Just over two years from now, the first MySuper vehicle is scheduled to roll down the gangway, and swallow up all the default members of whichever super fund has created it. In building the vehicle, however, many stakeholders worry that ‘low-cost’ will have been too much of an imperative. Where will these cost savings have come from? Talk to member administrators or group insurers today, and they’ll tell you that they have no fat to spare. So funds management costs seem to be the obvious target for this new austerity. MICHAEL BAILEY and SIMON MUMME report on how a ‘race to the bottom’ on costs may affect the institutional investment industry.
Investment psychology makes us all look silly
Professional investors are, of course, smarter than the rest of us. They have a massive information advantage over the average punter and are well aware of all the behavioural biases which may interfere with rational decision-making. Hmm. This entertaining graphic from global financial services website Citywire is actually designed for the professional investor. The theory, and practice, is that professional investors are also human beings, and have all the failings of the ‘average’ investor.
Track the true sources of risk
Professor Amin Rajan at CREATE Research has put questions to institutional investors for years. And each year he publishes an independent report on the global investment industry. From the interviews he has conducted so far in 2011, Rajan says the theme of this year’s report will be innovation. It’s fitting that investors have this subject front-of-mind, given that “crisis is the mother of innovation,” he says. In search of ways to improve the way they invest, some pension funds have adopted new asset allocation strategies focused on underlying risk factors instead of asset ‘buckets’.
Zebra taps into Australian liquidity
The funds manager cofounded by Roger Ibbotson, Zebra Capital Management, has back-tested its liquidity-focused equities strategy in the Australian market and found evidence of persistent outperformance. In back-tests covering the 15 years to 2010, Zebra found its ‘liquidity-return’ strategy outperformed the MSCI Australia index in all but three years: 1998, 2005 and 2006, when the market made strong gains. Zebra showed defensive qualities as it outperformed in 72 per cent of the months when the benchmark fell by more than 3 per cent, but tended to deliver flat performance when the market fell by less than 3 per cent.
Making news in February 2011
Everything that happened in the worlds of superannuation, funds management and investment administration last month… The Australian exchange traded fund (ETF) market is expected to grow to more than $6 billion in assets under management during 2011, according to analysis from Russell Investments. Greater investor understanding and the death of trailing commissions, which ETF providers have never paid, are credited for the expected surge. There was almost $4bn in ETFs at December 2010. Access Capital Advisers will bow out of Westscheme by the end of 2011, following that fund’s roll-in into AustralianSuper.
How the GFC changed funds management
Holders of the Chartered Financial Analyst (CFA) designation tend to think deeply about the future of funds management – especially now, in the wake of the global financial crisis, where the true meaning and importance of asset allocation and risk management are being reassessed. The vice-president of Sydney’s CFA society, RICHARD BRANDWEINER, here summarises his colleagues’ latest thinking on the subject.
When being anti-social brings cool millions
The rise of social media had inflated a mini-bubble in the venture capital market and starved other entrepreneurs in the technology and internet sectors of capital – which is good news for venture investors with a contrarian bent. As social media hopefuls absorb thinning inflows to the venture capital universe, only “one out of 1,000 – or 10,000 – will be a Facebook or Twitter,” said Cameron Lester, founding general partner at US venture firm Azure Capital Partners. Still, these enterprises draw commitments from many investors, and then capital “dries up” quickly, he said. In 2010, US$11.6 billion was raised, surpassing only 2003 as the industry’s worst fundraising year, in which US$10.4 billion was committed by investors, according to Dow Jones VentureSource.
Magill rejects expenses allegations
Frances Magill, the former long-term boss of Statewide Super, has broadly denied the fund’s allegations she wrongfully gained up to $344,000 in members’ money. Frances Magill has refused to pay $344,000 to Statewide Super, believing there was “no proper basis” underpinning the allegations of fraud the fund had levelled against her, according to the defence statement filed by her lawyers. In the September 2010 statement, Magill broadly rejected allegations that she was overpaid salary and leave entitlements while also breaching the fund’s travel and corporate expenses policies – all of which amounted to $343,990 in wrongfully gained benefits, according to the $2 billion Statewide. As evidence, Statewide had submitted payroll and transaction histories to the SA District Court to substantiate its claim that Magill, the fund’s senior executive of 20 years, allegedly received the benefits.
Aussie Unity is most patient incubator: ex-Aberdeen boss
Australian Unity Investments (AUI) is one of the few boutique incubators interested in a “genuine partnership” rather than a quick private equity-style return, according to former Aberdeen Asset Management CEO Bill Bovingdon. In February, Bovingdon resurfaced with a new Australian fixed income boutique, 18 months after being restructured out of Aberdeen, where he had also run the bond portfolios in his dual role. Altius Asset Management reunites Bovingdon with former Aberdeen colleague Gavin Goodhand, as well as a long-time contact from the sell-side, the former head of fixed income at Credit Suisse and Commonwealth Bank of Australia, Chris Dickman. During his down-time, Bovingdon took his children out of school and spent six months on a family trip around Australia in a campervan.
Encouraging words for the Westscheme nine
A ray of hope has been offered to the nine active managers which shared in $1.5 billion of new Westscheme mandates within the past 12 months, with AustralianSuper’s senior manager of investments, Peter Curtis, saying the successor fund was “not ruling out expanding the number of active managers”. Unfortunately for the Westscheme nine, none of them have existing mandates in the same asset class with AustralianSuper.
La Trobe picks up innovation award from VFMC
Care Super has taken out the top gong for a super fund at the annual VFMC Investment Stewardship Awards, with Goldman Sachs coming first in the managers’ section and La Trobe Financial Services first in the ‘innovation’ section.
