The recent sale of Australian parent bank’s asset management business to a Japanese firm did not influence the decision to award Vanguard a $3 billion Australasian equities mandate, according to ASB head of wealth, Jonathan Beale.
In October ASB owner, the Commonwealth Bank of Australia, sold the A$231 billion Colonial First State Global Asset Management (CFSGAM) to Mitsubishi UFJ Trust and Banking Corporation (MUTB) for A$4.13 billion. MUTB also owns 15 per cent of AMP Capital.
Last week Vanguard assumed the $3 billion ASB Australasian equities mandate previously run by the Sydney-based CFSGAM team. However, Beale said the change followed the bank’s rolling asset class review – advised by Mercer – rather than any knee-jerk reaction to the CFSGAM sale.
“But there was an element of reducing the concentration risk to CFSGAM,” he said. CFSGAM continues to manage both the ASB cash and NZ fixed income portfolios – valued at about $1.7 billion and $1 billion plus, respectively – for the group’s KiwiSaver, master trust and retail fund suite.
KiwiSaver is by far the ASB fund jewel with $8.5 billion under management as at March 31 this year followed by the retail funds ($2.4 billion) and master trust ($1.3 billion).
In September 2018 ASB also appointed Public Trust in place of Trustees Executors as custodian of the bank’s retail fund suite. The move brought the retail funds in line with ASB’s KiwiSaver and master trust, which already used Public Trust for custody.
Cash is next in line for the ASB asset class review process.
As per the previous agreement with CFSGAM, Vanguard will run the ASB Australasian equities portfolio to a passive mandate weighted 60 per cent to the S&P/NZX50 (gross with imputation) benchmark and 40 per cent to the S&P/ASX 200 accumulation index (100 per cent hedged).
CFSGAM pitched to keep the mandate, Beale said.
He said price was “just a small factor” in the decision to appoint Vanguard.
“There was very little [fee difference] in it,” Beale said.
The win for Vanguard marks a return to the ASB stable for the world’s largest passive manager after it lost the-then $1 billion plus global equities role to BlackRock in 2016. At the time ASB shifted out of a Vanguard pooled fund into a direct mandate with BlackRock.
“Now we are at a scale where we can do everything through a mandate – giving us direct control of the assets and making it easier to hire and fire managers,” Beale said.
ASB manages over $14 billion in retail funds, according to the latest June quarter figures from Australian research house, Strategic Insight.
He said the mandate structure also allowed ASB to more-easily implement its environmental, social and governance (ESG) policies, which assumed greater importance following the KiwiSaver cluster munitions uproar in 2016.
“One thing we learnt from the munitions process was that investors were surprised about what they were invested in,” Beale said.
ASB has just released a new disclosure tool – along with an updated responsible investment policy – on its website that allows investors to see more clearly what the funds are invested in.
“With help from independent investment research house Morningstar, we are able to show you the sectors and the underlying industries for the growth assets (shares and property) for the fund you’re invested in where we have been able to classify the underlying investments,” the ASB website says.
The new level of transparency should reduce the surprise factor, he said.
While ASB has historically marketed itself as a passive investment house, the group has adopted a subtle change of tune over the last few years.
According to ASB disclosure documents, the bank investment shop would “consider active management where we are satisfied that the manager can add value over the long term”.
Regardless, all of ASB investment mandates – bar cash – are managed to passive indices.
“We have five or six investment beliefs but two of the most important are that asset allocation and currency management will drive most of the performance,” Beale said.
ASB takes an active approach to both asset allocation and currency making respective quarterly and monthly calls in those departments.
The bank also offers a range of actively-managed products – including from NZ equities managers Devon and Harbour – through its private wealth arm.
Meanwhile, ASB would continue to use services offered by the CBA wealth management business despite ongoing changes across the Tasman. The rump CFS wealth management arm (comprising advice and administration units) are slated for an IPO some time next year – a listing that was initially due to include CFSGAM.
Beale said ASB had “no plans” to review its fund administration arrangements which it outsourced to CFS a couple of years ago after removing then-sister NZ firm, Sovereign, from the role.
“[CFS] had the admin capability to enable us to offer much better outcomes for our investors,” he said. “We’re not worried [about the impending CFS IPO] and won’t be doing anything different.”