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.
ASX’s AQUA II is ready to roll
(Pictured: Ian Irvine)
The ASX Managed Funds Service – formerly known as AQUA II – is almost completed and awaiting regulatory approval for a launch in the new year. The 64 initial providers, including REs, managers, unit registries and administrators, have been told to be ready to go in the first quarter, which is earlier than many had expected.
Prior to the latest ASX briefing on the subject last week there had been a joke doing the rounds – “Q: why is everyone so excited about AQUA II? A: because it’s that much closer to AQUA III.” Perhaps no more.
For providers of managed funds the development is potentially enormous. It opens up a whole new distribution channel – stock brokers – and fits neatly into the world of investments favoured by SMSF trustees – the listed market.
Under the ASX Managed Funds Service (AMSF), the funds will not actually be listed. Nor will they be “traded”, as such. The system, which is expected to be expanded fairly quickly to include a broader array of providers, allows for managed fund applications and redemptions to take place daily through the stock market’s CHESS administration system, with unit prices quoted exactly as they are outside this system.
Initially, only managers represented by the formation group of 64 providers will be taking part. And, only simple products which are eligible for the short-form prospectus requirements of ASIC will be able to participate, at least at first.
But key players in the trial group of 64 say they are expecting the system to be widened in two ways: all the providers of eligible managed funds and then a wider range of eligibility to allow for more complex investment products.
Because SMSF trustees have shown greater reluctance to use managed funds than traditional retail investors – preferring direct shares, term deposits and property – it is hoped that the stock brokers they deal with could become strong advocates for managed funds for the first time.
Ian Irvine, the ASX head of customer and business development, said the latest briefing, last week, was mainly to the advisory sector of the market. The response was very positive.
Irvine said that the technology to deliver the service would be ready before Christmas but two regulatory sign-offs were still required, one from ASIC and one from the ASX itself. He therefore said “the first quarter” was the current target launch. Early March is being tipped.
The main technology advance is that the messages sent through CHESS to the fund managers’ unit registries – either internal or through the main independent providers OneVue, Link and Mainstream BPO – will be different from the messages sent for share transactions.
