A well-known football commentator once said that watching a fairly solidly built AFL player trying to change direction was like watching “Pavarotti on a skateboard”.
Trying to turn around the culture and the philosophy of a giant financial services organisation can be a bit like that, but the managing director of AMP Capital, Stephen Dunne, says he has got the business pointed where he wants it to go.
As of November last year, the business Dunne manages had almost 1000 permanent employees, of which about 220 were investment professionals. It had offices in Australia, New Zealand, China, Japan, India, Bahrain, Luxembourg, the UK and the US, and managed assets of about $145 billion. If it were an opera singer, it would be Pavarotti-sized.
In October last year AMP Capital was named Fund Manager of the Year in the Professional Planner|Zenith Fund Awards. Underpinning the win was a progressive change in philosophy at the investment giant, to one of focusing on developing investment products and solutions that meet objectives expressed in the terms of its clients.
This represents a significant departure from the previous way of doing things, which involved – in line with virtually every one of its competitors – essentially adding a bit of excess return to a benchmark and not standing out too far from the pack.
Fundamental, really
“You think it’s fundamental, really, to focus on what the client wants, but as you say, it changes the way you think about organising the firm the culture of the firm, from being compartmentalised, benchmark-driven to one that is much more of an IP firm, a firm that’s really essentially a series of investment insights and how we best package and deliver those to put clients,” Dunne says.
“One [aspect of that] is a cultural journey that we’ve been on now for quite a long time, getting on for eight years – cultures take a long time to change – around what we refer to as the ‘unified investment house’, which is looking at how do we ensue we have collaboration across all the investment teams to ensure that one, we’re understanding the risks associated with any investment by looking at it through a number of different eyes; as well as making sure we are picking up and utilising all the investment insight we have as best we can.
“That’s changed not only the way we organise ourselves, but the way we reward ourselves. A number of years ago we changed the incentive structure for my broad leadership team…and they essentially now are partners in the firm.
“They share in a profit percentage of the firm.
“Then you’ve got 25 people in the firm saying, collectively, we are responsible for delivering to the client.”
Harnessing expertise
Dunne says the “unified investment house” theory can be seen in its multi-asset group (MAG), where work has focused on how best to harness company-wide investment expertise.
“In the run up to the GFC the old balanced fund construct – around a strategic asset allocation, long equity risk – the focus I think across the industry…was where your fund was rating in relation to performance tables,” he says.
“It is, and has been, time to very much refocus on the key investment goal of the end investor. And it goes back – having been in the industry for quite some time – to the 70s and 80s, where the focus of super was around delivering a real rate of return, and being very focused on that and not just paying lip service to it, but saying how do we look at generating that significant margin above inflation, and deliver it in such a way that has a great degree of stability.”
Dunne says investors will no longer swallow a story from a fund manager that it “added value” because a benchmark fell, say, 10 per cent and the manager’s fund fell “only” 8 per cent.
“Investors are saying you can’t just set and add a little bit; I want you to really actively manage my portfolio to deliver this, and you need to be taking not a three, six, 12-month time horizon, you need to be looking out for me for the next three to five years,” he says.
Dunne describes the mindshift as “quite fundamental”.
Antithesis of a boutique
An organisation like AMP, with a diverse, multi-disciplined team, is in many respects the antithesis of how boutique fund managers like to promote themselves – namely, focused, specialised and above all, nimble in markets.
But last year, when AMP Capital was named Fund Manager of the Year, and also
picked up the award for fixed income fund manager of the year, it demonstrated that trying to be all things to all people doesn’t mean a fund manager can’t also be the best at what it does.
To use another analogy, it’s like being a decathlete: highly competitive in every event in which they compete, but unlikely to be the world record-holder in a single event, against athletes who specialise in a single event.
Dunne disagrees with that notion.
“It is very possible that as an investment firm you can run multiple capabilities, and you can be amongst the leaders in terms of that specific capability,” he says.
“There’s absolutely no reason why you can’t be. If you look at the performance of our teams it speaks for itself.
“But I do think the way forward is around how do you harness that investment capability about to actually deliver on the goal? Having the best credit team that outperforms the all-maturities or the credit index is interesting, but is that really delivering value to the end customer?
“The end client is saying I’m retirement, I really just want regular income; I’m happy to take a bit more risk in doing so; but I want you lined up behind me in terms of what I’m trying to achieve in terms of living with dignity. That’s what I want you to do, and that’s why I’m happy to pay you’.
“If we don’t do that then winning a world championship in terms of outperformance of a particular index is perhaps a little self-gratifying or self-indulgent.”
