Judging by the conversations in the breaks at the AIST ASI conference, these were the three sessions that stimulated delegates the most.
Greater information will lead to the end of traditional asset allocation buckets
In one of the standout presentations from the conference Jai Jacob, managing director and portfolio manager at Lazard Asset Management persuasively explained to delegates how the funds management industry was going to be disrupted by greater access to information on individual securities.
Drawing parallels with how the internet had created greater freedom in how people access information, he predicted a growing willingness for managers to think beyond narrow asset class boundaries, thereby challenging traditional investor portfolios.
Much of this would come from greater use of factor based analysis of investments.
Resisting this trend would limit returns, “the more you insist on categorisation, the more you constrain investors,” Jacob said.
Alternative assets are now mainstream assets
Investors’ perceptions of alternative assets as a unique and separate asset class with different rules was challenged by Kerry Craig, global strategist, J.P. Morgan.
He reported how his clients were increasingly incorporating alternatives into traditional assets strategies around equity and fixed income portfolios, particularly for private credit and private equity.
“Private equity is not an alternative, it is a way of getting equity premium,” he said.
This trend is being matched by fund managers creating more flexible mandates that met investors needs rather than strict asset allocation buckets. A chief executive of a mid-sized superannuation fund told Investment Magazine that they would go back to their team and ask for reporting to be re-thought along these lines.
Implementation can drive 50 per cent of returns
Around 50 per cent of the driver of returns for large European pension funds is now coming from effective implementation, revealed Amin Rajan, chief executive of CREATE-Research UK.
The growing priority being given to reducing performance leakage was one of the standout messages from the swathe of statistics on European pension funds by Rajan.
He said that while funds used to see 80 per cent of their returns being driven by asset allocation and only 20 per cent from effective implementation, this was now more of a 50:50 split. He reasoned that Europe had gone down this route earlier, as it experienced a more severe squeeze on returns during the GFC, unlike Australia, which experienced a milder downturn but which was now facing a much gloomier return horizon.
Better implementation in Europe is being achieved by more delegated authority within funds, minimising fees and the use of smart beta or passive approaches where appropriate.
There was also a much greater engagement with funds managers, which Rajan said were joining funds in informal alliances for the exchange of ideas.
The extent to which such ideas did not yet tally with Australian funds was shown by a delegate poll at a subsequent session that found they believed 60 per cent of returns were generated from asset allocation, 14 per cent from implementation and 14 per cent from manager selection.