AsianInvestor 2003 Achievement Awards: Day One
Global fixed income (unhedged),
one-year performance
Fiduciary Trust
This wholly owned subsidiary of Franklin Resources has honed its practices since it began investing in fixed income in 1963. Fiduciary's active strategy identifies arbitrage opportunities between regions. It also actively manages its currency exposure. It now manages $10 billion for Asian clients (including Japan and Australia).
Fiduciary emphasizes that its research methodology to credit is not uniform but varies by credit tier and by locale. For example, the same issue may face different spreads across markets, which Fiduciary exploits.
The firm's fixed-income portfolio managers have staying power, averaging eight years at Fiduciary and 12 in the industry. We also liked their proactive approach to risk control, using the Barra risk management system but going a step further and analysing the impact of marginally increasing or decreasing individual securities to quantify their marginal contribution to total risk.
Global fixed income (unhedged),
five-year risk-adjusted performance
Bridgewater Associates
This Westport, Connecticut-based bond specialist boasts a trio of senior investment professionals that oversee all portfolios and monitors performance daily: Raymond Dalio, president and CEO; Robert Prince, director of research and trading; and Daniel Bernstein, director of research. Since Dalio founded the firm in 1975, there has been no turnover among the senior managers. "The clients who hired us 10 years ago are dealing with the same investment professionals they began the relationship with," says the firm.
Bridgewater's investment process is based on fundamental analysis systematized to accommodate all the data of 28 years of cumulative research. It also separates beta from alpha by overlaying active management on client benchmarks; the idea is to tailor mandates according to different benchmarks but maintaining a high correlation of excess return across various accounts. It also keeps trading costs down by sticking to only liquid securities, trading via future contracts.
With $8.8 billion managed for Asian clients, Bridgewater continues to seek relationships across the region. For example it recently teamed with UFJ Trust Bank to provide currency risk management services to Japanese pension funds.
Global fixed income (unhedged),
10-year risk-adjusted performance
Pimco
Pimco is the largest global bond manager in the United States. Founded in Newport Beach, California in 1971, it is now 70% owned by Allianz and 30% by Pacific Life. It manages $20 billion for clients in 12 Asia-Pacific countries and has covered international bonds since 1980.
The organization's strengths are many: Its senior investment professionals average 10 years at Pimco and 19 years in the industry. It takes a long-term, conservative view that cushions clients against storms. It seeks excess returns in many ways, both top-down and bottom-up, to both diversify risk and the sources of outperformance.
Pimco is most proud of its specialist nature. By focusing only on fixed income for 32 years, "We do not have an equity division that draws on the firm's assets."
What struck us was its approach to its proprietary IT, using its portfolio managers' inputs, not design specs written by systems people. Proprietary systems let Pimco easily adapt to new products, and ensures the firm comes up with independent decisions from its competitors. But Pimco also uses vendor systems to compare performance, and to understand competitors' inputs. "This gives us a competitive advantage when trading our clients' portfolios," Pimco says.
Global equity,
one-year performance
MFS Investment Management
Two things stood out about Boston-based MFS, which manages $2.6 billion in global equities. First, its global equities team is loaded with loyal senior investment officials, including team head David Mannheim, who has been with the firm for 15 years.
What really made this candidate stand out, however, was its commitment to providing clients with best execution - a factor often overlooked by competitors. With 14 professional securities traders led by Ann Hartwell, who has been with the firm since 1969, MFS conducts business with 200 broker/dealers. MFS has a long list of qualifications to determine the best execution, including the broker/dealer's track record, clearance and settlement capabilities, ability and willingness to commit capital, ability to source liquidity, block trading and arbitrage capabilities, and specialized expertise. In addition the firm has a highly automated set up using a variety of vendors and proprietary systems to measure broker performance.
Global equity,
five-year risk-adjusted performance
AXA Rosenberg
This firm has taken a simple idea - buying underpriced stocks - and applied a technological solution to make it happen. The firm does not engage in research in the traditional sense, rather it analyses balance sheets and income statements to identify the right companies to invest in. But by removing people and crunching the data electronically, AXA Rosenberg has expanded the universe of stocks to 17,500 globally with an efficiency that, without technology, would be too expensive for humans. Not only can the firm cover more ground, but, "We are able to eliminate the natural biases and unavoidable mental shortcuts" that people are prone to. Lastly, this foundation of fundamental research implemented via technology is sustainable and repeatable, not vulnerable to staff changes.
This does not mean AXA Rosenberg's offices are bare. It does use analysts to review the system's models, as well as to double-check data. A great effort goes to spotting inconsistencies from inputs. "Over our entire history, we have entered more than 20,000 corrections to fundamental data," the firm says.
Global equity,
10-year risk-adjusted performance
Capital International
Flaws are hard to come by in this fund management powerhouse, which got its start in 1931 and now manages $552 billion globally. It developed its management style, which it calls its multiple portfolio manager system, 45 years ago; the idea is to blend individual decisions with teamwork in order to emphasise diversification and reduce volatility.
In addition to its corporate structure, there are two areas where Capital stands out. One is a first-class research capability. Last year, the firm made over 18,000 company visits at an expense of $290 million. It covers over 3,000 companies in 50 countries through direct management contacts. It claims 95% of its investment ideas are derived in-house. Analysts are not junior positions at Capital, and because they are treated at par with fund managers, the firm has some analysts that have covered their industries for over 20 years.
The second advantage follows from this, and it is the experience of Capital's investment pros. Its 84 portfolio managers average 18 years with Capital and 23 years in the industry. There are few parallels in the funds industry.
Asia ex-Japan equity,
one-year performance
Allianz Dresdner Asset Management
Adam, as this group styles itself, is a $1 trillion giant of many parts, and the standout here is the old Dresdner RCM team, which remains alive and well. With a presence in six key locations around the region, it is no surprise that Allianz Dresdner has done well in this category.
Although fund management requires many skills, what impressed the most was Adam's approach to research. First, Adam treats research as a career, not a stepping stone to portfolio management, and it derives nearly all its ideas from its own fundamental research. With 76 analysts globally, the firm nets about 4,000 company meetings annually. Augmenting this is a unique network outside of the firm it calls Grassroots Research, composed of hundreds of journalists and other freelancers around the world who 'kick the tires' and provide a supplementary, common sense view.
Asia ex-Japan equity,
five-year risk-adjusted performance
AIG Global Investment Group
This firm has been making an impact since modernizing its investment process five years ago. Led by regional investment director Peter Soo, the 21-person investment team spans nine centres around the region. Technology keeps the team reading from the same page: a proprietary system, Equity Platform for Investment Communication ('Epic'), forces the entire team to question their assumptions based on fundamental analysis, and lets managers get a comprehensive understanding of all aspects of in-house research, and then extract the best investment ideas. The analytical approach is defined by where a company sits in the product or corporate lifecycle. This process has added consistency and sustainability to an imaginative research team.
Also worth mentioning is the obvious: AIG has deep roots in Asia. It has a network of informal contacts across the region, including governments, political advisors and companies, from which it can draw insight. AIG Global Investment now manages about $40 billion from Asian clients, including AIG itself.
Asia ex-Japan equity,
10-year risk-adjusted performance
JF Asset Management
This firm is a bastion of good, old-fashioned active management, which is no surprise given its Asian roots and heavy presence on the ground throughout the region. Country selection may seem out of fashion, but it is an integral part to JF's investment process, coupled with stock picking. The firm explains: "Countries are assessed in terms of their relative performance against the region as a whole, not on the basis of forecasting returns. This is partly due to the fact that his way of assessment has added value to returns in the past ad also due to our belief that there is no consistently successful method of forecasting returns from Asian equities, because of their extreme volatility and short history."
JF boasts 48 investment professionals in the region, based in six countries, and many are locals, which facilitates their contact with a variety of political and business sources. In addition, JF can take advantage of JPMorgan Fleming Asset Management's global technology and expertise. The firm has also developed a proprietary trading system and continues to upgrade its systems, for example by its recent adaptation of the FIX protocol. The result has allowed a venerable name to remain among the top players in Asia.
Tomorrow: best managers for Hong Kong total plan, stable growth and capital stable balanced mandates.