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.
The good times start to roll again for fund managers
(Pictured: Sean Healey)
The bigger multi-affiliate managers are a good proxy for the state of funds management in general and the biggest, in terms of manager spread, is Affiliated Managers Group. It’s fourth-quarter results, released in the US last week, signal the good times may have returned.
AMG, which has a five-person sales and client service office in Sydney, headed by Gregor Rennie, has equity interests in, and provides various services for, 24 fund managers with total funds under management of US$544 billion, with a range of styles, asset classes and distribution channels. Net income (controlling interest) doubled in the December quarter to $158.2 million against $75.0 million in the same quarter last year.
Helped by performance fees on top of the buoyant US and global share markets, the aggregate numbers reflected strong investment performance across a broad array of return-oriented product areas, according to Sean Healey, the chairman and chief executive. These included global and emerging markets equities, US equities and a range of alternative strategies, he said.
“Our global distribution strategy, which complements affiliate-level marketing efforts with the centralized platform of AMG’s global franchise, has now generated outstanding organic growth from net client cashflows for 15 consecutive quarters, including $5.5 billion of net flows for the quarter and over $40 billion in 2013.
“With the substantial investment we have made to extend our affiliates marketing reach in key institutional markets worldwide, our affiliates continue to win new business in every coverage region… With our strategic position in high-performing alpha-generating products favoured by sophisticated clients, we expect ongoing strong new business momentum.”
Of the AMG affiliates, three are based in London and the rest in North America. The firm as distribution offices in Hong Kong, London, Zurich and Dubai, as well as Sydney.
Like most multi-affiliate groups, the marketing strategies for each affiliate tends to be negotiated separately. Some like to retain institutional marketing while handing over retail to AMG. Similarly, backoffice services required tend to vary from affiliate to affiliate.
In Australia, one of AMG’s major affiliates, hedge fund manager AQR Capital, has its own sales office, run by Jeff Dunn.
This has historically been the big conundrum for the multi-affiliate model. The holding company could probably make more money in the short term by centralizing as many functions as possible. However, the main reason for the past successes of the affiliates is usually their independence from outside management interference.
Apart from AQR, some of AMG’s better known affiliates include: Tweedy, Brown; Harding Loevner; Genesis; Artemis; and Yacktman, all in equities; and Value-Act; First Quadrant; and BlueMountain, all in alternatives.
