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.
Different shades of BlackRock: ASB, AMP wins cast mega-manager in NZ spotlight
BlackRock, the biggest investment house in the known universe, now holds sway over about a quarter of the NZ retail fund market after cementing a deal with ASB last week to oversee some $20 billion.
The ASB move to outsource most investment decisions to BlackRock coincides with the transition of an estimated $10 billion of AMP wealth NZ funds to the same manager earlier in July.
According to Australian consulting firm Plan for Life, the NZ retail funds market measured about $133 billion at the end of March, implying the combined AMP and ASB BlackRock-influenced investments account for just under a quarter of the total.
Of course, the collective ASB and AMP funds underweight the true BlackRock heft in NZ as the firm has also attracted investments from other wholesale and retail schemes, individual investors (via iShares exchanged-traded funds, for example) and institutions such as the NZ Superannuation Fund, which has mandates totalling about $5 billion with the manager.
But both ASB and AMP (respectively, second- and fourth-largest retail managers in NZ) have ceded more to BlackRock than money with both companies handing over duties usually occupied by investment consultants.
The AMP KiwiSaver statement of investment policies and objectives (SIPO), for instance, says the manager “in consultation with BlackRock, determines the approach to investing our clients’ money, including setting the benchmark asset allocation, selecting appropriate indices, and determining the investment policies of the underlying funds”.
“…. BlackRock provides key investment services to invest the assets of the funds in accordance with selected indices and investment policies,” the SIPO says.
While the AMP deal involves a full-scale transfer of funds from previous manager AMP Capital to a new BlackRock mandate, the ASB agreement is both less and more than it seems at face value.
The bank-owned investment unit is not making any underlying manager changes – yet – as a result of the new arrangement.
BlackRock already manages the ASB global equities and listed property money but the bank-run schemes (including KiwiSaver and other funds) also hold mandates with State Street and First Sentier for other asset classes that remain in-situ.
As reported earlier in July, this month State Street will take over an ASB Australasian equities portfolio previously run by Vanguard, which is exiting its Australasian institutional business.
According to Adam Boyd, ASB head of wealth, the ASB-BlackRock relationship operates at a “layer above” hands-on money management.
In effect, BlackRock has assumed the investment consulting services – such as asset allocation and currency hedging – formerly supplied in-house and by third-partiers such as Mercer and First Sentier. The Australia-based BlackRock multi-asset team officially took over ASB investment advisory roles last week.
First Sentier was previously owned by ASB parent, the Commonwealth Bank of Australia (CBA), under the Colonial First State Global Asset Management brand: in 2019 CBA sold the-then A$220 billion plus manager to the Japan-based Mitsubishi UFJ Trust and Banking Corporation, which subsequently renamed the enterprise.
Boyd said ASB intends to use more BlackRock services over time, tapping into the global firm’s deep pool of investment expertise, retirement solutions and technological nous.
For example, he said ASB would likely have access to the influential BlackRock Aladdin platform, which currently casts its risk-management shadow over more than US$20 trillion. As well as quantifying financial risks, Aladdin has incorporated climate-risk planning into the process, recently buying climate-modeling firm, Baringa, to boost the offer.
In a statement last week, BlackRock head of Asia Pacific, Rachel Lord, said the ASB deal was a first-of-a-kind in the region due to the wide scope of investment services included.
“We are excited to bring the full breadth of our global investment expertise as well as our end-to-end investment and technology platform to ASB,” Lord said.
The change would have no impact on the 25-strong ASB investment team, led by John Smith.
“In fact, we will probably look to add to the investment team as we continue to grow assets under management,” Boyd said.
Both ASB administration (currently shared in-house and with CBA-subsidiary Colonial First State Investments) and custody (Public Trust) remain as is.
“Changing custody and administration would be a much bigger undertaking,” Boyd said.
BlackRock, meanwhile, has just hit US$9.5 trillion under management, up from US$7.3 trillion just a year earlier.
Over the June quarter, the investment giant recorded net income of US$1.55 billion compared to US$1.21 billion in the same period last year.
Despite the reported quarterly profit landing above expectations, BlackRock shares dipped over 3.3 per cent in the wake of the news.
“Investors may have been disappointed in net inflows coming in at $81 billion, down from $172 billion in the prior quarter, a drop associated with the loss of a $58 billion equity index mandate from a U.S. pension fund client,” US media reported.
