Australia’s biggest super funds disagree on what the new Your Future, Your Super performance test should look like, but they both think the consequences for failure should be just as weighty – and apply to everybody equally.
The $280 billion ART has become the latest megafund to set up an offshore outpost as it looks to secure “even more compelling investment opportunities” for its 2.3 million members.
Retail trends and other challenges for insto managers
Andrew Dyson
The structural challenges facing Australian fund managers, such as retailisation, fee pressures, retirement demographics and new technologies, are not confined to this country. But there are many nuanced local differences. Andrew Dyson, Affiliated Managers Group’s head of global distribution, is in a good position to comment.
Dyson, who was on a regular visit to Australia from London last week, says that the evolution of each of the defined contribution (DC) markets around the world is quite different. Australia has the largest proportion of DC in its super system – 90 per cent – of any of the major markets.
“For instance, in the UK, for years you had to buy an annuity retirement… so that meant that about 90 per cent of the assets went into the default fund,” he says. “In the US, there have been changes to the protection under ERISA [the US retirement income regulations] that default funds can get, which means that they are now getting the majority of flows.”
The retailisation story in Australia has been fuelled by a mix of regulatory change and babyboomer consumer-led change. The babyboomers demanded choice, starting in the 1990s and culminating in massive SMSF growth countered by big super funds’ member-directed investment options. Meanwhile, the past two federal governments introduced several changes, such as MySuper, which supported the trend.
The big challenge for fund managers in any country because of retailisation though, according to Dyson, is that other factors are introduced into the buying decision. It is no longer only about performance.
“There are things such as the structure of the market, scale and distribution capabilities which influence the decision,” he says. “That means that for us, we have to build a different proposition for the retail investor. But we believe we can, in time, offer clients the best of both worlds. We can take the superior proposition in performance terms of our boutiques and help them obtain scale and access [in the retail sector].”
AMG is the largest multi-affiliate manager in the world, with 27 fund managers and assets totaling US$650 billion. The firm, which turned 21 this year, also has a separate division, AMG Wealth Partners, which has so far invested in five affiliates in the wealth management (retail and mezzanine) space.
“The markets I like best for us are performance driven,” Dyson says. In a retail world, it’s more complicated and usually much more expensive for the manager than at the institutional level.
Last year AMG revamped its US retail distribution capability formerly known as Managers Investment Group. The firm had acquired the retail distributor Aston Asset Management in 2010 and brought in a new leadership team under Jeffrey Cerutti in March last year, forming a larger mutual funds business now known as AMG Funds, which comes under Dyson’s field of responsibility. It has about $US70 billion under management.
Overall, across its distribution paths, AMG has roughly two-thirds of funds sourced from the institutional market and one-third from retail.
At the time of the Cerutti appointment, AMG chief executive, Sean Healey said: “Retail clients in the US are increasingly seeking specialised strategies to generate returns and AMG is uniquely well-positioned to benefit from this trend by combining the focus of these boutiques with the scale and breadth of a global franchise.”
In Australia, AMG has dipped its toe in the mezzanine space with the launch of Australian-domiciled trusts for two of its affiliates – a currency fund for First Quadrant and emerging markets fund for Harding Loevner. The Australian office, set up by country head Gregor Rennie in 2007, was AMG’s first outside of the US. Australia also has a separate sales office for one of its better-known affiliates, AQR Capital, which is run by Jeff Dunn.
Interestingly, the one market where AMG does not yet offer institutional distribution services, to big pension funds and others, is the US, where the affiliates have so far chosen to do their own sales and marketing at that end of the market. But Dyson says that virtually every affiliate takes advantage of AMG’s distribution capabilities in at least one category – most commonly international sales, followed by retail.
Of the other challenges facing fund managers, technology probably presents AMG with far more opportunities rather than threats.
With robo-advice, for instance, Dyson believes the concept is a good thing, because it enables consumers to get a form of advice they may not otherwise have had access to. From a fund manager’s point of view, technological shifts such as social media, “clearly need to be embraced by marketing, as opposed to sales … but you have to do it in a way that suits your brand”.
– Greg Bright
