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.
Blue Orbit boutique snares big-name COO
Blue Orbit Asset Management, a new Melbourne-based boutique equities manager, has snared a highly regarded specialist chief operating officer, Lewis Bearman, to take on that role with the firm from next week, August 4. He has 34 years of experience as a COO at three major funds management firms. The new position follows the launch of Blue Orbit’s first fund last year.
Since that launch, of the ‘Australian Systematic Alpha Small Cap Fund’, last October one of the founders, Megan Talmage, has been performing the COO role to date, alongside her main job as portfolio manager. She has had the help of Cindy Chiang, operations and compliance manager, who will now report to Bearman. The firm plans to move into offering global strategies to the market next.
Blue Orbit, a quantitative equities manager, got underway in 2018, having secured the backing of Costa Asset Management, a family office. The founders are: Adam Randall, as chief executive and portfolio manager, who started working on the firm’s development in 2017; Julie Andrews, the director of institutional business; Megan Talmage; and non-executive directors Damien Green, a former head of Morgan Stanley Asset Management. Other directors include Liza Whitmore, the chief executive of Costa Asset Management, and Elizabeth Weston, a former head of investment governance at Cbus.
Cindy Chiang, who was previously a performance reporting analyst at VFMC and NAB Asset Servicing and an assistant portfolio manager, and Matthew Oldham, formerly an analyst at Equity Trustees, who recently returned from the US where he completed his PhD in ‘Computational Social Science’, have joined the organisation. The firm has also opened a Sydney office.
Currently slated for its next fund launch, later this year is a global small-cap equities strategy. Bearman believes Australian quant managers have an advantage because of the large universe of stocks from which to choose and the problems big super funds have investing in older established Australian small-cap funds due to capacity constraints.
Blue Orbit is also looking to launch an emerging markets strategy in the latter half of next year.
Bearman will retain his independent director roles as chair of Qualitas Securities, a real estate finance company, and chair of the South Metro Junior Football League, the largest junior league supporting Australian Rules football. He said that one of the skills he learned working for early stage firms was to be a generalist. “You should be able to sit down with a client, an auditor and a ratings agency,” he said.
He was attracted to join the firm because he felt the founders were very innovative in their thinking. One way this is being expressed is with the firm’s “next generation” fee structure, which is tailored to each client’s requirements for the best-possible alignment of interests. It will typically involve a base fee which pays the overheads and a performance fee which is negotiated around various parameters to suit the client.
This is along the lines of a famous paper produced some years ago by Fiona Trafford-Walker and Ken Marshman – a rare joint effort by the two most influential consultants in Australia – when they were both heads of their respective asset consulting firms – Frontier Advisors and JANA. The discussion paper canvassed a system where managers charged a flat fee to cover overheads, and then a performance fee on top. It never really took off due to opposition from most managers. One of the advantages of being a new manager is that it could design its cost base accordingly, Bearman said. He said that he is also impressed by the importance of technology for the firm, “which underpins what we do”, and the commitment of the principals to “do everything properly”.
After a stint at the Reserve Bank of Australia, Bearman started his funds management career in 1986 with the old County Australia under Charles Macek, then a start-up which went on to become a star performer in the 1980s. He stayed there for 17 years through its two subsequent owners, NAB and Invesco. He then joined Perennial Investment Partners in 2003 under founder Mike Crivelli, which was also in its infancy at the time. He stayed there until 2014, the last two years as chief executive, and then joined Steve Tucker, a former chief executive of MLC, for about five years at Prodigy Investment Partners, another early stage multi-affiliate manager.
– G.B.
