Standard & Poor’s and Professional Planner joined forces to identify the leading fund managers in the Australian market. Simon Hoyle reports.

At a function in Sydney on October 30, nine fund management companies were named as Australia’s best. The winning managers covered a wide range of markets and asset classes, ranging from alternative strategies to large-cap Australian shares.

Leanne Milton, head of research for S&P, says that while the managers selected can be regarded as the best at what they do, in the asset class they do it in, it does not necessarily follow that their retail investment funds are the best for every investor.

“The managers we selected we felt had a very strong capability,” Milton says.

“And they have managed through the global financial crisis [GFC] very well. That, I think, reflects on the strength of their capability. Being managers that were generally rated five-stars, we already had a really strong view of [them] anyway; but most of them came through the GFC really well and have helped protect client money through the period more than other managers in their peer groups.”

Milton says each of the award winners has “the strongest or one of the strongest” investment management capabilities in their peer group.

“They have a very clear philosophy and investment process, a really good portfolio construction process and strong risk management and risk control,” she says.

“But having said that, it does not necessarily mean that every category winner is necessarily the right fund for an individual; it really depends on the individual’s circumstances.

“You would not put a conservative client into an emerging markets fund, for example. The manager has a very good capability, but that type of fund isn’t necessarily right for everyone.”

Milton says the awards recognise excellence in funds management, but financial planners “still need to think about asset classes, and whether a particular fund is the right one for their client”.

“Each of these funds needs to be put together in a portfolio, with other products, to help reduce volatility over a business cycle,” Milton says.

“But if someone has just $20,000 to put into, say, an Australian equities manager, they may be better off with a multi-manager, who has already put the portfolio together for them.”

Award methodology

S&P says the award methodology involves “a qualitative assessment of specific investment management capabilities within a sector, rather than being based on the past performance of individual funds”.

The award finalists were selected from a group of managers that S&P already believed had “demonstrated superior quality in their investment capabilities, and that S&P considers well-positioned to sustain success”.

S&P’s definition of “investment capability” encompasses investment strategy, investment team, and investment process; appropriate risk management, compliance, administration, and governance. And where a manager has more than one capability – that is, they manage money in more than one asset class – each of the capabilities is assessed independently. Where a manager wins an award, it is for an explicitly identified capability. An investment capability must meet two criteria to be considered for an award:

• The capability must be available and open to Australian retail investors; and

• The capability must be known and familiar to S&P.

“Awards are a direct recognition of an investment management capability; where a distribution group represents the manager of a capability in Australia, we will award the underlying manager and give recognition to the distributor,” S&P says.

Its selection process includes investment-management capability, how that capability compares to a manager’s peers, and the manager’s actual achievements. An awards committee, chaired by Milton and comprised of members of the S&P Fund Services research team, selects the capabilities.

Sector awards

These awards recognise excellence in individual asset classes. S&P reserves the right to withdraw an award for a sector if it believes that “there are not enough participants in the sector to make the award meaningful”, or if “there are structural issues within a sector that would preclude the majority of participants from being eligible for the award”.

Group awards

The group awards aim to recognise “overall funds-management excellence”, and are based on the research group’s “qualitative, committee-based selection process”.

“The Product Distributor of the Year award recognises those managers offering investors access to what we view as a range of sustainably strong investment capabilities across a range of asset classes or award categories,” S&P says.

“The Fund Manager of the Year award recognises those managers with a compelling investment proposition for the market.

“The Emerging Manager of the Year award recognises those managers and capabilities that are relatively new to the market.

“Fund managers concentrating on single asset classes have equal claim to a group award as managers offering coverage across multiple asset classes.”

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