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.
FEAL conference to dissect ‘measuring what matters most’
(Pictured: Don Ezra)
As super funds move away from traditional approaches to measuring their investment success, or otherwise, and the members increasingly focus on expected outcomes, the Fund Executives Association Ltd national conference next month will dissect the topic: “Measuring What Matters Most”.
A keynote speaker will be Don Ezra, the Russell Investments global director emeritus, investment strategy, who proposes that funds move beyond time-weighted historical returns and instead employ an array of metrics and services.
Ezra says that traditional benchmarks were designed to measure alpha. This may suit the fund but not necessarily the member. But in the wake of the global financial crisis super funds are looking to provide more certainty for their members’ retirement and several big managers have introduced investment strategies designed with an outcome in mind.
Ezra said the new emphasis was on “real goals” rather than benchmarks. He proposed several techniques, such as:
* optimising investment strategy over time
* tax effectiveness
* cash-flow management
* impact of longevity and sequencing risks.
Russell has also launched an outcomes-orientated strategy for Australian investors, called the “Multi-Asset Growth Strategy” (MAGS). Russell’s UK version has been run for more than three years, delivering equity-like returns with a significantly lower level of volatility.
Ezra said: “The focus for funds should be on measuring how they are tracking in reaching the members’ long-term end game rather than short-term performance measures.”
The FEAL national conference, at the Park Hyatt in Melbourne on August 8, is the association’s only annual event which is open to all industry participants, not only members.
Other speakers include: Michele Levine, the CEO of Morgan Research; Darrell Ludowyke, CEO of Empirics and Greg Joffe, principal of the Nous Group; Jane Perry, CEO of Qantas Super; Bruce Watson and Melissa Wells, both from AUSCOAL; and Dr Bronwyn King, radiation oncologist at the Peter MacCallum Cancer Centre and Epworth Healthcare, who is campaigning for all super funds to divest their investments in tobacco stocks.
Information: www.feal.asn.au or phone (02) 9229 6648.
