In what may be one of the largest mandates ever in Australia, UBS Asset Management will oversee a huge passive investment for AMP Capital.
The mandate has an amount of 17 billion Australian dollars (almost $13 billion). The enormous allocation bumps the Swiss-based wealth manager's Australian assets under management to about 43 billion Australian dollars and beats a 14 billion Austalian dollars equity allocation by First State Super to Vanguard in 1999, according to research company «Rainmaker Insights».
UBS will manage 11 separate passive mandates across fixed income and equities and will work with AMP Capital to tailor the exposures to screen out undesirable exposures and to implement «smart beta» strategies, according to Australia's business paper «Financial Review».
A Revolution Sweeps Through the Industry
The mandate comes as fund managers and institutional investors prepare to change their business models and financial products as the low-cost «passive» investing revolution sweeps through the industry.
UBS Asset Management's Australian head Bryce Doherty said the funds would be managed out of the Sydney office. Passive strategies will now account for 40 percent of the assets managed in Australia by UBS Asset Management.
«We Wouldn't Agree With That»
«The real drive to passive has been the result of two factors – one is of course the lower fee and the second is the belief that the active manager can't add value above their fee over time. We wouldn't agree with that [belief]. But if clients are doing their own portfolio construction and they need people to provide them with passive building blocks, we are able to do that,» Doherty added.
The mandate also highlights that the concept of passive investment itself is somewhat of a misnomer. Investors still need to decide whether to invest in passive strategies and to set their appropriate asset allocation. Passive investors also have to be aware of changes to the underlying securities and adjust their portfolios in anticipation, the «Financial Review» writes.
Brutal Competition
UBS's Doherty described competition in the asset management sector as «absolutely brutal,» with investment fees among the most competitive in the world.
«There is over 2.2 trillion Australian dollars in the super system and it has attracted a lot more fund managers than you would typically see for a country with 24 million people,» he said. He pointed to the large-cap Australian equities space where 167 managers compete for business.
