Andrew Kemp

ASIC’s call-out around weaknesses in private credit fund governance and valuation practices has support from leading asset consultant Frontier Advisors.

Frontier has provided its perspective following the release of ASIC’s report on the Australian private credit market, highlighting opportunities for investors and platforms to strengthen transparency, governance, and risk management.

The ASIC report, which surveyed 28 private credit funds, identifies a number of risks in private credit. The report notes areas where investor protection and market transparency can be improved, including conflicts of interest, valuation practices, fee arrangements, liquidity management, and investment reporting.

Frontier works closely with institutional investors across the spectrum, including some of Australia’s largest investors, providing detailed assessments of fund governance, valuation methodologies, and risk management practices.

The firm is positive on the private credit sector and while it says some of the issues raised are less common in the institutional market, agrees with the regulator that the bar can be raised on standards of transparency and consistency.

Frontier’s key call-outs and areas for attention in the report include:

• Conflicts of interest: The report flags structures where managers use special purpose vehicles to capture net interest margins rather than passing them to investors or where managers commit to a target return for the investor yet generate a potential competing interest through hidden fees or higher risk asset exposure.
• Valuation practices: The lack of independent, robust and timely valuations can weaken investor confidence and transparency in this asset class.
• Liquidity management: certain private credit funds can face liquidity mismatches between assets and investor capital requirements particularly in stressed environments, including the risk of distributions being paid from capital without sufficient disclosure.
• Investment reporting and transparency: Reporting on loan characteristics, risks and valuations can be opaque, and unclear terminology in documentation can lead to investor confusion.

“Private credit remains a key component of the investment landscape, but it comes with complexities that demand rigorous oversight,” said Andrew Kemp, Deputy Head of Research and Head of Private Markets at Frontier.

“Assessment of risk has been a central tenet of our approach to private credit due diligence for many years. Our private market credit survey is a key part of this process, allowing us to compare spreads, assess risk, and benchmark performance across managers and over time.”

Frontier has been running a detailed, independent survey of the private credit universe for eight years assessing all areas of risk across a wide range of leading private credit managers across Australia, Europe and US. The results have informed the asset consultants work with some of the country’s largest superannuation funds.

In a reflection of growing interest from asset owners, Frontier reports that in the last eighteen months the firm has completed an extensive review of over 100 private investment valuation policies and been engaged on a number of projects providing valuation committee support, addressing out-of-cycle triggers, gap analyses of policies and practices, and enhanced data assessments.

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Brad Purkis

Frontier Advisors, one of Australia’s leading asset consulting firms, has published their latest research showing 2024 as the most challenging year for global active equity managers in over two decades. Heightened market concentration and US equity dominance posed significant headwinds, with most managers struggling to meet benchmark returns.

The median global active equity manager underperformed the MSCI All Country World Index (MSCI ACWI) by 4.6%, marking the worst relative return in over 20 years. The dominance of a small group of ‘magnificent seven’ technology stocks, propelled by artificial intelligence optimism, led to a tough year for active management in global equities. As an example, managers who held no position in Nvidia saw a drag of 3.1% on their performance from that position alone. While the MSCI ACWI returned 17.5% (in USD), the median return of the 2,647 stocks in the benchmark was under 1%, highlighting the extreme concentration of market returns. The second half of the year was even more difficult, with only 26% of managers outperforming the benchmark. (Table 1 summarises active management results in global equities.)

“This year’s benchmark performance was driven by a small group of stocks, which posed a challenge for active managers,” said Brad Purkis, Senior Consultant at Frontier Advisors.

“The two thirds of global active managers who did not hold Nvidia faced significant difficulty in outperforming the broader market, and that’s just one of that group of seven dominant companies.”

Frontier found that quantitative managers stood out as a rare success story, benefiting from diversified portfolios and effective risk controls. Meanwhile, value managers experienced especially challenged outcomes over the year. Growth managers overall outperformed, though market conditions were only conducive to a select group of ‘high growth’ managers with even moderate growth managers failing to beat the benchmark.

“The results show how narrow market leadership and macroeconomic forces can deeply affect active management outcomes,” Purkis continued. “Managers with diversified, systematic strategies fared better during this challenging period.”

In the Australian market, strong performance from the big four banks created challenges for active managers, many of whom were underweight in these companies. However, the underperformance of large resource stocks, such as BHP and Rio Tinto, alleviated some of the challenges, leaving the median Australian equity manager only slightly behind the benchmark for the year.

Emerging market managers also faced difficult conditions, underperforming the MSCI Emerging Markets Index by 0.7% for the year. Taiwan Semiconductor Manufacturing Company (TSMC), which saw a return of over 90% in 2024, posed particular challenges for managers holding underweight positions relative to its >10% benchmark weight. Even an absolute weight of 5% (half the benchmark weight of 10%) in TSMC would have dragged returns down by about 4%.

“Emerging markets provided little relief for active managers,” Purkis observed. “TSMC’s dominance meant that underweight positions were difficult to overcome for many managers.”

As 2025 unfolds, investors and asset owners are cautiously hopeful for improved conditions for active management with the opening weeks of the year providing a very strong start for active investors in global equities. However, ongoing US equity dominance, concentrated markets, and macroeconomic factors continue to influence the investment landscape.

Frontier’s research paper released to its clients earlier this month delves deeper into the underlying factors that have contributed to outcomes in global equities. To support their analysis, Frontier’s Equities Team curates detailed peer sets within both Australian and global equity markets to help better understand and provide valuable insights into the performance of active managers across various style classifications.

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Alexandra Veroude

Frontier Advisors has boosted its financial markets and economic analysis depth with the appointment of Alexandra Veroude who will join the asset consulting firm’s Capital Markets and Asset Allocation Team.

Veroude has well over a decade of senior experience and a resume that includes roles with the Reserve Bank of Australia (RBA), Bank of America Merrill Lynch, Bloomberg, J.P. Morgan and most recently working in Europe at environmental commodity trader STX Group.

Frontier Director of Investment Strategy, Chris Trevillyan, is looking forward to the contribution Veroude will make to Frontier’s capability and to its clients.

Capital Markets research and asset allocation advice has long been a hallmark of Frontier. Asset allocation is the key contributor to long-term investment performance and because of that it’s exciting to be able to bring additional perspectives and experience into our team.

“Alexandra has an impressive professional and academic pedigree and a diverse background of prior roles. She brings an excellent set of skills to the table, including extensive economic and markets experience along with a strong ability to communicate with a range of different stakeholders, including importantly, institutional investors,” said Trevillyan.

Veroude gained a Bachelor of Economics with First Class Honours, and was awarded the University Medal, from the University of Adelaide, before gaining entry into the RBA’s graduate program, working for three years in the Sydney based economics department. She then spent four years at Bank of America Merrill Lynch with responsibility for forecasting key interest rates and providing global economic insights and analysis. She then took on stints as the Economics Editor for Bloomberg (covering Australia, NZ, Japan and Korea) and at J.P. Morgan, before most recently working with environmental commodities trader STX in Amsterdam, focussing on the energy transition.

Veroude will become the third Senior Consultant in Frontier’s Capital Markets and Asset Allocation Team joining Dr Shahana Mukherjee and Alice Berriman.

Veroude will be based in Sydney, after relocating from the Netherlands, beginning her role in January 2025.

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Andrew Polson

For the eighth consecutive year Frontier Advisors has dominated the results for asset consultants in the recently completed Peter Lee Associates independent survey of Australian institutional investors. Frontier was ranked the sole outright leader among asset consultants in Australia and first, or equal first, across ten of fourteen individual metrics the survey ranked.

The Peter Lee Associates survey has been collating the thoughts and opinions of around one hundred Chief Investment Officers, Chief Executive Officers and other leading Australian institutional investors for over two decades and is the most highly regarded independent source of asset consulting evaluation in Australia.

In the all-important Relationship Strength Index, which effectively sums and weights the most important attributes respondents rate in their asset consultant, Frontier scored the highest mark of all firms. This is the eighth year in a row Frontier has been ranked first, or equal first, in the Index.

Frontier was also ranked first in nine of fourteen categories examined by the study, equal first in one and second in the remaining four. This included first in the likelihood to recommend, or ‘net promoter score’, also for the eighth consecutive year, and first in ‘quality of service’ for a record nine years in succession.

Managing Director of Peter Lee Associates, Sandhya Chand, noted that service continues to resonate with asset owners following recent years of pandemic challenges, ongoing return volatility and industry consolidation.

“Clients continue to value Frontier’s consultants and overall service and this year there is a greater recognition of the firm’s manager research. Frontier has been able to maintain strong recognition from its clients through recent market developments and bedding down a number of new clients,” said Chand.

Despite having the highest market penetration for the last four years, according to the survey, Frontier clients now make up more than one third of the asset owner universe thanks to continued client growth and broader industry consolidation.

Frontier CEO Andrew Polson is particularly pleased with the report card from investors. “This year’s results are close to the best the firm has ever received and that is a great endorsement. Obviously we are excited to yet again receive the highest overall score of any firm, but it is particularly pleasing to have such strong scores across every area measured, finishing first in most metrics but still second in the four areas we haven’t lead. Being able to provide quality advice and research across all areas, and for all types of clients, is vital for a business like ours and obviously valued by our diverse range of clients.

“In the face of recently onboarding a number of clients, to be able to maintain such strong levels of endorsement across the client base is incredibly pleasing, and humbling. And, a great reflection on our team,” said Polson.

“I think the fact we enjoy such strong and stable ownership, and maintain a firm focus on providing pure advice and technology, means we aren’t distracted by other factors relating to shifting business models or pressure to maximise revenue streams. That focus has helped us concentrate on what is important for our clients and their beneficiaries.”

A total of 89 individual asset owner organisations participated in this year’s study.

Frontier ‘number one’ results for 2023:

• Capability of consultant: 1
• Quality of service: 1
• Domestic manager research: 1
• Capital markets research: 1
• Digital research and analysis tools: 1
• Reasonable fees: 1
• Meeting agreed benchmarks: 1
• Risk assessment and advice: =1
• Advice on YFYS and regulations: 1
• Net Promoter Score: 1
• Relationship Strength Index: 1

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Claire Casucci

Frontier Advisors has been appointed as independent asset adviser to The University of Adelaide following an extensive evaluation process.

Frontier will work on the strategy, structure and monitoring of the University’s endowment fund which is used to fund research projects, prizes and scholarships. The University is a member of the influential ‘Group of Eight’ (Go8) which comprises Australia’s eight leading research-intensive universities.

Frontier was selected by the University for a range of reasons including the firm’s market leading reputation, an unconflicted advice model and Adelaide based staff.

“Frontier offers leading capability across the critical areas we need to consider in the stewardship of the University’s endowment funds. They have excellent knowledge of the university sector, a strong performance record and, as somewhat of an added bonus, their team will be led by a University Alumna”, said The University of Adelaide Acting Chief Operating Officer, Peter Prest.

The University of Adelaide is the fifth Australian university to appoint Frontier as its independent asset advisor, including fellow Go8 members, Monash University and the University of NSW. Frontier also works with Deakin University and the University of Tasmania.

CEO of Frontier Advisors, Andrew Polson, is delighted with the announcement. “It’s a tremendous privilege to work with the University to ensure the endowment fund can continue to financially support the progress of its students and strong commitment to research excellence.

“We’ve a growing client base in South Australia now, supported by our locally-based Senior Consultant Claire Casucci, so we’re excited to add The University of Adelaide to our stable of local clients and further our contribution to South Australia.”

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Paul Newfield

In the face of an ever-increasing wave of issues surrounding culture within funds management businesses leading asset consultancy, Frontier, has put its foot down in terms of its approach to assessing culture within the businesses managing its clients $450 billion in funds.

Frontier confirm they have always assessed and considered culture within the context of developing their manager ratings and recommendations. However, significant manager events over recent years have prompted the adviser to amplify the processes and weighting around the assessment of culture as a component of suitability for investors. One of the most recent and high-profile examples of concern relating to AMP’s handling of a sexual harassment claim and the subsequent promotion of the executive involved.

Director of Sector Research, Paul Newfield, explained the firm had been escalating its focus on culture over a number of years and are set to introduce higher hurdles for managers to clear. “As part of our research and due diligence process we are now making explicit statements and assessments of traits we are seeking from managers in the area of corporate culture. And, when issues do arise, or even signs of concern, we have developed an internal framework to help us fully explore those cases,” said Newfield.

“Unfortunately, we have had to test some managers via that framework already. This has enabled us to rigorously assess key areas where less tangible but critical cultural issues, which are not easily quantifiable, arise. We have already applied this framework to a number of cases where concerns have arisen and in some cases we’ve re-rated managers, some down sharply, when they have come up short of our expectations and for them that will mean a loss of funds either from existing clients re-allocating or potential investors choosing not to allocate in the first instance.”

Frontier’s set of culture principles outline the key traits expected from managers seeking their recommendation and the more than 1,200 managers it already researches from around the globe. The traits reflect treatment of clients, in terms of transparency around communication and action following an adverse event; treatment of the manager’s staff, including evidence of diversity, inclusion and equality; reflection on and rectification of issues that arise; and a lack of any patterns of systemic behavioural and cultural issues.

Frontier believes quality funds management organisations will have nothing to fear from the scrutiny around these standards. “People should not underestimate the need to properly examine the existence of these traits and the work needed to assess these factors. These traits sit on top of, and are conducive to, the ability of the manager to deliver desired return outcomes. A failure here is likely indicative of imminent failure across other more quantifiable parts of their business,” said Newfield.

Frontier’s dedicated Investment Governance Team is completing a comprehensive research exercise examining culture more deeply, why it is important and how asset owners and advisers ought to embed culture and its assessment into manager research. The resultant paper due to be published next month and titled “What lurks in the shadows?” will be a must read for all institutional investors, according to Frontier.

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Guan joins Frontier from Citibank, with prior experience in roles with HSBC and ANZ, including a 2017 secondment to Shanghai as a Credit Analyst with Citibank.

Joining her in the consulting ranks within Frontier are Jenny Li and Sorin Zota, both Associates. Li has prior experience in roles with Morningstar and Unisuper while Zota joins following a year at Mercer and time at LaSalle Investment Management before that.

Frontier’s growing team of technology professionals is welcoming Jane Tran, Business Analyst, Nishant Garg, Application Developer and Socrates Toussas in the role of IT Support Engineer. Frontier’s dedicated Technology Team now number 13 and provide powerful capability to support the firm’s consulting effort and develop technology solutions for Frontier clients and asset owners more broadly.

Rounding out the appointments are Stephanie Hosking, People and Culture Adviser, and Caryn Benness, Business Development Manager. Benness brings over twenty years of experience, most recently with Mercer, and will be based in Sydney working closely with Director of Marketing and Business Development, Wayne Sullivan.

Frontier CEO Andrew Polson is looking forward to the extra capability the new recruits will bring to the business. “Our business is growing, both in terms of new clients we have the privilege to work with, but also in terms of the depth and range of services clients are seeking from us, and which we are proactively developing.

“Frontier is at a size now where not only are we adding to our team to maintain a client to consultant ratio that enables us to continue the quality and tailoring of our advice, but we are investing specifically in specialist non-consulting resources, in particular in our market leading technology capability”, said Polson.

In addition, the firm is currently hiring senior consulting and research roles across investment governance, responsible investing and alternatives and derivatives disciplines.

Recent client appointments have seen Frontier pass the milestone of having more than half of its clients come from outside their traditional superannuation fund space.

“We have developed and are executing a strategy to grow and diversify our business by developing more relationships with clients who share our passion to advance the prosperity of their end members, investors or beneficiaries. Improving the diversity of our client base has resulted in a more robust business model and improved the depth and breadth of our team, which ultimately benefits all of our clients”, said Polson.

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Although the formal business name remains Frontier Advisors Pty Ltd, the asset consultant will now be known simply as Frontier, rather than Frontier Advisors. The move has been made to reflect the expanded nature of their offering which extends beyond pure advice and, as the firm itself says, includes assistance in identifying opportunities and broader business strategy matters along with technology solutions to help inform decision-making and power internal teams analytical efforts.

The name, Frontier, is intended to represent what the firm aims to do for its clients in helping position their portfolios on the efficient frontier – the concept of reaching the location of the highest expected return for a given level of risk for that investor.

The new logo aims to mimic the shape of the efficient frontier and the distribution of possible risk and return combinations more broadly. The curves in the logo show movement and growth along a path rising from an origin form the letter F, for Frontier.

Frontier CEO Andrew Polson explains the basis for the new visual elements of the Frontier brand.

“We wanted all the visual elements of our brand to match what we believe our brand offers more broadly. At Frontier we roll our sleeves up and find new and creative solutions for our clients. We are modern and professional, yet approachable and modest. Confident in our place as Australia’s leading asset consultant.

“We are more than advisers. We work alongside our clients to uncover opportunity, identify and manage risk, deliver efficiencies and develop technology. We are business partners.”

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Phillip Naylor

With the US Presidential election just seven weeks away, Frontier Advisors has undertaken a ‘virtual’ trip to the US to meet with several investors, think-tanks, academics and pundits to discuss how investors should be thinking about portfolios heading into this event. They have teamed these insights with analysis of market responses to past elections to help inform possible outcomes for investors.

Frontier’s analysis notes that while the Presidential election is as much about ideology as it is policy, there are some key areas investors should take note of.

A high profile aspect of Biden’s fiscal policy, compared to Trump, is a proposal to reverse part of Trump’s corporate tax cuts, lifting the rate to 28% from 21%. While this is often used as an argument for why stocks may do worse under a Biden win, Frontier thinks the expected additional $4 trillion raised in revenue over ten years, and Biden’s resultant spending policies, including heavy infrastructure investment, could bode well for risk sentiment at a time when the economy is facing a large economic contraction.

Principal Consultant Phillip Naylor adds that “although the corporate tax rate is high profile, corporate taxes do not make up a large proportion of total US Federal Government revenue. Given the importance of the Senate election outcome, Biden may have difficulty passing a full increase in the corporate tax rate but may find it easier to pass his spending plans”.

Based on their discussions, Frontier is forecasting that China trade tensions are expected to remain regardless of who wins the election. Public opinion in the US toward China is increasingly unfavourable across party lines meaning both candidates are likely to take a hard line approach.

Analysis of market responses following elections over recent years has not convinced Frontier of any conclusive impact on asset prices driven by the election cycle. Naylor states that “long-term investors should look past election results delivering predictable market responses based on the 2 party assuming power, but rather focus on policy differences and underlying economic conditions at the time of the election.”

Frontier’s view however is that this does not mean Presidential elections, should be ignored. Their paper states that understanding the context of policy differences is important in understanding an ever-shifting macroeconomic landscape. The rise in populism and increase in anti-China sentiment is likely to lead to an ongoing fractious relationship between the US and China and trade tensions are unlikely to disappear. A move towards a less globalised trading world is one of several key secular Themes Frontier thinks investors need to be thinking about and this election result could be a major influencer on the speed of that evolution.

Although the consensus view of those on the ground that Frontier spoke to favours a Biden victory, it is worth noting a similar “Democrat sentiment” existed this close to the first Tuesday in November in 2016. What is also unclear is the process if the outcome is uncertain on election night, and how long a dispute may take to resolve.

Read the report.

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Kim Bowater

About one-quarter of MySuper funds have cut their investment return goals over the past three years and more are likely to follow in the face of rising uncertainty, according to Frontier Advisors.

Ageing demographics, falling productivity across developed nations, mounting geo-political risks, threats to global trade, and the impact of climate change are just some of the factors dragging down return expectations.

Frontier Advisors Director of Consulting, Kim Bowater, said now was a good time for investors to review their investment beliefs and the amount of risk they were willing to take to achieve their objectives.

“We think the returns going forward will be lower and will be more challenging,” Bowater said at the final panel session at Frontier’s annual conference held in Melbourne on June 20.

“Our experience, particularly that 70:30 type portfolio, is that taking on extra risk is an activity of diminishing returns, so you become increasingly less efficient. So, there’s a case there to reduce objectives.”

Many balanced funds have an investment goal to outperform CPI by a net 3.5% however the three year outlook is for returns around half that level, according to Frontier.

While the median fund has posted a strong 8.5% annualised return over the three years to April 2019, according to SuperRatings, Frontier Advisors Director of Investment Strategy, Chris Trevillyan, said growth assets such as equities still had more to give over the long-term.

“As long-term investors, we think bonds have a high potential to produce low or negative real return going forward and that’s going to impair the ability to achieve investment return objectives. Although growth faces a number of significant headwinds, we still see the potential for long-term growth, and current pricing provides a reasonable investment over the longer term.”

Trevillyan also suggested funds remain flexible and well diversified. Bowater said there was no one key for investors to boost returns in the current challenging environment but suggested they consider strategies such as active management, liquid alternatives, derivatives and investing in specific growth areas aligned to secular themes.

The Frontier Advisors panel session was one of several held at Frontier Advisors’ annual conference which covered areas as diverse as the US-China trade war; the merits of active management; the latest approach to alternatives; how to tackle governance issues such as modern slavery and corporate culture; and the outlook for Australia’s housing market.

Frontier was recently voted the number one asset consulting firm in Australia for the fourth consecutive year^[1] and its median balanced super fund client was ranked in the top quartile for investment performance over 1, 3, 5, 7 and 10-year periods to March 2019^[2] .
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“This year will be our 25 year anniversary,” Frontier Advisors chief executive Andrew Polson told the audience earlier in the day.

“In that time, we’ve seen enormous changes in our market and we’ve been able to develop and adapt to those changes along the way. We’re now the only unconflicted institutional investment adviser remaining in the Australian market and we intend to stay that way so that we’re working in alignment with the interest of our clients and nothing else.”

Frontier has posted substantial growth and now has 35 clients, up from 25 just two years ago. The firm has also made several hires in recent times, employing 71 staff, up from 58 this time last year.

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