Home / Funds Management / Australia’s role in Martin Currie emerging markets journey

There’s perhaps only one thing more satisfying for the business people who run big funds management firms than organic growth, and that’s to reward the trust of long-term clients. Around the 10^th anniversary of the Martin Currie Global Emerging Markets team, three of the crucial players behind the success of the strategy have reflected on the achievements of this team and how it has capitalised on the propulsion of the emerging markets. Several Australian super funds, which became the first to sign up to the strategy from 2011, also proved crucial to its success. Emerging markets now account for more funds under management than any other Martin Currie strategy with about US$7 billion under management; just pipping Australian equities with a similar amount.

Willie Watt, the former managing director of Martin Currie, Alastair Reynolds, the veteran head of the emerging markets team, and Kimon Kouryialas, the co-head of global distribution and former Australia country head recant the journey and the likely road ahead both for the markets and Martin Currie’s relationship with its clients. Watt, who retired from Martin Currie in 2019 after nearly 20 years with the firm, and is the chairman and independent director at the new Scottish National Investment Bank, says the global equities manager had developed an understanding that emerging markets were likely to become a more important part of the asset class. “We thought it was going to be difficult for developed markets to continue to deliver the returns that they had previously and that Martin Currie should have a more credible team covering emerging markets,” he says. “So, we did a search. We had originally thought we’d recruit a senior individual and build a new team around them. We got into discussions with the senior people at Scottish Widows and the idea of a lift-out was mooted. This meant that we were able to cut down the time period to build the team. “They had the same fundamental bottom-up approach and were already a well-balanced team with a robust decision-making process. The whole team got involved in the discussions. What we did was to lay the foundations and build a track record. They gained a lot of clients around the world,” Watt says. In the end, the six-person team joined Martin Currie over the course of 2010, led by Reynolds and the-then team leader Kim Catechis. At Martin Currie, its smaller original capability included Andrew Matthewson, portfolio manager in the current team. Divya Mathur, one of the six who joined in 2010, remains a portfolio manager, while Catechis, who moved into a new head of strategy role at Martin Currie in 2019, remains within the corporate fold as a senior strategist for the parent company’s new Franklin Templeton Investment Institute, announced in March. Reynolds says that the emerging markets team was an early champion of integrating ESG principles with Martin Currie’s investment process, with the firm becoming a signatory of the PRI in 2009, just prior to the emerging markets team joining the firm. “One of the great misconceptions about emerging markets is that ESG somehow matters less or that the companies are behind their developed market peers,” he says. “We thought, before we arrived, that ESG was an important component. A decade ago, though, the focus was mostly on governance and the treatment of minority shareholders.” The emerging markets team brought an awareness of social issues in developing markets, such as South Africa, eastern Europe and parts of Asia. “They were undergoing real change as the populations were being lifted out of poverty,” Reynolds says. “Inequality was seen as very important, especially for investors looking to invest over the long term. Of course, in recent years the coverage has been dominated by climate change but a decade ago that wasn’t as prominent.”

The ESG credentials and long-term investment horizon for emerging markets were attractive attributes for the manager to have when Kimon Kouryialas first approached Australian super funds with the strategy in 2010. The former ESI Super became the new strategy’s first client, seeding the Australian-domiciled unit trust in September 2011, and it was relatively quickly followed by five other Australian super funds, which collectively invested more than A$1 billion in initial commitments. Australian investors currently account for nearly one-third of the strategy’s assets. The other early investors, which have all adopted the same long-term approach, include HESTA, Hostplus and Togethr Super (originally Equipsuper), which have maintained their faith in the strategy and the manager. The former Vic Super, now a part of Aware Super, was also an early participant. Melbourne-based Kouryialas says: “Our pitch to the funds was that we had done the work and had the credibility in the institutional marketplace. We talked about a five-year investment horizon and still do; now probably longer. We had a meeting of minds.” He believes the firm also had an edge compared with competitors due to its active engagement with investee companies and ESG credentials in general. “The 45-stock portfolio, on average, fits well with our high active share process while being well diversified. We didn’t follow the benchmark. The way we saw the macro environment was that it provided insights. Kim (Catechis) always had a real interest in geopolitics.” In terms of the key drivers of the past decade, Reynolds says that technology has been a very important factor. The countries typically producing new technologies, such as Taiwan, Korea and China, have gone extraordinarily well with digitalization. The users of technology have disrupted a range of industries, recognizing the impact it would have on the consumer sector and financial services, for instance, in driving the business and driving down costs. With the growth of China and its increasing importance as a global power over the past 10 years, it is now bumping up against other superpowers. The US, meanwhile, has become less tolerant of both Russia and China, Reynolds says. “We are also seeing trade restrictions. The tensions are definitely real. But they seem to have had limited effect. China and Russia have been among the better performing emerging markets.” While managers and other emerging markets watchers tend to get “bombarded with negative news”, on the ground, as a stock picker, you can see the companies experiencing positive business conditions. The negative news is often in contrast with bottom-up realities. There has also been a lot of progress in the maturity of equities markets in the emerging markets as a whole, Reynolds says, especially the Taiwanese, South Korean and Chinese markets. There has also been good progress with India. “They have become less volatile,” he says. “A part of the beauty of emerging markets is the range of countries which are at different stages of development – there are the larger, more developed ones and the smaller, dynamic ones, still with a large population base. The under-performance of Latin America compared with Asia, however, has been a disappointment during the decade, such as the economies of Brazil and Mexico which have failed to grow “anything like as expected” and have largely not participated in the digital boom. Overall, though, he says: “It’s been a fantastic period for equity investors. Investors on the whole are very happy with what they have received.” Kouryialas says that with a client’s trust comes an obligation on the manager to live up to the promises made. With investments, it is a big help to not only be open and honest about everything you do but also to have the same long-term horizons. “That’s what builds the sense of partnership,” he says. “Our 10-year track record is evidence we have delivered on our clients’ expectations. We’re confident that by continuing to challenge our investment insights, be nimble and adaptive and providing bottom-up well-diversified stock-driven portfolios we can have another successful 10 years and beyond.” Looking to the next 10 years, both he and Reynolds say that Martin Currie’s track record, in both investment performance and client relations, augurs well. Listening to clients was a big part of the success of the past 10 years.