?
What are the risks that are starting to exist that we need to do something about? Now funds are looking specifically for that sort of support.” Simon Calder, principal at Mercer and member of its DAA team, which is led by David Stuart and counts the NSW-based Energy Industries Superannuation Scheme among its clients, agrees the period of set-and-forget is now largely behind us. He says the traditional SAA approach relied on a confluence of very favourable financial and economic conditions – the so-called “great moderation” of diminished cyclical volatility.