NEWS
Super reforms are ‘Chinese finger trap’ for funds
The Your Future, Your Super reforms will put super funds in a “greater bind” than investors or the government realise, according to Advance Human Solutions.
The reforms will see funds required to provide greater transparency around how they spend member money and performance, with underperforming funds required to inform members of their shortcomings.
“Unfortunately, these funds are monitored and rated by agencies that score ‘team stability’ very highly and one of the unintended consequences is these funds carry underperforming investment team members longer than they should rather than risk losing star-ratings,” said Alexandra White, managing director and founder of Advance Human Solutions.
Ms White believes that there are two factors to consider in fund performance – marketplace and manager skill. But benchmarking will only require a fund to identify when skill has been the cause of underperformance.
“There is definitely a challenge for fund managers when it comes to the ‘perception management’ of investment team performance,” Ms White said.
“The exacting nature of investment ratings often handcuffs the manager to sustain a rating lest they lose investors and inflows”.
Australian Super suffered an “embarrassing” ratings downgrade because they failed to reveal details of high staff turnover and the performance of their internal investment team to Lonsec, resulting in the ratings agency taking the fund from “recommend” down to “investment grade”.
“While at times brutal, markets can also be fluid and forgiving places and once underperformance is remedied investors and ratings agencies can settle,” Ms White said.
“However, the stars do take a lot longer to re-appear than they should.”
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SUITS (Solving Underperformance for Investment Teams)
Advance Human Solutions now offer a new program to asset managers Australia-wide to optimise performance in their investment teams and to improve their research and ratings outcomes.
At the best of times, asset managers find themselves struggling to capture the full potential of investment markets and keep their investment teams aligned. This issue has only become more problematic since COVID-19 has disrupted global markets and patterns of work. Further, the instability in the market has only upped the ante on investment managers need to maintain investment team stability in the eyes of the ratings and research community. SUITS was devised as a timely external intervention to tackle this phenomenon head-on.
With over 20 years in investment team recruitment in the Australian market working for both domestic and global asset managers. Advance Human Solutions is a specialist in matching analyst and portfolio management skills to unique investment mandates across a broad range of organisational cultures. The company has an established track record of harmonising teams to deliver optimum returns and provide great optics to the investor marketplace".
External intervention provides the impartial means to resolve the points of friction within an investment team and provide the focus and means to elevate performance. Often the problem is clear, but the solution is not visible from within the organisation. It takes a skilled external party to isolate the impediment and build a response to it.
In a provocatively titled article, “Attention all fund managers, drop the act”. Mercer’s Global Head of Investment Research Deborah Clarke said;
“ My experience allows me to talk about stocks in more depth, and how managers think about their decisions. I also like to focus on their team dynamics. Those softer factors are really quite difficult to explore. A good researcher needs to be something of a psychologist, noting how the team interacts, what motivates them and how they think of themselves within their own firm.’ You generally get a feel for a manager and their approach within the first few minutes of meeting them but Clarke says digging deeper into their strategy and giving them the time, even when it seems like hard work, can often uncover unexpected information”.
This article makes a sharp point of the fact that the investment ratings process is forensic and rigorous and investment teams cannot simulate precision. Harmony and focus must exist in the investment team as an organic condition otherwise ’the act’ can be spotted a mile away.
This is the value of SUITS, untangling the impediments, unbending the kinks, shifting fixed behaviours and vanquishing historical gripes. This is a program that has can assist fund managers out of a state of learned helplessness having been sat 'on the dot' for long sluggish periods of underperformance for the sake of ’team stability’.
"An external force applied to this problem is far more effective than attempting to reconfigure the forces that created the paralysis in the first place.” says company founder Alexandra White.
Currently Morningstar assesses the key individuals making the investment decisions, as well as the composition of the investment team on the following criteria;
• Is there a clearly articulated investment philosophy and discipline
• Relative size and resources
• Experience levels and the mix and balance of skills within the overall team skillset
• The degree of team stability
• Team members familiarity and ability to articulate the promoted investment philosophy and strategies
• Key person risks
Similarly, Zenith applies the following;
• Does the investment team have sufficient resources to implement its stated investment process?
• What is the depth of experience and track record of the investment team?
• What qualifications does each individual hold?
• How are responsibilities split (stock, sector, mandate/portfolios, committee involvement etc) within the team?
• How many stocks does each analyst cover?
• Do portfolio managers also have stock responsibility?
• Is a succession plan in place and do any key personnel risk issues exist?
• Recent personnel changes and the reasons why?
• What is the frequency and nature of formal and informal meetings within the investment team?
• How are personnel remunerated?
• On the personnel front, Zenith is looking for a well-resourced, highly credentialed investment team with a solid track record of value add.
• A spread of responsibility within the team should limit key person risk, whilst an appropriate remuneration structure should incentivise all members of the team.
Lonsec assess;
• Experience, team size, quality, stability, management of key person risk, qualifications, investment ‘culture’ and alignment of interests.
• Contact with both senior and junior members of the investment team.
The SUIT process is equally detailed and explicit, it is a deep dive into decisioning, buy, hold, sells and their scale. The process explores both the asset manager’s mandate potential, their existing market coverage, performance relative to benchmark and the potential returns available in their hunting grounds. This is not a ‘lite’ process, it is an investigative and responsive solution with the capacity to transform investment performance. SUITS process explores the full scope of the team's investment engagement and where required can explore roles specification, alignment, negotiation and intermediation, deleveraging key man risk, REM and retention.
According to Alexandra White, "SUITS very effectively leverages the will of individuals and collective teams to prevail, nobody wants to be identified with underperformance or face the brutality of survivorship - evolution is on our side".
About: Advance Human Solutions
Advance Human Solutions works with organisations to get the best return from their most valuable asset: People.
Established in 2004, the company has continued to add value to its clients as solution provider for executive and staffing needs. The company can service the full spectrum of human resourcing with an outstanding track record in matching skills, experience and organisational cultures with their perfect individual fit.
Advance Human Solutions aggregates a comprehensive service offer to business that is informed by deep industry experience and the best in consulting professionalism. The company combines its executive search, contractor resourcing and consulting with custom coaching and training programs to offer clients and candidates a considered and caring service that we are proud of.
Our ethos is to do the best for our clients and candidates alike, building strong relationships based on integrity and trust.
About: Alexandra White
Advance Human Solutions Founder, Alexandra White has over 22 years' experience in the executive headhunting and consulting space. Starting her career in London, she rose to become the Managing Director of Asia and Australasia for Glotel PLC, helping to grow and bring the company to public listing on the London Stock Exchange. Alexandra opened Advance in 2004 focussing on select assignments and retained search in the Financial, Telco and IT sectors. Alexandra continues to deal directly with her client base providing an unparalleled consulting service for key roles and leadership assignment