Chris Briant
Global implementation specialist Parametric has announced that it has exceeded its global assets under management of A$250 billion as of February 2017, partly due to Australian superannuation funds increasingly adopting and recognising the Parametric after-tax and implementation efficiency philosophy.
Chris Briant, chief executive officer, Parametric Australia says: “The Australian superannuation landscape and investment strategies have changed significantly over the past few years. There has been a strong interest in Australia for Parametric’s tax-managed factor investing equity capabilities.
Briant, believes that: “Superannuation funds understand that manager alpha is inherently uncertain, but fees, taxes and transaction costs are certain, and these are sensible things to manage.”
“A natural way for superannuation funds to start integrating implementation efficiency is by considering it as part of new approaches like factor investing. This is an area that’s gaining not only considerable momentum in Australia, but also globally.
“Many superannuation funds are considering factor investing, but few have adopted it.
“With the right factor approach, they can get a custom solution that ticks the boxes not only on factor, but also on tax management and implementation efficiency,” he adds.
Globally, Parametric manages close to $A5 billion in portfolios which capture style factor exposures as specified by their clients. Close to half of this total has been generated in the past two years and reflects the broader appetite of US investors for lower cost, transparent, rules based investment approaches that offer the potential to outperform the market.
Briant notes that “Australian superannuation funds are very interested in how our US clients are using factor portfolios.”
Parametric’s reputation in the Australian market has been enhanced by its willingness to collaborate with superannuation funds on specific research ideas to help them design bespoke solutions to increase member returns.
Briant notes: “We are currently working with two superannuation funds on their specific factor ideas and several other superannuation funds have asked that we share our broader research results.”
Parametric’s factor research covers three key areas:
- how to eliminate unintended sector and factor bets,
- how to target outcomes of importance to the fund like tracking error, turnover and volatility and,
- how to ensure that the extra performance that the fund hopes to generate through a factor approach is not eaten away by the extra tax the fund must pay.
“While there are theoretically hundreds of factors that investors can choose to target, in the US, most of the interest boils down to these five – dividend yield, value, quality, momentum and low volatility.”
He says that “quality has seen a recent upsurge in interest and there is also interest in blending factors, particularly the value/momentum/profitability and value/size/profitability combinations.”
Parametric’s role, uniquely in Australia, is not to take a view on which factors will outperform, and how to time factors, but to take the superannuation fund’s own thinking on these and work to create a clean, transparent, efficiently implemented live portfolio to reflect the fund’s own ideas.
Briant says that “more and more, this is the kind of partnership superannuation funds are seeking – generating their own ideas and convictions and then working with a specialist manager to minimise the leakage that can occur as good ideas get implemented in the real world.”