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.
For internalisation, Aware puts its faith in Odin (and Alpha)
Big funds are getting bigger through a mixture of mergers and guaranteed contributions at the same time they’re bringing more investment management in-house to reduce cost for members. And megafunds need to do things differently to how they did them when they were mere multi-billion minnows.
“We installed our current operating platform in a project called The Roadmap to $70 Billion,” Michael Clavin, head of income and markets at Aware Super, tells ISN. “And we’re now at $160 billion. Our needs were very different when we did that project; we were looking at internal strategies that were primarily listed and primarily domestic.
“As the organisation and investment pool grew, our investments became more global and we also had a big focus on unlisted assets that we manage directly. They weren’t supported by the current platform. What we were looking for was a platform that can support our unlisted assets, our listed assets, our domestic assets and our global assets.”
Aware has found it in the ongoing Project Odin, which was born out of a review by McKinsey and Co. to determine what the investment team and investment function would need to look like to support a $250 billion fund with 50 per cent of those assets managed internally, both internationally and domestically.
“When we did that review with McKinsey, it became clear that the operational platform we’re currently on, and the structure and the way teams were organised were not really fit for purpose to support our future vision of the Aware investment function,” Clavin says. “Odin was born to look at the end-to-end platform that was going to support investments going forward.”
“It’s very easy to talk about Odin as a project of systems, but it’s about people. This project is about ensuring the investment we’ve made in growing our investment team from 80 people to 130 now and 200 in the next few years (pays off) by giving those people the best tools to create the best member outcomes.”
Odin “enhances the attributes” of the investment data coming from its custodian, State Street, which is a key stakeholder in the project; Odin uses modules of its Alpha front-back-platform, as well as offerings from three other service providers: a central data platform, a large investment operating platform with a module that supports unlisted assets, and a performance and analytics service provider that largely works with asset owners. State Street is the “glue that keeps it all together”.
“Odin gives people the best view of the portfolio and the risk within it to make the best investment decisions,” Clavin says. “In (the markets team) one of the areas we look at is exposure management – how we managed the exposures of the fund in the most efficient way.
“That’s a pretty data intensive exercise. If you really want to tilt a portfolio in a particular direction or de-risk it you need to get an understanding of what your exposure is, and across a $160 billion fund with 300 portfolios that’s a tricky exercise. Getting the right platform to deliver that information to that exposure management team in an accurate and timely manner is really what Odin is delivering.”
It’s called ‘Odin’ in part because Aware didn’t want to call it ‘the data and investment platform project’, but for something that, in Clavin’s word, effectively allows a better view of the assets, it’s got a fitting namesake; the Norse god Odin only has one eye, but does see better than most with the help of two ravens, Huginn and Muninn, that fly all over the world and bring him information.
“We’re in touch with a lot of our peer funds, both locally and globally,” Clavin says. “Most funds are doing a version of Odin or are on a journey in a similar vein. Whether they’re on their third generation or their first, a lot of people are looking at the data platform they use to manage their fund. I’ve been in the industry since 2007, and the need for data at a fund and plan level has grown astronomically in that time.”
