Optimix, the multi-manager business of ING Investment Management, awarded $100 million to a volatility manager amid the recent changes to its international equities portfolio.
Funds management – somebody tell Tourism NSW
Funds management – somebody tell Tourism NSW One morning last December, pedestrians in Martin Place would have seen a line of chattering school kids making their way down the storied thoroughfare. Noticing that they were from St Kevin’s Primary School in Cardiff, a suburb of Newcastle, one might have wondered where the youngsters were headed. Excursion to see the Harbour Bridge and Opera House? Day at the Australian Museum? Perhaps even a tour of the nearby Reserve Bank to boost the financial literacy? Not a bit of it. You see, amongst the St Kevins kiddies was the daughter of Michael Negline, head of RCM Capital Management for Australia, and her lucky class were taking a trip to … his office. Chatting with Unbalanced as he waited for the group to arrive, Negline talked up the educational benefits of Level 57 in the MLC Centre. “The view will knock them out. Remember, they’re from Newcastle, some of them don’t know what an elevator is,” joked Negline who, as a genuine Knights-loving Novacastrian, is allowed to say that. He admitted that the kids wouldn’t get the full funds management experience. As a client service office, RCM Sydney ditched its Bloomberg terminal a while back, in favour of updates received through Negline’s “dodgy iPod”. All the same, Michael later reported his daughter’s friends were duly impressed by the vista from Daddy’s lobby, and seemed reasonably interested in the concept of an office, even if not all of them picked up on the finer points of global equities management. Ever the marketer, Negline made sure each young ’un also received an RCM pen as a memento.
Hedge funds calm in volatile markets
Looking over the Australian hedge fund industry numbers, home-grown managers did well. Australian market neutral equity funds returned a creditable 12.05 per cent (November year to date) with near bond-like volatility of just 8.6 per cent (as measured by annualised standard deviation). Long/short equity achieved a higher 28.51 per cent return on 15.98 per cent std dev. Overall, our universe of 150 Australian hedge funds (including several offshore hedge funds offered in Australia) returned 16.95 per cent year to date on a relatively low 13.55 per cent std dev.
Fee model aligns with client interests
Fund managers, along with the rest of the financial services industry, are being dragged into better aligning their business models with the objectives of their clients. This is hard work for the protagonists for change (mainly the institutional consultants) as well as the fund managers, whose livelihoods can seem threatened. Managers are under pressure for a variety of reasons, and just like market correlations, the reasons have coalesced at an unfortunate time. The zero-sum argument has certainly gained credence lately. It is widely held as axiomatic that a group of relative return fund managers must underperform their market benchmark after fees, but a change in sentiment amongst clients means that this knowledge is now being acted on. Where once clients charged themselves with choosing the best active manager, now they will be more likely to hold a market portfolio until a manager which can prove its claims of outperformance comes along.
Net promotion score set to takeoff
Too many marketing professors spend their lives just with students or bashing away at arcane academic research that no-one will ever read. Here, I thought to myself, is what marketing professors should be doing. I was attending, and speaking at, the first annual net promoter score session for superannuation funds initiated by Fund Executives Association Ltd (FEAL). As I listened to fund managers share experiences about member satisfaction, marketing tactics and consumer research I became increasingly convinced that this was an essential day for all those involved – including me. It was a long time in the making. More than two years earlier Michael Baldwin, CEO of FEAL, and I had talked long and hard about the possibility of offering superannuation funds the chance to measure their member satisfaction and share insights on their performance. At the time, many funds still seemed unsure of whether they were offering a competitive service or had truly satisfied members. With the market for superannuation likely to open up over the next decade it was a precarious position to find yourself in.
Advice has greater role to play in pre-retirement stage
Hindsight is a wonderful thing. This time last year when our sharemarket was nearing its global-crisis low, a small percentage of superannuation investors decided to switch to more conservative investment options. In the case of a friend of mine who celebrated his 50th birthday on February 26, his super fund effectively made the decision on his behalf. My friend belongs to a fund with an optional age-based ‘lifecycle’ strategy. The strategy gradually reduces member exposure to high-risk growth assets over a 10-year period – the trigger points being the member’s 50th and 60th birthdays. A few weeks ahead of his 50th birthday, my friend received an ‘opt-out’ letter from his fund explaining that his super would be switched to a mediumgrowth investment option.
Bringing unit registry into the 21st Century
Australian investors in managed funds must put up with record keeping that is stuck in the Dark Ages. While a couple of unit registrars are genuinely interested in being the ‘scale player’, much of the market stagnates on the internal systems of funds managers, which struggle to reinvest in the latest technology, or on the registries of custodians which in some cases are unwilling providers of the service. Studies have suggested that the real cost of unit registry for every investor in every Australian managed fund is as much as $90 a year, stratospherically high compared to our peers. Turnaround times of three weeks on statement requests are industry standard. In December 2009, Conexus Financial (publisher of this magazine) and Computershare convened a roundtable to discuss how the unit registry process could be made more efficient. Overseas, transfer agency is typically a discrete, outsourced process, while in Australia it tends to live alongside the fund accounting and unit pricing functions. Is there a sound operational reason why this should be the case? Is the fragmentation and under-investment that’s rife in unit registry best solved by the emergence of true ‘scale players’, or by key stakeholders – perhaps a group of custodians – co-operating to build an industry utility which performs the most commoditised registry tasks? What role can initiatives such as SwiftNet and the ASX’s AQUA Rules for the quotation of ETFs and structured products play in enhancing efficiency? This roundtable discussed all of these questions, with a forum of pivotal players from the custodian, funds management and admin consulting worlds. The discussion aimed to produce a list of actionable steps towards giving Australian investors a better deal on their unit registry.
Lean times for sec lenders after the shorting ban
As the capital raisings of 2009 turn into the M&A activity of 2010, the co-chair of the Australian Securities Lending Association (ASLA) predicts a return of transaction volume for his constituents, and a recovery in the income generated by lenders of stock. Peter Martin, whose day job is running securities finance at State Street Australia, says the problem is no longer supply of stock for loan, with $200 billion currently available in Australia, which he says is consistent with supply 18 months ago. Supply did threaten to become a problem in 2008. Some investors recalled stock and suspended their securities lending programs, against a backdrop of the shorting ban coming into effect, and media hysteria as the likes of ABC Learning’s Eddie Groves blamed hedge funds for the damage inflicted on their shareholders.
Leakages can be plugged
Funds could return up to 6 per cent more to members if implementation leakage were stopped, but even the latest in-the-Cloud software will not deliver on its promises if not part of a total review of business processes. Ironically, this Cassandra-like warning comes from an IT industry guru, Iain Dunstan, CEO of Bravura Solutions Group, who’s concerned that “well-intentioned people [are] confusing lower returns with costs”. In the past year, a member may have lost 20 per cent of their returns, he says, and these losses may stand at roughly $100,000. So, this is the backdrop against which policy-makers and do-gooders need to look at the efficiency issue. “What’s the best-case scenario with best-STP [Straight Through Processing] saving one dollar a member?” he asks. At this rate, “it’s going to take 100,000 years to get them back to square one”. The implementation-leakage savings of 6 per cent are put forward by Russell Investments expert Chris Briant.
Why TOFA needs your attention
With their analytical work and systems re-wiring in train, the investment administrators and custodians who have taken TOFA seriously can now pause to suck in a few lungfuls of air before the new tax regime begins, and their long, hard slog to comply continues. DST Global Solutions, which delivered its TOFA-compliant version of HiPortfolio3 in January, knuckled down more than a year ago to correctly interpret the new legislation, understand the tax options available to investors, and then update its processes and systems. Ian Mathieson, chief executive officer of the company’s Australian business, says the TOFA-Ready project has been the most demanding undertaken by DST on domestic shores. “We’ve gone through Y2K, GST, CGT. None of these have equalled the amount of effort that has gone into TOFA from a project point of view,” Mathieson says.
After the storm, custodians hit the ground running
As the world moves along its recovery path, financial services companies are generally bracing for increased regulation and new demands from clients in the wake of the global financial crisis. In Australia, and elsewhere, various government-sponsored inquiries are underway which will probably recommend a raft of measures which affect the operations of banks, funds managers, super funds, financial planners, platform providers and even research houses. The US even has its own Financial Crisis Inquiry Committee, which held its first hearings in February and is due to report by the end of the year. Australia, of course has its Cooper and Henry inquiries, both of which are expected to report mid-year, having completed its Ripoll inquiry late last year.
Infrastructure: how super funds are changing the world
For most super funds and other Australian institutional investors their experience with the ownership of infrastructure assets has, by and large, been a happy one. Not the same can be said for all such investors. Each of the eastern States has at least one disastrous toll road experience for investors and many retail investors in listed infrastructure funds were taught a painful lesson by the GFC. According to Mike Fitzpatrick, a veteran of the asset class, much of the recent criticism of infrastructure – and certainly that part assigned to the investment banks which packaged and promoted many funds – is justifiable. He predicts that the days when investment banks fed transactions by outbidding each other to win tenders and then structuring the investments into funds, often with long-term management contracts in place, are hopefully over. Fitzpatrick, along with chief executive John Clarke and non-executive director Les Fallick, last year bought the ANZ infrastructure business, which Clarke had run since inception and had about $1 billion invested in two unlisted funds.
