Parametric wins first tax-managed factor mandate

From

Chris Briant

Global specialist implementation manager Parametric has been awarded an AUD200 million custom global equities mandate by a large Australian superannuation fund.

The super fund, which has requested anonymity, commissioned Parametric to create a portfolio to capture the super fund’s views around exposures to particular risk factors in global equity markets and address concerns about unintended biases in factor-based portfolios.

The super fund has also asked Parametric to manage real-world implementation frictions, including tax, an approach for which Parametric has developed a distinctive reputation.  The performance of the new portfolio, seeded earlier this month, is being measured against a custom after-tax performance benchmark.

Parametric Australia’s CEO Chris Briant says: “This is a breakthrough in the industry.  In our discussions with super funds, we’ve seen interest in after-tax investing and factor investing as separate themes growing, so it was only a matter of time before they came together as a powerful solution.

“We’ve seen huge growth in the US for factor approaches and now around USD4 billion of our total USD230 billion in funds under management globally are in portfolios that reflect our clients’ preferences around factor exposures.

“Of course, not all factor strategies are created equal.  It’s important that the design rules capture exactly what the client wants, so that the desired exposures drive performance, and not unintended bets.”

In September 2016, in research published for Australian super funds, Parametric described factor investing as a disruptive influence on active equity managers.  Co-author Raewyn Williams, Parametric Australia’s Research Managing Director, views this, perhaps surprisingly, as a positive for active managers:  “It’s an opportunity for active managers to seek generous risk budgets to fully pursue idiosyncratic risk as a nice complement to rules-based factor strategies.”

Briant is positive about Parametric’s ability to win similar future mandates:  “Super funds and their advisers have their own smart ideas about what kinds of portfolios they want.  Sometimes a traditional manager will be best to make these ideas real.  But sometimes, like here, what the fund will really need is a specialist implementation manager that can maximise transparency and minimise the costs of translating good ideas into a real-world portfolio.”

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