Andrew Wood , Group CEO of Razor Risk Technologies, examines the impact the financial crisis has had on risk management practices across the globe and, in particular, the need to manage your organisation’s exposure through relevant time risk management. A close look at the underlying causes of the credit crisis and the collapse of several banking institutions has drawn much attention to the risk cultures of the world’s financial organisations. A key criticism is that many failed to aggregate and monitor their total exposures across the organisation in a timely manner.
Bring on the black boxes
Parallel trading venues in a single market mean one thing to a big portion of the global broking and funds management industry: arbitrage opportunities. Now, in Australia, Chi-X is preparing to launch a high-frequency trading venue and the Australian Stock Exchange (ASX) is developing new platforms aiming to direct high-speed traffic our way. The arms race is on. SIMON MUMME reports.
Dr Henry’s prescription for mature Australians
In 1889, in response to growing public pressure, the German Chancellor Otto von Bismarck created the world’s first old age pension scheme. Not a supporter of the idea, he is said to have called in his officials and asked them the life expectancy of the average male German worker. The answer? 65. The start date for the pension? 65. IFSA CEO JOHN BROGDEN comments.
The Bowen roundtable: reviewing the reviews
On May 5, just two days after announcing what his Government called the biggest superannuation reform in a lifetime, the Minister for Financial Services, Superannuation and Corporate Law, the Hon Chris Bowen, sat down with the industry to discuss three of the four reviews which have so preoccupied it this past year. Henry, Ripoll and Cooper are three names bound to echo around the halls of super funds for many years, even if the increase in the compulsory Super Guarantee (SG) from 9 to 12 per cent went against Henry’s recommendations, the banning of commissions was far stronger than anything in Ripoll’s final report, and the response to Cooper has not yet been made. This roundtable was also too early to discuss the ‘Johnson’ report on making Australia a financial services hub, which the Government ended up completely endorsing last month, including clarity that non-Australian assets managed by firms based here would not be subject to any tax liabilities. Nevertheless, the industry had plenty to ask the Minister. The result was a lively roundtable, and we thank Vanguard Investments, which claims to have never paid a commission anywhere in the world, for agreeing to sponsor it. Proceedings kicked off with the big question of whether the SG increase had any chance of getting to the Senate before a Federal election later this year.
Truth about costs: rarely pure and never simple
Super fund costs are rarely out of the news for long and have recently generated more press and discussion thanks to the Cooper inquiry. Jeremy Cooper’s ‘MySuper’ proposal for a universal low-cost default fund met with widespread criticism from the industry, notwithstanding fairly admirable intentions behind the idea. Costs in super are like the truth: rarely pure and never simple. Warren Chant of Chant West has proposed that super funds should be made to comply with a standard form of reporting their costs and benefits for fees, investment returns and insurance. He says that it is difficult to compare them now – even for trained analysts – because the rules are so loose that they allow differing practices. He also points out that low costs are not always in the best interests of members.
The world turned upside down
This journal avoids giving airplay to funds managers talking their own books. Of course it would be a pretty thin magazine if we stamped it out altogether, plus we’d miss out on the likes of Jerome Booth. The head of research for Ashmore Investment Management, an emerging markets specialist across every major asset class, Booth thinks institutions should dump everything they own that’s domiciled in the US or Europe. Now even if you use GDP weighting, the emerging markets still make up only 50 per cent of the world, so Booth’s recommendation is extreme enough for it to be more than merely self-interested.
Secondaries boost Future Directions’ private equity debut
In its first year the Future Directions Private Equity Fund run by AMP Capital Investors (AMP CI) generated a headline return of 203.8 per cent and an internal rate of return (IRR) of 20 per cent, primarily due to its foray into the secondaries market. Contrary to the experience of many secondaries investors, whose expectations of buying good assets cheaply from distressed sellers were largely unmet, AMP CI’s large commitments to the sector, representing up to 30 per cent of the $170 million it invested in private equity last year, paid off well. “People say secondaries was the opportunity that never was, but secondary assets can produce results,” Suzanne Tavill, portfolio manager of the multi-manager product, said.
Real deals: infrastructure, commodities and timberland experts speak up
Institutional investors are allocating to real assets in smarter ways. Knowing that airports, power stations and gold provide risk and return characteristics that do more than hedge inflation, they are being more selective in the search for the real assets that best suit their long-term needs. SIMON MUMME reports. John Dorrian had a seat at the table when financial institutions first bought into Melbourne Airport, back in 1997. “I think I’m the last person standing from that deal,” he jokes. Since then, infrastructure investments have become more popular among superannuation funds, particularly industry funds. Investors’ knowledge of the assets has simultaneously deepened so that Dorrian, Asia-Pacific head of RREEF Infrastructure, sees clients more as peers than as customers.
Mid and small caps enjoy time in the sun
Everyone loves small caps. People can understand a one-business-line company, they can take some pride in supporting entrepreneurship, and they can feel comfort in the ‘small-cap effect’ – assuming they believe there is such a thing. Mid caps are also wellregarded for their relative stability combined with some agility, but most institutional money is still in the top 30, much of it parked in passive mandates. PHILIPPA YELLAND reports on the small- and mid-caps sectors which arguably remain underresearched and under-invested in Australia.
Super funds bypass hedge FoFs to reach managers
Individual hedge fund managers benefited from diminishing allocations to hedge fund-offunds (hedge FoF) from the superannuation sector, the 2010 AIMA Australia/UNSW survey of superannuation fund investment in hedge funds shows. The number of super funds allocating to hedge FoFs fell from 60 per cent in 2008 to 38 per cent in 2010, while the number of super funds investing in individual managers leapt from 22 per cent to 38 per cent in the same timeframe. John Evans, who as finance professor at UNSW ran the survey, said the swing in allocations was most likely driven by increasing internal investment expertise within many large super funds, enabling them to perform due diligence on individual managers and bypass hedge FoFs.
Mercer Growth Asset Allocation
In the May 2010 issue of Investment Magazine, an error appeared in the table that accompanied “Mercer looks at new approach to asset allocation” on page 4. The first two rows in the table were incorrect with regard to Australian shares and Australian small caps. The entire table, with corrections, appears here.
Chant West proposes big disclosure changes for funds
Lower costs associated with funds management will not always be in the best interests of super fund members, but improved transparency and comparability will. Chant West, a fund and multi-manager research firm, has recommended to the Cooper Inquiry into super that funds adopt 18 specific recommendations for standard disclosures in the three key areas of fees, investment performance and insurance. The firm also provided a separate report on insurance which principal Warren Chant says is the worst area for disclosure. “It would be almost impossible for the average person to make a reasonable comparison of super funds’ insurance offerings,” he said.
