This year’s top 10 stories included a peek into AustralianSuper’s international equities build out in London, AMP’s move to slash employee benefits, and plenty of hard-hitting analysis of the issues that matter in institutional investment. But the real story is how readers helped shape all of that coverage.
Orbis’ Stuart Place is riding from Melbourne to the Moon and Back to fund a treatment for the “monster of a disease” that his youngest son was born with. The investment industry is rallying behind him.
Schroders reaches beyond public markets
Schroders has had a good-size presence in Australia for a long time, since the 1960s in fact, with investment banking first, and, more importantly in the past 50-or-so years, funds management. The family controlled British company dates back to the first half of the 19th century. But it is not set in its ways. Private markets and ESG principles, along with pioneering strategies such as multi-asset investing, are increasingly important globally.
The late Bruno Schroder was a frequent visitor to Australia. He was a little eccentric, a qualified pilot and a lover of cricket. His visits invariably coincided with an Ashes tour. He and his co-pilot – his wife, Danish-born Baroness Suzanne von Maltzahn – would often lease a plane to fly to the various cities and elsewhere over an Australian summer. In Sydney and/or Melbourne, he’d hold a press lunch to chat about the state of the world in Schroders’ eyes as well as the cricket. We’d may not get to the state of the world until after the main course – of cricket. They lived, until Bruno’s death in February 2019, for much of the time on an estate on the Isle of Islay, in the southern-most part of Scotland.
The point of all this is that family owned companies are a bit different from staff owned, institutionally owned or publicly owned. There aren’t too many of them among the major asset managers. The biggest one is Fidelity, which is still controlled by the Johnson family. Even rarer are the remaining mutuals – or customer-owned firms – the biggest being Vanguard. For investors, the different cultures among funds management firms are, or should be, an important consideration in the manager selection process. Family owned and staff-owned firms will tend to more naturally have a long-term investment horizon in keeping with that of a big super fund. They will be less likely to jump on the latest investment trend until they are certain it is not a fad. As they say: “Culture eats strategy for breakfast”.
Chris Durack, the chief executive of Schroders in Australia and co-chief executive for the Asian region, says that, particularly in times of stress such as now, investors look at what “type” of asset manager you are. A genuine long-term focus and a strong history are important. While Schroders is a UK-listed company, it is still 47 per cent-owned by the Schroder family. It also has a significant proportion of staff shareholders because of its remuneration system where beyond a certain threshold remuneration can be deferred into Schroders shares. Its recently released financial results showed it to be well capitalised with stable revenues.
About A$32 billion of its A$943 billion (as at June 30 this year) is sourced or managed from Australia and New Zealand. Importantly, given the institutional trend among big funds globally, about A$60 billion is invested in private markets including real estate, private equity, private debt and infrastructure. It recently launched a new private equity product in Australia, leveraging the capability of Adveq, a Swiss-based private equity firm running about A$10 billion from mainly Swiss, German and some Australasian clients, which it acquired in April 2017. Adveq’s founder, Bruno Raschle, and Hong Kong-based David Seex were frequent visitors to Australia, being assisted by third-party marketer Shed Enterprises. Recently, Claire Smith, an Australian working for Schroders in London, has relocated back to Sydney as alternatives director to help boost the local private markets effort, and Schroder has recruited Nicole Kidd as head of private debt for Australia. She was previously head of corporate banking at RBC.
Durack says that client funds are looking for solutions, given that holding high levels of what would normally be classified as defensive assets, such as bonds, are not the diversifiers they would historically be because of very low interest rates. Private markets have a bigger role to play in times such as these.
“We have plans for more private markets investments,” he says. “Wherever we see a demand for long-term durable strategies we will bring out the capabilities of what Schroders can offer.” And this goes both ways. For instance, the successful multi-asset strategy and funds used by Schroder around the world were developed in Australia.
Multi-asset strategies have a similar objective to that of most investors, which is to provide a return of inflation plus a few per cent. “The fund we offer can play a role as a core portfolio or as part of a bucket of ‘liquid alts’,” he says. “When we went through a period like March our observation was that there was a kind-of contest between fundamentals and liquidity. In the past you’d look at a traditional defensive portfolio to dampen volatility and provide liquidity but with rates so low, the weightings have come right down. The opportunity cost of holding bonds has gone right up. We’d argue that a liquid alternatives part of a portfolio has come into more prominence.”
Another strong point for Schroders in recent years has been its commitment to ESG policies and practices across its portfolios. “We set ourselves a goal to be fully ESG integrated across all our investment desks by the end of this year,”
Durack says. “We are currently about 90 per cent of the way there… This has been driven by clients and the conversations we have been having with them about their expectations. It’s fundamental to what we do and comes under the mainstream of investing. You have to take a whole-of-portfolio view and look at how you deal with it in terms of your assumptions about capital markets.”
An example, on which Schroders has done a lot of modelling, is how physical climate risk is or will impact on different equities markets around the world. For the first time it has included in its 30-year forecasts the impact of climate change on financial markets, as seen in its latest ‘Sustainable Investment Report’ produced quarterly. Also, as part of a suite of tools the manager has developed one called ‘Sustainex’, which is designed to measure risks that companies are exposed to. “We are in furious agreement that this is an increasing issue,” Durack says. The firm has about 20 analysts doing research on sustainability and feeding their analyses into the investment platform. It also has a team of data scientists to assist in implementation of the analyses.
– G.B.
