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.
TAA pioneer TGM in tie-up with Alpha Vista
Tactical asset allocation (TAA) pioneer TGM polished off a merger with Alpha Vista Financial Services (AVFS) in September, combining its experience in asset management with AVFS’ AI-derived signals. It’s the latest chapter in a story playing out across Australia’s funds management industry, with mandates drying up as super funds internalise management or merge with their larger peers. TGM founder and chairman Peter Higgs told ISN that TGM had lacked “x-factor” and that the merger with AVFS would provide it”, mainly through the launch of a slew of sophisticated new products.
The relationship with AVFS originated via a joint venture in 2021 to develop a downside protection overlay product; the merger came about because AVFS “needed to commercialise their signals, while (TGM) needed to take our offering to the next level” Higgs said.
The merged group’s equity factor overlays are an “area of interest in the market”, but it’s also offering a US equity strategy driven by AI-derived signals and rolling out UN SDG and global climate action equity strategies. At the portfolio level it will offer rebalancing overlays, as well as TAA and dynamic asset allocation overlays incorporating AVFS’ AI signals.
TGM were pioneers of tactical asset allocation (TAA) – or, as it was occasionally known in the press, market timing – in Australia, beginning when they weren’t TGM at all. Higgs was head of asset allocation in the Suncorp investment department in the early 90s and set up a team with direct responsibility for TAA outside of the then-committee driven approach. Suncorp later topped the Towers Perrin quarterly performance survey in the TAA column for 13 consecutive quarters, leading to a mandate from InTech – the first external mandate handled by Suncorp in one hundred years.
Keenly aware that headhunters would soon pick off the team he’d built up, Higgs asked Suncorp to stake them as a subsidiary. Suncorp couldn’t ante up and the team ultimately decided to leave the premises and set up TGM as a boutique proper in 1997 as a joint venture with Legal & General.
AVFS uses “fractal mathematics” to detect patterns in large, real-time data sets. It was founded in 2016 by Manish Nathoo. Directors of the merged company, which will retain its disparate brands, include pension fund expert Ashby Monk and Michael Monaghan, while David Hartley sits on the investment committee with Nathoo and Higgs. The merged company has 28 staff across Sydney and Brisbane and is looking to win new clients globally.
