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.
AMG’s managers happy with world conditions
(Pictured: Andrew Dyson)
Affiliated Managers Group should have a better view of our world than most other fund managers. It owns or has interests in 27 affiliated firms operating in either regional or global markets. And, according to Andrew Dyson, the global head of distribution, things are definitely looking up.
Dyson, an executive vice president who joined AMG in 2011 after a career at both BlackRock and running Mercer Investment Consulting in London, said there was a strong sense that the US recovery was reasonably well entrenched. And the worst of the European crisis had definitely passed, he said.
Dyson was on a visit to Australia last week, during which he suggested that the big question facing investors was what the quantitative easing (QE) meant for markets as it entered a ‘tapering’ phase. AMG’s affiliates are all equities or alternatives managers, which tends to put them at the pointy end of big global trends.
“We can look at the bond markets with some detachment,” he said. “The question for US investors is that’s the right level for bonds. How this plays out will be a big issue… The great rotation has turned out to be a rotation within the fixed income sector. I can see this moving into equities over time but it will not be as sudden as a lot of people thought.”
The sell-off in emerging markets, too, will be only temporary, according to AMG. “Most of our institutional clients are not showing any loss of conviction,” Dyson said. “In a lot of cases they are seeing it as an opportunity.”
With respect to China, of critical importance to Australian investors, Dyson is also sanguine, believing that the Chinese government has the ability to achieve whatever it wants to achieve.
The main reason for AMG eschewing bond managers is that the firm is a big believer in boutiques and their ability to add value for investors. “The history of the bond markets is that they tend to be dominated by a small number of very large managers,” Dyson says.
With respect to its business, the likely area of future expansion is in retail distribution. The firm set up in Australia in 2006 with just one person and now has five in its own name and another five with one of its affiliates, AQR. AMG Australia is headed by Gregor Rennie and AQR by Jeff Dunn.
