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.
Evergreen launches separate alts rating business
Angela Ashton’s Evergreen Consulting, a research firm which covers traditional platform-friendly investment funds, has launched a new company which will embark on the road less travelled. Evergreen Ratings will concentrate on complex, often less-liquid products, which rarely make it onto major platforms.
The new firm will be run separately from the old, with Ashton the only common input at the moment. It is currently 100 per cent owned by Evergreen Consulting and Ashton is the sole director, but she is working through the establishment of a separate board and has appropriate Chinese walls in place.
There are three confirmed ratings to launch the service within the next few days and another which will “take a bit longer” plus some more in the pipeline, she said last week (October 7). Recruits to Evergreen Ratings so far are two well-known experts in their respective fields, as research consultants: Daniel Liptak, who has focused on private and hedge fund research for the best part of 30 years; and, Mark Wist, a principal of Property Resolutions in Brisbane. They are supported by two sales and client service managers: Sam Scardilli and Steve James.
The big research houses and asset consulting firms have struggled to provide much coverage of alternatives because if the difficulty in making it pay when alternatives, by definition, tend to make up a growing but-still smallish minority of the typical portfolio.
Cambridge Associates and Albourne Partners are the best known in Australia, while Mercer probably gave it the best shot compared with the other main traditional asset consultants: JANA, Frontier and Willis Towers Watson in the past. In Evergreen’s space of wholesale investors, such as dealer groups and big planning practices, the main competitors are Lonsec, Zenith and Morningstar, plus a handful of other small firms, none of which can claim a focus on alternatives.
With Evergreen Consultants, the business model is that the research firm’s work is paid for by the advisors who use it. With Evergreen Ratings, remuneration is from the promoters of the products being rated. Ashton said: “The line between the two should be clear. Anything Evergreen Consultants uses in its day-to-day work with our clients i.e. funds that work in a model portfolio or managed account, for example, are part of the remit of Evergreen Consultants and we would not charge to look at them. Those products that fall outside the normal work of Evergreen Consultants (closed-end funds etc) go to Evergreen Ratings where fund managers can pay for a rating. So, there shouldn’t be cross over, but there will of course end up being some grey areas I’m sure.”
She said that the private markets investment strategies were growing rapidly, especially private debt products. “A lot of companies are choosing to remain private and are getting their capital through private equity etc. We’re seeing a lot in private debt because the banks are reducing their involvement on certain sectors because of capital requirements… A lot of these products at the moment are delivering 8 per cent a year return with sound fundamentals.
“At Evergreen Consultants we were constantly being asked to review these products, but the resources needed to do so properly were overwhelming. Our value proposition [at Evergreen Ratings] is to ensure that we consistently analyse and rate non-standard products. There will be more and more of these types of products. That’s our differentiator. People can come to us and know within a month or so that they will get a rating,” Ashton said.
“We’ve built our reputation, since we started nearly five years ago, on our independence, speaking the truth and being committed to our client relationships.”
– G.B.
