Expert investors and service providers gathered at the Manly Corso in Sydney last month to assess deep themes in the work of fiduciary investing, such as investment strategy, operational efficiency, service provider fees and internal funds management. Far away from the noise of the city, the investors got to work as the surf thumped on the beach outside. GREG BRIGHT and SIMON MUMME report. Fighting the dark side of equity risk.
They’ve been to hell and back… what’s next for bank loans
After 19 straight years of positive returns, the US-centric asset class known as senior bank loans went backwards for the first time in 2008. The universe has recovered swiftly, but promises more action for investors over the mediumterm. Spreads are expected to benefit from big loan demand from private equity managers, who are under pressure to invest billions in capital committed during the boom. The floatingrate nature of the loans will also help them perform well against other forms of fixed income, should central banks eventually start tightening monetary policy. However, the ‘wall of maturities’ out to 2014, comprised of loans struck at the height of cheap money mania in 2006-07, looms as a threat over the loan asset class to some. One of the world’s largest, oldest and most respected managers specialising in senior bank loans, Eaton Vance Investment Managers, sponsored a get-together of Australian asset allocators and fixed-interest managers last month, to debate the role of bank loans in the medium- to longterm.
Financial firepower – why van Eyk’s new backer can fuel lasting growth
van Eyk, the most influential research firm in the financial planning market, has a new cornerstone investor following the departure of the company’s namesake. GREG BRIGHT reports on the new-look van Eyk and the major shareholders’ plans for sustained growth. Mark Thomas has a new partner at van Eyk and, more importantly, he has the catalyst and firepower for some big changes to how his business is run and the firm’s position in the financial services market. The new cornerstone investor is Torchlight Investment Research and Management. The chairman of Torchlight, George Kerr, orchestrated the purchase of about 32 per cent of van Eyk from the firm’s co-founder, Stephen van Eyk (who retired from the firm early this year), and some small shareholders. Asset allocation: who should make the decision
The biggest investment decision facing institutional investors now, as always, is their asset allocation. Academics and other researchers can dispute the precise importance of asset allocation – be it 80 or 90 per cent of return or a bit more or a bit less. But everyone gets the picture – it’s a lot. One of the benefits of the GFC is that it has prompted a rethink of both the way funds go about thinking of their asset allocation and the time and resources they put into it. If a recent roundtable of fund CIOs and consultants is a guide, the best thing that a fund’s board can do is to think about the various ways that it can approach the broad topic of asset allocation and put these into some sort of context of the culture of the fund, level of riskaversion of members, and liabilities’ profile. Cooper’s costs mantra needs smarter fee rules too
Jeremy Cooper’s exhortation for the industry to reduce costs spurred the development of the MySuper default option. Now it has arguably accelerated the narrowing of the gap between fees charged by industry and retail superannuation funds, recently proven by the weekly $1.50 fee charged by AMP’s new Flexible Super offering, which equals the affordability of AustralianSuper. Even before Cooper hands down his final report (due after Investment Magazine went to press), his demands for low-cost super have changed the industry. But his emphasis on lower headline fees – as cheap as $1 a week – should not ignore the opaque, undisclosed costs that funds and their members bear, or some of the quirks in fee disclosure requirements that make headline figures misleading. Investing in China: what you need to know
Investors worldwide are seduced by the China growth story. But while there is plenty of interest, there are also plenty of reasons – cultural, political and economic – for western institutional investors to be hesitant. A group of Australian investors, participating in the 3rd AIST Global Dialogue, recently explored the opportunities in the region, including how, and whether, to turn that growth into investment return. AMANDA WHITE took the trip to Hong Kong and China with them.
UniSuper runs $300 million in-house to beat competitors
UniSuper will launch an internal core Australian equities fund with $200 million in seed money this month. John Pearce, the fund’s chief investment officer, says the aim of the venture is to outperform competing external managers. SIMON MUMME reports. One of the reasons why John Pearce was keen to become CIO of UniSuper was the fund’s resolve to start running money internally. “I made it very clear that I wanted the mandate to do this,” he says, and in January, about six months after joining the fund, UniSuper began running $100 million in an internal, quantitative strategy dubbed ‘manager conviction’ overseen by senior investment analyst John Hood.
New software makes IMAs scaleable
Mandate fees should be structured around a three-to-seven year ‘lock-up’, with cost-recovery only paid to the manager, but the performance fee component held back until the expiry of the lockup, according to FuturePlus CIO Michael Block. This performance fee would then be paid (or not paid) according to the long-term performance achieved against the agreed benchmark. Speaking at the 2010 Fiduciary Investors’ Symposium, Block acknowledged there are cases where the fixed-percentage fee model had been tweaked.
It pays to be extremely interested in fat tails
When the GFC’s tailwinds blasted through Outer Mongolia and Indonesia, The Cambridge Strategy’s extreme-risk approach had already alerted the boutique asset manager to exit Mongolia Energy and Bumi Resources. The manager claimed its method, which combines long-only global emerging markets equities with an active currency overlay, could generate additional alpha of up to 25 per cent, according to executive chairman Ed Baker. Baker said Cambridge’s position in Mongolia Energy in January this year was cut to one-third of its original size at the beginning of February – just before Mongolia Energy lost 10 per cent in the first week of February. In Indonesia, Cambridge’s stake in Bumi Resources was halved at the end of January – just ahead of Bumi losing 16 per cent.
QIC’s case for lifecycle evolution
Michael Drew and Evan Reedman, who were hired into Queensland Investment Corporation (QIC) early this year as lifecycle investing experts, have revealed their new approach to the strategy, which is based on protecting superannuants’ balances when the impact of market crashes is most lethal – in the 10-year periods on either side of retirement. Drew, a former Griffith University finance professor and QSuper investment committee member, said the approach would target members in this 20-year “conversion phase” of their investment glide path, when the “the amount of money at risk is at its zenith”.
CIOs search hard for soft dollars
The imminent release of the Cooper review’s final report catalysed fee debates within the industry last month, with one chief investment officer questioning whether soft-dollar arrangements between funds managers and brokers were back on the rise, while another said there was too much focus on fees paid to third parties by fiduciary agents. The general manager of investments at FuturePlus Financial Services, Michael Block, said that during a recent pitch by an Australian equities manager, the manager disclosed that it was buying premium external research, funded by soft-dollar arrangements with its brokers.
Tax doubts surround super insurance upgrades
Australia’s largest Catholic superannuation fund is lifting its total and permanent disablement (TPD) cover without increasing premiums, but confusion still surrounds the tax deductibility of those premiums. Australian Catholic Superannuation & Retirement Fund (ACSRF), in conjunction with its group insurer ING, has increased the value of each TPD unit between 8 and 28 per cent depending on the member’s age. The Australian Taxation Office (ATO) maintains that TPD premiums are not always fully tax deductible, particularly for policies with ‘own occupation’ definitions, and that this rule should have applied since July 1, 2004.
