Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Funds demand more from asset servicing providers
Asset servicing contracts between big super funds and fund managers and their custodian banks are getting increasingly complex. Drew Vaughan, a specialist consultant in the space, recently oversaw a new contract between TelstraSuper and its incumbent provider, J.P. Morgan, in a competitive tender process. Assessing new services was an important part of this process.
The $21 billion TelstraSuper fund has reappointed J.P. Morgan as its full-service custodian for another five years. Paul Curtin, TelstraSuper’s CFO said J.P. Morgan had been a trusted partner during the fund’s five-year relationship to date, supporting the fund’s strategic growth agenda and investment priorities. “J.P. Morgan will continue to be a significant strategic partner as TelstraSuper focuses on delivering strong performance outcomes for our members,” he said.
Without signalling what specific new services TestraSuper looked at, Vaughan, the principal behind Dymond, Foulds & Vaughan, said that new services were often things that custodians had been delivering for some time in different forms. It was an evolutionary process. “With big funds like Telstra, which are tending to do more of their own insourced investments and are seeking to better understand their portfolios,” he said, “custodians are in the best position to analyse and explain their exposures.”
“They are adequately placed to provide those services, although I’d like to see continued advancements.”
In TelstraSuper’s announcement last week (July 22), Miles Mallick, the fund’s head of investment operations, said: “J.P. Morgan’s emphasis on delivering a consistent data model and focus on service delivery were driving factors in their reappointment.”
Nadia Schiavon, J.P. Morgan’s head of securities services for Australia and New Zealand, said: “We have a long and successful partnership, and look forward to further developing this relationship over the next five years.”
– G.B.
