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Business and operational management insights for
multi-manager investors, clients and service providers
Newsletter 5
Welcome to the June 2009 newsletter! Whether it be the nightly news, the superannuation newsletter or the dinner table conversation, the excuses are the same – “never before in our lifetime”, “not since the 1930’s”, etc, etc. However, in the spirit of Al Gore’s upcoming visit to Australia, the inconvenient truth is that significant elements of this rhetoric are a convenient lie.
I hope you enjoy the newsletter, and we look forward to your feedback.
Best regards
Brett Elvish
Financial Viewpoint
04 1317 6164
brett@financialviewpoint.com.au
Not since the '30's - A convenient lie
Over the last 12 months, we have collectively hidden behind overused expressions like “unprecedented times” and “not in our lifetime”. Fortunately for us all, the media has sung this song the loudest. And I must admit that it has made my life easier...hate to think how I would have explained the losses on my wife’s share and superannuation portfolio without the media’s support!
Purely in terms of investment returns, “not since the 30’s” is arguably a fair statement. However, the inconvenient truth is that many of the lessons of the past 12 months have happened before, and in the lifetime of many superannuation funds. But often, these lessons have not been heeded.
A year to never forget
With financial year’s end only hours away, many will be happy to say good riddance to 2008/09, and hope to never go through the experience again. However, the past year has been the richest learning experience that any investor could hope for in their career. Yet, the learnings have to be captured in professional and corporate memory, otherwise the most valuable professional experience of our lives will have been wasted. In Al Gore’s An Inconvenient Truth, he said:
“Future generations may well have occasion to ask themselves, "What were our parents thinking? Why didn't they wake up when they had a chance?"
As much as we don’t want to hear it, our members could be asking this very question today about their superannuation funds, and some I expect are asking the question. Despite the “Global Financial Crisis” protective shield that we are all guilty of hiding behind, a number of the problems of the last 12 months have been experienced in the not so distant past.
Issues over the last 12 months that have been experienced before include:
- Frozen assets and unrealistic property valuations, which then provided the foundations for the current REIT sector (early ‘90’s)
- Counterparty issues threatening to bring down the financial system, courtesy of Long Term Capital Management (1998)
- Tax issues resulting in conflict between unit pricing valuations and accounting valuations (2002)
- Crediting rate & unit pricing methodologies put to the test (1994, and every year since!)
- Misleading product names in the spotlight: Capital stable funds were not so stable (1994) and as we have now come to realise Cash is not always cash
- Securities lending losses on collateral investment (1994)
Some checklists which may help you in thinking about similar issues:
What is your New Year’s resolution?
My suggestion is that you take a day out to purely discuss the experiences of the past 12 months. The objective of the day being to capture the enduring lessons of the last 12 months and embed them in the corporate memory of your organisation. Similar to your investment philosophy develop a short document which summarises the key lessons so that they become guiding principles for future investment and operational activities.
Summary Viewpoint
The inconvenient truth is that many of the recent problems have happened before. Crisis management has seen a focus on short term fixes, and now is the time to take stock and adapt operating models and businesses for enduring solutions. Because next time, there may be a lot more accountability than has been the case this time around!
Financial Viewpoint
Financial Viewpoint provides business and operational management advice, research and tools supporting multi-manager investors, clients and service providers, including:
- Strategy and governance advice for funds and businesses, including reviews and opportunity identification
- Advice on management of custodians, transition managers, asset consultants and investment managers
- Tools, systems and research for better management of businesses and funds
Financial Viewpoint quick links...
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Example projects include:
- Working with board and investment committees on investment beliefs, investment governance, investment models, investment policies, service provider appointments, competitive positioning, delegations and peer risks
- Working with CEOs, CIOs and COOs on strategy, successor fund transfers, operating models, organisational design, as well as staff mentoring and training
- Working with teams on investment and operational due diligence (internal and external), service provider management, project implementations, conflict identification and management, and team development
- Reviews and advice relating to investment consultants, implemented consultants and custodians, along with related due diligence both domestically and internationally
- Negotiation of arrangements with outsourced service providers including fees, service standards and agreements
- Specialist work assisting investors reduce foreign exchange costs working closely with FX Transparency
Investment consulting reviews
Investment manager capability reviews
Investment managers
(Australian & international shares, bonds, property)
- Target market
- Product design
- Pitch material
- Mock reviews
- Operational due diligence
- Investment consulting market
- After tax returns
- Fees, including performance fees
Negotiation strategy & implementation
(fees, service standards, commercial terms, litigation)
- Retail platform
- Commercial multi-manager
- Industry funds
- Public sector funds
- Corporate funds
- Retail fund
- Covering:
- Custodians
- Investment managers
- Administrators
- Investment consultants
Strategy off-site facilitation
- Strategic review of investment positioning
- Alignment of investment strategy and business (fund) strategy
- Alignment of internal resources and expertise with areas of greatest impact
- Alignment of external resources with investment strategy
- Internal capability self assessment
- Peer risk sensitivity analysis
Investment administration (custody) reviews
Operational due diligence reviews
- Multi-managers
- In-house investment managers
- External investment managers
Industry superannuation fund
Strategic and operational advice to guide the establishment of common infrastructure to support multiple funds, tax structures & investment options:
- Current operation, competitive landscape and regulatory environment
- Strategic positioning
- Investment governance
- Member entitlements
- Operating models
- Custodian review and selection process
- Asset consultant selection process
- Unit pricing and taxation
- Operational transition
Multi-manager and private equity fund
Strategic and operational advice:
- Business model
- Target market
- Product design
- Investment administration providers
- Investment systems and infrastructure
- Operational due diligence framework
- Investment manager due diligence
- After tax returns
- Transition manager panel
Investment platform provider
Implementation efficiency review for an investment platform provider
- Business model and governance
- Investment menu
- Investment manager relationship management
- Operational implementation models
- Fee and service re-negotiation
- Product changes
- Operational changes
Industry superannuation fund
Project managed the asset transition for a $200 million defined benefit to defined contribution conversion
- Strategy determination
- Detailed implementation planning
- Implementation
- Post implementation review
Specialist debt investment manager
Strategic and operational advice:
- Business concept
- Business model
- Financial modelling
- Equity raising
- Product design
- Fund raising
- Target market
Multi-manager
Project manage a $1.5 billion asset transition for a multi-manager and retail investment platform
- Appointment and termination of over 50 investment managers
- Trading across multiple markets and asset classes
- Implementation of new investment strategies
- Launch of new investment trusts
New market entrant
Strategic advice for an international company considering acquisitions
- Australian superannuation industry
- Member administration
- Key issues and trends
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