AMP Capital’s International Chief Executive on All-Access Partnerships

(January 30, 2014) – Chinese regulators gave the green light to the nation’s first insurer-backed mutual fund in late December 2013, and within 10 days of opening, the China Life AMP Money Market Fund had raised RMB 11.9 billion (US$1.97 billion).

The fund is a joint venture between a domestic powerhouse—China Life, the country’s largest insurer—and its longtime strategic partner, Australia’s AMP Capital.

“Our relationship with China Life was absolutely critical in launching this fund,” Anthony Fasso, AMP’s international chief executive, told aiCIO. “It would not have been possible to enter the industry without a partner on the ground.”

The formal relationship between the two firms dates back nearly eight years. In August 2009, they furthered their mutual commitment with a strategic cooperation agreement. That gave rise to the money market fund, which is China Life’s first asset management venture with a foreign partner on the insurer’s home turf.

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The relationship is also far from over, according to Fasso, who heads up AMP’s partnership strategy and has spent the last two decades based in Hong Kong.

“The next step would be to issue more funds,” he said. “In China, firms typically launch one mutual fund, raise it, release it out into the market, and then launch another fund in three or four months’ time. Then another. The natural progression would be from fixed income to domestic equity, and on to a domestic balanced fund. Eventually, we may look at international assets.”

The market could absorb that and much more, according to Boston-based research firm Aite Group. By its calculations, 88% of investable individual wealth in China was as of yet unmanaged. Private banks led in market share with 7%.

“China represents perhaps the biggest prize available in the global wealth management sector,” wrote Senior Analyst Stephen Wall in a January 24 report. “But its market characteristics—scale, regulatory environment, infancy, and speed of change—present a tough and evolving challenge for any wealth management business, big or small, local or foreign, to prosper.”

The partnership of China’s largest direct institutional investor and a foreign asset manager with more than a century of experience has proved itself a contender.

For AMP, at least, the stakes are high. Its commitment to both the Asian market and strategic alliances goes beyond China Life: The Sydney-based company recently sold 15% of its asset management arm to Mitsubishi Financial to facilitate access to Japan.

What’s next in the partnership pipeline for AMP? Nothing imminent, according to Fasso. “I’d say we’ve got enough on the go at the moment.”

(January 29, 2014) — Performance of MSCI and FTSE global equity indices has converged since 2001, despite each claiming to their investors to have fundamental differences.

Norges Bank Investment Management (NBIM) has undertaken analysis of the MSCI GIMI and the FTSE GEIS indices to see if there were any differences in risk/reward performance, and found that the two indices have been steadily converging since 2001.

From a return and risk perspective, the analysis indicated that over the past 10 years FTSE had a higher cumulative return than MSCI, but most of that outperformance occurred between 1998 and 2001.

After 2001, performance of the two indices has converged. In terms of index composition, the two indices historically overlapped each other with around 93%-94%, of their stock selection, but this increased to 96% after FTSE’s change of free-float methodology, NBIM said.

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There remain differences between the two indices, however. While both follow broadly the same set of classification rules, there are anomalies, such as how they classify South Korea (FTSE: developed, MSCI: emerging).

FTSE includes index orphans— stocks that are not often tracked by analysts due to being not very well known or because it belongs to an industry that is generally performing poorly—which allows FTSE to gain from companies with an ambiguous country-classification, while MSCI’s decision to target 99% of the investable universe, compared to FTSE’s 98%, means they have different medium-sized company definitions.

But these differences amount to almost nothing in terms of performance, NBIM found. It said the trend for benchmarks to be created from concentrated portfolios covering a specific set of markets and the development of “best practice” for constructing market-cap-weighted indices had resulted in returns being almost identical.

The convergence may also be driven by the needs of the fast-growing ETF sector, NBIM’s report said.

“For an index fund or an ETF vehicle, where replicating a benchmark is the goal, availability of liquidity (which the vendors try to ensure through relatively complex liquidity rules and narrow free-float bands) at every point in time is of high importance,” the report continued.

This convergence is leading investors to find other differentiators, such as cost, instead, NBIM concluded. Based on a simple indicator of trading, NBIMA found that less trading was required to follow MSCI historically, cutting costs for investors. But this was unlikely to continue in future, thanks to FTSE’s change in free-float methodology in March 2013.

Leaving cost considerations aside, a potential differentiator in the future might be increased transparency in areas of benchmark construction.

Index transparency is currently difficult and costly for investors to verify. In particular, free-float adjustments can put asset managers in a worse position to understand how the final benchmark is constructed and how the weight of each constituent is assigned, NBIM argued, due to the lack of clarity on the information used for the adjustments.

The full discussion paper can be found here.