The fourth annual Investment Magazine CIO Sentiment Survey created by Casey Quirk and run in conjunction with Top1000funds.com has gained the feedback of 29 chief investment officers and heads of investment locally. This industry-leading insight into the working practices of the largest funds in Australia is part of a global survey of institutional investors.
Superannuation funds are growing in scale and complexity and this year the CIO sentiment survey was used to gain a better understanding of what this looks like. One of the clearest findings was the extent to which chief investment officers are looking for deeper relationships, or partnerships of equal, with their fund managers. Fund managers are also reportedly keen to match up with this need due to the commercial pressures they feel.
This shift was evident when CIOs were asked to describe their best fund manager relationship. Some took this literally and named their favourite manager. “QIC provides consistent service, advice, proactive discussions and reasonable fees,” said one. While another praised industry fund property manager ISPT. “They are very well priced, they stick to their knitting and they are focused on returns to their investors, not fund growth!” Bennelong was also singled out.
Where CIOs did not name the fund manager, the best attributes for a fund manager relationship fall under openness or transparency, client understanding and of course, results delivered in a smart risk adjusted way.
Understanding the client
The most common response to the request for CIOs to describe their best fund-manager relationship was around a fund manager’s ability to understand their client. “The manager is partner proactive”, said one. “They know what we want on a regular basis and deliver fuss-free. They have a good feel for what occasional ideas they should suggest. I can use them as a bouncing board and they are open and frank in reply.” For some this meant not being sold products they did not want. “A client service manager knows our needs and doesn’t push product except where there might be genuine interest,” said one.
Speaking on this topic at the Conexus Financial Fiduciary Investors Symposium held in November at the Balgownie Estate, Yarra Glen, Sam Sicilia, chief investment officer of HOSTPLUS, gave an example of this. “The managers I truly value are the ones who pick up the phone and call you and say, ‘Some people from our office are about to come around and sell you something or tell you about a product, and that product is not for you’,” he said.
For others, their best manager relationships were about value-added service. “A manager that understands the needs of the fund and is willing to assist where possible – it is more of a partnership,” said one, while another referred to flexible structuring of mandates and a knowledge exchange that was “commercially beneficial” for both parties. Similarly, there were remarks from CIOs about working in a consultative manner “as peers and with respect”, the manager generally knowing the client and the degree of interaction required, or as one put it, being in a “highly customised relationship”.
For Richard Brandweiner, chief investment officer of First State Super, the most effective partnerships grow organically, based on long-term trusted relationships and most likely with boutique firms. “There is enormous value that can be created by having a different working relationship between fund managers and asset owners, but they are a hard thing to create,” he said. “It’s easy to use the word partnership, it’s much harder to develop that trusted relationship into a really effective way of working collaboratively.”
Open was the most common word used to describe a CIO’s best relationship with a manager. Examples given of such openness were that managers gave access to their best ideas and thought leaders, gave comprehensive reporting or were in monthly contact. One described it as a “manager who clearly articulates their investment process and follows up discussions to concentrate on the success of the process.”
Janice Sengupta, chief investment officer of Aon Master Trust, believes there is an ongoing trend for fund managers to be more proactive and transparent in providing information and assistance in operational matters due to ongoing competitive pressures.
One example of this is providing information on crossing opportunities to funds making changes to their asset allocations. Speaking at the Fiduciary Investors Symposium in November, Kristian Fok, executive manager, investment strategy at Cbus, emphasised that a true partnership involved being able to pass information both ways. He saw the current focus of Cbus on engaging and collaborating with ASX companies as bringing about greater symmetry of information with fund managers.
David Bell, chief investment officer of Mine Wealth + Wellbeing, thought the extent to which a manager could be open with its information depended on the strategies it ran. “In the case of a hedge fund, it’s up to us before we go in to work out how we are going to keep an eye on this fund and make sure we get the minimum level of information we need prior to entering and have the skill set ourselves to say something is not right, and that could be good or bad,” he said. “Being symmetrical about our questioning is just as important.”
And of course, for some the best relationship will just be down to skill, particularly if it can be shown on a long term basis. One cited a manager that was multi-skilled as providing their best manager relationship. One described at length how such skill could manifest itself. “A long-term relationship with a consistent alpha generator, who has a long-term view of positions and markets, is informative about economic cycles but does not trade them and uses the information to improve returns on long-term positions,” he said.
Janice Sengupta, chief investment officer of Aon Master Trust, saw a greater appreciation for skill in a low-return environment. “That’s bringing alternative assets into focus, particularly global macro hedge funds and absolute return strategies, which are a bit more nimble in their approach,” she said. “This potential provides some inbuilt safeguards, if the managers are doing their job skilfully.”
RANK THE VALUE OF YOUR INTERACTIONS WITH INVESTMENT MANAGERS
1st Clearly articulated philosophy on how their firm manages portfolios
2nd Perspective on macro environment to inform asset allocation
3rd Risk analysis capabilities to test portfolios and impact of new positions
4th Willingness to customise investment management, packaging, pricing, or delivery of strategies
5th Detailed product-level discussions and updates on positioning and attribution
6th Advice on cash-flow management, plan funding strategies, outcome delivery, etc.
7th Outside insight on managing board, plan, and participant dynamics