Every year that Professional Planner has been involved in managed fund awards, one name has consistently featured among the winners. The Macquarie Professional Series, which turned 10 years old this month, was named Product Distributor of the Year in 2009 and has been every year since, including in the Professional Planner|Zenith Fund Awards 2014.
In its summary of the award category, Zenith said the Professional Series “continues to be the benchmark in external distribution businesses, with its expanding, yet exceptionally high-quality suite of externally managed funds represented across the majority of asset classes”.
Ten years ago, the philosophy of offering third-party investment management capability to the Australian market was significantly less well established and proven.
The Australian superannuation system had assets of less than $800 billion, and it was a labour-intensive process for a local financial institution to get out and about and open the doors of some of the world’s leading investment management firms.
Meetings and interviews
A decade later, Australian superannuation funds are valued at closer to $1.9 trillion and Australia is one of the most attractive markets for fund managers. Megan Aubrey (pictured), an executive director of Macquarie Investment management, estimates that over the past 10 years Macquarie has held at least 500 meetings and interviews with candidates to be considered for the Professional Series line-up.
“I know we have detailed notes and information on probably close to 400,” Aubrey says.
“And there’s a lot that we do not meet with now, because we don’t think they’re quite appropriate, or because the model we run won’t quite work for them.
“I think that when we started knocking on doors, Australia was interesting to them but not widely understood. And Macquarie Group itself wasn’t well known. As we’ve developed the series, and become more known, we’ve opened doors and had great conversations, and people are coming to us and asking about what we do. Australia has become more interesting.”
The aim of the Professional Series is to bring to the Australian market the capabilities of some of the world’s leading fund managers. With the addition in October of Polaris Capital Management, the Professional Series represents six managers: Polaris, Analytic Investors, Arrowstreet, Independent Franchise Partners, Walter Scott & Partners, and Winton Capital Management.
First fund
The first fund offered by the Professional Series was the Morgan Stanley Global Franchise Fund, in 2005. (A global equity fund managed by Walter Scott was a close second.) In 2009 the Morgan Stanley team responsible for managing the Global Franchise quit and set up Independent Franchise Partners.
Damien Green, head of Asia and Australia at Independent Franchise Partners (IFP) says the Professional Series presented a route to the retail market that bypassed the time and expense that the traditional path would necessitate.
“That takes us back to 2004, and we’re within Morgan Stanley at the time – I was head of investment management in Australia,” Green says.
“We’d had Global Franchise in the institutional market for a while and it was being really well received in the institutional market, and had already added quite a lot of value to client portfolios in terms of risk management as well as return,” Green says.
“I’d been thinking this would be a really good investment option to take to the retail market.
“We just didn’t have the resources at the time to get into the retail market.”
Budget and support
Green says the company thought about hiring the people it needed to tackle the job itself; but even if it had the required budget and the support from management, it would have taken a good year to get set.
“We met the Professional Series – they were fully resourced and they were ready to go,” Green says.
“We met with the people and I met with some of the sales guys, and they were smart guys.
“We were very careful, because one of the risks you have with something like Global Franchise is at the time it was very different. It was high quality; it was benchmark-unaware; it was concentrated. We had to become confident they had the right people to take that message to market when the market was used to a very different message.”
Ten years down the track, IFP has raised about $4 billion from the Australian market, including about $1.5 billion from retail investors though the Professional Series. He says the demarcation between institutional and retail markets has always been clear; in cases where the lines might have risked becoming blurred, IFP and Macquarie have always been able to redefine them.
Green says the relationship with the Professional series today is “stronger, if anything – it’s bigger, obviously”.
“But largely it’s the same,” he says.
“We went into it viewing it as a partnership, with high levels of trust and communication.”
Aubrey says managers are added to the Professional Series line-up based on demand from investors and financial planners.
“There’s a definite strategy behind our line-up of managers,” Aubrey says.
“We tend to start with an investment rationale. We ask a number of questions, like what are our clients going to need in their portfolios in the next five to 10 years?
“Asking these types of questions points us in the right direction and then we go out and look for the very best managers that deliver on our criteria.
“At the end of the day we are trying to find unique investment propositions. We want to be able to offer something different.”
How times change
The latest manager added to the Professional Series line-up is Polaris, a Boston-based global value manager. The founder and president of Polaris, Bernard Horn, started Polaris in 1995, and launched the fund available through the Professional Series, the Global Value fund, in 1998.
Horn says he set out as a global value investor in 1980, at a time when doing that was extremely unusual for a US money-manager, and when doing it was very different from how it is today. For one thing, information moved very much more slowly then than it does now (it predated the widespread use of computers, as well as the internet); he says it was not unusual for a month or more to elapse between requesting the annual report of, say, a European listed company and that report arriving at Horn’s office.
“It was very difficult to make the investments, and it was even more difficult to convince people to give you the money to make the investments,” Horn says.
“It was either un-American, or a crazy idea, and why would you want to talk all this risk going to other countries when you could just stay home? So I knew that was going to be a challenge, but I knew ultimately that it was going to be the right thing to do.
“And I think, 35 years later, the big global consultants like Towers Watson, Russell, Mercer and to some degree JANA, are now really starting to adopt global equity mandates as a core mandate for an investors – which is what I’ve been saying for the past three decades.”
