Acadian Asset Management was one of the first overseas managers to plant a flag in Australia during the rush of the 1990s. Australia was hot, or so they thought. It was not actually their flag, though. Acadian, then a deep-value quant manager, chose to be represented by Sheridan Lee.
As a lot of value-orientated managers did, faced with the tech bubble and comparatively poor returns in the late 1990s, Acadian adapted its processes to include other factors, such as ‘momentum’ and ‘quality’. GMO did likewise, which cost the firm’s overseas subsidiaries in the UK and Australia. The subsidiaries wanted out and GMO mopped up the minority interests in those non-US businesses. Rothschild Australia, another value manager, came up with the novel suggestion of “short-term value” which would allow them to buy News Corp in 1999, when the stock soared along with other media companies. But super funds wanted out from that mess too and Rothschild had to be sold, to Westpac as it turned out.
But Acadian, to their credit, stayed the course and in 2005 established a joint venture with Colonial First State to represent them in Australia. Notwithstanding the rocky path of the tech boom and bust markets, Acadian started to recover and decided to change its Australian representation. It hooked up with Colonial First State in 2005. Sheridan Lee formed what has become the oldest and largest third-party marketing organisation in Australia and New Zealand: Shed Enterprises. Chris Clayton was the inaugural head of Acadian Australia on behalf of Colonial First State.
Now, the Boston-based Acadian has A$10 billion sourced from Australia. About half of this is in Australian equities, managed largely by a six-person team of portfolio managers in Sydney. It’s been an interesting journey for the firm.
On a visit to Australia last week, Ryan Taliaferro, the Boston-based director of equities, said that the ‘value premium’, which is, perhaps, the longest-standing genuine factor in the investment world, had been ‘low’ recently. By ‘recently’ he means several years. But there have been times when the value premium has come to the fore. “If strategies like ‘value’ work all the time, then they wouldn’t work at all,” he said, referring to the market’s ability to arbitrage away any so-called permanent anomaly.
Taliaferro said that Acadian followed about 80 different characteristics of stocks for which there was a “compelling underlying story”. But many of those characteristics are closely aligned. For instance, price-to-book has very close characteristics to price-to-earnings.
“We believe markets are inefficient, so stock-picking can add value,” he said. “We have a process to identify stocks which we have continued to improve over the past 30 years [the firm was set up in 1986].” Acadian’s strategy range has also mushroomed in that time. For instance, capitalising on its quant capabilities, the firm has a very successful long/short strategy.
Andrew Hair, Acadian’s Australian chief executive, said that the manager had doubled its funds under management in the past three years and, having built an in-house investment team in Sydney, could put its investment strategies in an Australian context. He said the process was a global one, however, Acadian was able to provide a range of strategies to suit local conditions.
“Our managed volatility strategies have been very popular,” he said. And Acadian’s belief in integrating ESG philosophies has also resonated with client super funds.
He didn’t day this, but, the subtext is that Acadian has a better understanding of Australian institutional investor issues because of its relatively small local equities management team. The firm has done the hard yards, going way back to the 1990s.