The collapse of a private equity manager lacks the impact of a hedge fund failure: it’s like a “slow-motion train wreck,” says Chris Hunter, managing director of Cambridge Associates in London. Now that fundraising among private equity managers is down, leveraged finance scarce and the market for exits is weak, mega-buyout funds are busy keeping portfolio companies from grinding slowly to a halt. SIMON MUMME reports.
Softer face of China’s next great leap means different opportunities
Not much happens in the Chinese investment world without the central government’s say. Right now, Beijing is in the middle of an international row over the value of its currency, which dominates all other local financial discussions, at least in public. But there are more important things happening in China which institutional investors around the world need to watch. GREG BRIGHT* reports after a visit to Beijing for an investment conference. The Chinese funds management industry is just over 10 years old and already it’s starting to flex its muscles. To the frustration of the Government, the Chinese love to save and the locally grown funds managers, some of whom have foreign partners, have grown their combined businesses from zero to about US$ 370 billion since 1999. Destination Asia – Beyond the old ‘emerging market’ thinking
We hear all the time about how lucky we are, as Australians, to be ‘plugged into’ Asia. It’s the one part of the world where most things seem to be going right – banking systems already toughened by a previous crisis and standing strong, low levels of consumer and government debt, demographic outlook containing an increasing number of wage earners/ tax payers/conspicuous consumers. One might think that our institutional investors would be responding in kind, handing out ‘Asia’ specialist mandates like so many fortune cookies. But with a few exceptions – the Future Fund’s $1 billion allocation to Treasury Asia Asset Management springs to mind – they are sticking to the old global equities/emerging markets way of looking at the world.Diversity is power, says Bridgewater’s Zink
The global financial crisis has highlighted flaws in portfolio structuring with equities allocations far too dominant for a balanced portfolio that can endure in all economic conditions, according to Rob Zink, director of portfolio strategy at Bridgewater Associates. He says typically pension funds allocate about 65 per cent of their capital to equities, but what they ignore is this translates to about 86 per cent of the portfolio risk Instead the approach Bridgewater takes, and one they advocate philosophically – not just through their All-Weather product – is to build a portfolio that will be resilient in all economic conditions. “You can make tactical decisions based on your views of the world but this is a strategic asset allocation for the long-term which is independent of any specific view of the world,” he says.
Diversity is power, says Bridgewater's Zink
The global financial crisis has highlighted flaws in portfolio structuring with equities allocations far too dominant for a balanced portfolio that can endure in all economic conditions, according to Rob Zink, director of portfolio strategy at Bridgewater Associates. He says typically pension funds allocate about 65 per cent of their capital to equities, but what they ignore is this translates to about 86 per cent of the portfolio risk Instead the approach Bridgewater takes, and one they advocate philosophically – not just through their All-Weather product – is to build a portfolio that will be resilient in all economic conditions. “You can make tactical decisions based on your views of the world but this is a strategic asset allocation for the long-term which is independent of any specific view of the world,” he says.
Come hear the consultants…it could be your last chance
On our e-newsletter I&T News, it’s always stories about asset consultants that get the most clicks. So it was no surprise to find the ‘consultant plenary’ at last month’s Conference of Major Super Funds packed to the rafters, and one of the most talked-about sessions thereafter. The gatekeepers are still the go-to guys. The talent on the panel were refreshingly honest about where their businesses are today, and where they are heading. Is it any wonder that Frontier Investment Consulting wants managers to adopt a base flat fee? Its chief, Fiona Trafford-Walker, revealed to the audience that Frontier earned revenue of $10 million last year, on funds under advice of $100 billion. Neuberger back with a vengeance … and a big China capability
With strong Australian connections at the top of its Asia- Pacific arm, blueblood New Yorkbased manager Neuberger Berman is looking to re-establish itself in this market after a tumultuous few years. The firm regained its independence last year in an assisted management buyout, after five years of ownership by the now-defunct Lehman Brothers. Incredibly, more than 90 per cent of staff remained with the firm through the Lehman troubles and bankruptcy, and after the buyout was completed last May. In Asia-Pacific, which has been marked as a strong growth region, Tony Edwards was appointed chief executive last December and recruited Christopher Gunns as consultant relationships manager in January. Artisan looks to offer its talent pool to Australia
Artisan Partners, a US-based diversified equity strategy manager, is looking to have an Australian presence which will concentrate on marketing the firm’s global and emerging markets capabilities. The firm, established in Milwaukee in the mid-1990s, now has five investment teams and attempts to differentiate itself by providing the best possible environment for “talent”. The investment professionals are in Milwaukee, San Francisco, Atlanta, New York and Wilmington. The firm, which manages about US$47 billion, also has a research office in Singapore and is establishing a London office.
Lawyers warn trustees on governance
Trustees must be prepared for more legislation covering their responsibilities and start raising their educational qualifications now, according to experts from one of Australia’s leading law firms. With the possibility that APRA may be given prudential standards-making power, trustees must be prepared for the Cooper review imposing a listed-company standard of governance on super trustees’ boards, say Michael Chaaya and Christine Maher, partners in the financial services group at Corrs Chambers Westgarth. Trustee duties arise from many sources such as legislation, regulatory bodies and common law, Chaaya and Maher say, and there is considerable overlap.
Lessons can be learned from Madoff, the ‘Herod’ of investment
Police say, too many times, that criminals target people they know well. In many of these cases, crimes are committed through an exploitation of trust. Among investors, the obscene fraud committed by Bernie Madoff was the headline betrayal of trust during the financial crisis. Roger Urwin, global head of investment content at Towers Watson, adds some black humour to convey the magnitude of the US$50 billion graft: “Madoff is to investment what Herod was to childcare,” he told the annual Fund Executives Association Ltd [FEAL] Forum in Melbourne last month. He says the unearthing of Madoff ’s swindle made investors reassess their relationships with managers, and further undermined the financial industry as its credibility was under attack. “After an incident like that, you have a different industry.
Medicare clearing house is ‘ugly plumbing accident’ waiting to happen
The Medicare clearing house is an accident waiting to happen, according to superannuation e-commerce expert Peter Philip. “Technology is a bit like plumbing – it’s all pretty dull until it goes wrong, but you really want qualified plumbers doing the work or the result could be pretty ugly,” says Philip, chief executive of SuperChoice, one of Australia’s largest super clearing houses. “Just like plumbing it’s important to have experts designing the system – you have to have the right size of pipes and the right connections to make sure everything works smoothly,” he observes. “When things aren’t connected properly it’s easy for the system to back-up end up with a big, expensive and smelly mess.”
CalPERS considers new asset class classification
CalPERS is considering doing away with traditional asset class classifications in favour of classifying assets according to fundamental characteristics in a bid to provide a better understanding of portfolio risks and performance drivers and so move to a more effective portfolio construction and risk management framework. In response to analysis of the CalPERS portfolio, which found that the big Californian public sector fund did not have a meaningful-enough exposure to assets that could have been a hedge in times of financial crisis and provide adequate liquidity to the fund, the staff and the board’s consultants – Wilshire and PCA – have developed an alternative classification of assets based on underlying fundamental characteristics.
