Winners and losers
Data from InvestorSupermarket covering the year to March 2007 shows Macquarie Bank was awarded more investment mandates than anyone else. According to the data, Australia's biggest financial services group was awarded a total of 14 mandates between March 2006 and March 2007. However, this news should be tempered by the fact it also lost 20 mandates.
State Street Global Advisers came in second with 12 reported mandates, but it also lost 14 mandates.
Alliance Bernstein, Barclays Global Investors (BGI) and Macquarie Banking Group came joint top of the awarded mandates table in the previous corresponding period. All were awarded 28 mandates each for the year to March 2006.
Download the InvestorSupermarket data
Managers that won the most mandates
Managers that lost the most mandates
Top net gain in mandates - to Mar 2007
Top net gain in mandates - to Mar 2006
Asset allocations - Mar 2007 (pie chart)
Asset allocations - Mar 2006 (pie chart)
Current mandates by asset classes
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It is interesting to note consolidation in the superannuation industry has meant the total number of mandates awarded by all institutional investors fell by almost 1000 in the year to March 2007. A total of 3726 mandates were reported for the year to March 2007 compared to 4969 for the previous corresponding period.
One of the more surprising findings to emerge from the data was that BGI lost the most mandates between March 2006 and March 2007. The firm had 23 mandates terminated and won just nine, according to the InvestorSupermarket database. In 2005/06, BGI won 28 mandates and lost 24.
The 2006/07 result will come as a surprise to many because it is widely agreed BGI's funds have been doing particularly well of late. It was a finalist in Morningstar's Fund Manager of the Year 2006 and won the Standard and Poor's Fund Awards last September.
Colonial First State had a weak year, according to InvestorSupermarket. The Commonwealth Bank of Australia-owned manager, which lost its head of Australian equities, Simon Shields, to UBS last month, did not feature at all in the awarded mandates table for 2006/07 and was reported to have lost six mandates.
During the year to March 2006, however, it was awarded 17 mandates and came second in the overall net gain in mandates table.
Index manager Vanguard Investments had the biggest net gain of mandates with eight awarded investment mandates and just three terminated.
"While BGI and SSGA [State Street Global Advisors] have been focusing on a range of active strategies, Vanguard has pretty much kept to their knitting, which is indexing," Morningstar head of research Anthony Serhan says.
Alliance Bernstein, which won Morningstar's Fund Manager of the Year Award in 2006, came second in the net gain table and United States long-short equity manager AQR Capital was third.
AQR won five mandates in the year to March 2007 and had none terminated, which reflects soaring demand for long-short products.
Alliance Bernstein came top of the net mandate gains table for the year to March 2006 with 28 mandates awarded and four terminated. In 2006/07, it was awarded nine mandates and lost three.
Super hedges its bets
Australia's superannuation funds are falling over themselves to get exposure to alpha-generating strategies. The traditional long-only Australian equities funds, which have served the pension funds so admirably over the past four years, are increasingly being eased aside by the new long-short kids on the block.
These flashy funds are generally headquartered in the US and offer Australian investors international exposure, as well as the potential for premium returns thanks to their long-short structure.
Despite the fact an investment in Australian equities over the past four years would have returned about 20 per cent year on year, superannuation trustees are in constant fear these stellar returns will evaporate in the future.
The result of these sentiments is the desperate search for alpha-generating strategies the industry is currently witnessing.
In March, industry fund HESTA announced it had allocated 10 per cent of its total international equities strategic asset allocation to long-short managers.
The health and community services industry fund said it had appointed three global long-short managers with a total allocation of just under $300 million.
Other big institutions that have gone down the long-short track include BUSS(Q), Care Super, AustralianSuper, Hostplus, REST Super, QIC and JANA.
In fact, demand is so strong from these kinds of investors that investment manager BlackRock announced in April it was taking no more bets on its long-short fund.
The manager announced it had reached capacity with mandates won in the first quarter.
These included a $470 million Australian equity active-extension mandate from the Local Government Superannuation Scheme (LGSS) and an $80 million 150/50 long-short mandate from Tasplan.
Three long-short specialists that have consistently cropped up on mandate lists over the past six to 12 months are Acadian Asset Management, Axa Rosenberg and AQR Capital Management.
Acadian Asset Management is a specialist in so-called 130/30 long-short funds and its chief executive, Chris Clayton, told Investor Weekly there was near insatiable demand for this type of strategy.
"We could have taken on a lot more money than we have already taken, but there are capacity constraints," Clayton says.
The firm closed its Australian equity long-short fund to institutional investors late last year and raised $500 million. Industry funds Hostplus, Care Super, Just Super and SPEC (Q) are all clients of Acadian.
Clayton says long-short strategies give investors more opportunities than traditional long-only funds, but also urges caution.
"Many managers don't actually properly assess the stocks they want to sell short," he says.
"For managers that use a screening process it can become hard to differentiate between the good and bad stocks, depending on the criteria they use."
According to Clayton, non-quantitative managers that embark on long-short strategies can find it hard because they have to assess a whole lot more. "Quant managers have historically done more research on what stocks to sell short and that is why they tend to be popular long-short managers," he says.
The trend towards long-short investing looks unlikely to disappear anytime soon. In the last month, Investor Weekly knows of two firms that have announced they will open long-short shops.
Mellon Global Investments launched the Mellon Australian Equity Long-Short Trust in May, which is aimed at Australia's institutional market. It has been seeded by Australian Wealth Management's asset management arm, United Funds Management.
The fund is sub-advised by Mellon Capital Management in San Francisco and will invest in large and mid-cap stocks.
Elsewhere, the Packer-owned Challenger Financial Group announced it plans to roll out a long-short fund to Australian investors within the next six to 12 months.
Profile: AQR Capital - gaining ground in Australia
AQR Capital was founded in the United States in January 1998 by former Goldman Sachs asset managers Clifford Asness, David Kabiller, Robert Krail, and John Liew.
As of March 2007 data from InvestorSupermarket shows it has eight mandates with Australian institutional investors. These are: Funds SA, QIC, van Eyk, Zurich, AV Super, LGSS and Westpac Staff Super.
AQR's products span from aggressive high-volatility market-neutral hedge funds to low-volatility benchmark-driven traditional products. Investment decisions are made using a series of global asset allocation, arbitrage and security selection models, and implemented using proprietary trading and risk-management systems. AQR believes a systematic and disciplined process is essential to achieve long-term success in investment and risk management.
AQR manages about $35 billion across its series of investment products. The company is based in Greenwich, Connecticut, and employs 170 people.
