It has often been observed that investors can make more money by buying shares in fund management companies than by buying their funds.
On this basis, Affiliated Managers Group, a US quoted company with $231bn under management, could be a particularly good investment. It holds stakes in a range of asset management boutiques, taking a share of revenues in return. Today, it revealed a deal with Artemis Investment Management, the UK-based fund manager that has passed through the hands of ABN Amro and Fortis Investments (now a subsidiary of BNP Paribas).
The Bogleheads forum is buzzing with news that Vanguard has set up an Alternative Strategies Fund in Dublin and filed for “exemptive relief” to allow its US Managed Payouts Funds to invest in the newfangled creature.
Vanguard is cherished by its investors partly for sticking to simple investing formulas that keep costs as low as possible. It is unsettling for them to see the mutual fund group setting off down a path labelled “alternative”. It smacks of hedge funds and other horrors.
The exchange traded fund industry has been feted as offering low cost access to a wide range of investment opportunities. It has occasionally had its knuckles rapped for getting over-enthusiastic about short and leveraged products that may not track in the way investors expect. But generally, the plain vanilla FTSE 100 or S&P 500 ETFs have been seen as A GOOD THING.
Now along comes Watson Wyatt to throw a bucket of cold water on the ETF party. The consultant says institutional investors can get a better deal elsewhere. There are institutional index products with lower fees, a better tax structure, and less or no counterparty risk.
If any fund manager deserves an award for trying to change the world, or at least start a real debate, it must be Hermes.
The fund manager, owned by the BT pension scheme, the UK’s biggest, today co-hosted a conference with the lengthy title: Creating sustainable wealth through responsible asset management and ownership.
Last week, it handed out awards for transparency in governance, in collaboration with the Institute of Chartered Secretaries and Administrators (ICSA).
The blog posts on websites read by UK independent financial advisers are alive with objections to comments by Andrew Fisher, outspoken chief executive of Towry Law.
Mr Fisher runs a fee-based advice outfit, but revealed recently that his firm gets £6m a year in trail commission on legacy business it inherited from firms it has taken over. Towry Law does not provide a service in return for this money – an example of how it is possible to earn money for nothing in the strange world of financial advice.
Praying for a market miracle
The revelation that the Church of England is relying almost exclusively on returns from equities to pay vicars’ pensions in the future raises an interesting question: which institutions can afford a sufficient time horizon to be able to rely on the expectation that equities will outperform bonds over the longer term?
Despite the academic hours put into debating whether active fund managers outperform, no one has definitively won the argument it seems.
The debate has been fuelled recently by papers from Eugene Fama and Kenneth French (Luck versus Skill in the Cross Section of Mutual Fund α Estimates) and Laurent Barrat, O. Scaillet and Russ Wermers ( False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas).
Neither make good reading for active managers.
Hewitt risks raising expectations too high
Most days I can rely on a communication from some investment consultant or other landing in my inbox bemoaning something about pensions.
Today it is Hewitt Associates, which quotes some nice round figures about the danger of 15,000 people in the UK losing at least 20 per cent of their pension benefits if trustees of defined benefit schemes do not “take control of investment strategy”. It says £150m of pension benefits are at risk over the next two years.
Bedlam Asset Management is worried about ETFs. Our colleagues on FT Alphaville have already noted their concerns so I won’t go into detail. Suffice to say that Bedlam thinks parallels can be drawn between the evolution of ETFs from simple low cost product to complex sophisticated product with hidden costs and the expansion of securitisation that eventually led to the sub prime debacle.
Bedlam is an active manager so doesn’t use ETFs. But the possibility of a fraudulent operation being discovered and causing a run on gold, for example, as people sell out in a panic would have wide repurcussions. So it is alerting the market to this possibility.
It seems the European Commission has vanishingly few supporters of its proposed directive on alternative investment fund managers.
Reporting back from a Eurofi conference in Sweden, at an Efama one in Brussels, Eddy Wymeersch, chairman of Cesr, says eight of ten people on the panel discussing the issue in Sweden thought the draft needed major revision. There is particular concern about its scope. It appears sovereign wealth funds could fall within the remit of the AIFM – which would be nonsensical, according to Mr Wymeersch.
There should be different regimes for different types of funds, he says.
Will the Commission accept it has got this one wrong? Or is it determined not to back down?
When it was just the alternative investment industry complaining and threatening to leave for friendlier shores, the Commission perhaps took the view this was vested interests talking and who cared if the hedgies left for Switzerland?
With a growing chorus of dissent from investors and regulators, does the case for re-examining the proposed legislation get stronger?