Fund capacity a matter of structure

02-Nov-2017

By Sarah Kendell

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The concept of ‘capacity’ in a managed fund was irrelevant if the fund was structured correctly to ensure a wide opportunity set and blend the expertise of a number of different portfolio managers, according to Capital Group.

Addressing a media briefing in Sydney yesterday, Capital Group investment director Andy Budden said the group’s New Perspectives Fund, which had been operating for over 40 years and now had funds under management of US$70 billion, had managed to retain strong outperformance over that period due to the unique way the management team was structured.

“If there was a $70 billion fund managed by a single portfolio manager, you would have a real problem on your hands, but the fund is divided into a series of separate sleeves managed by seven individual managers who build their own global portfolio,” Budden said.
  
“So it’s not actually a $70 billion problem, we really dilute it and make it much more manageable, which is the key of how this large fund has been able to add value successfully over a long period of time.”

Capital Group head of Australia Paul Hennessy said while the fund had attracted $85 million in assets under management from major wealth management groups and family offices in Australia, its size was still sometimes a sticking point with those concerned it would run out of capacity.

“As we talk to folks in the industry, the issue of the size of the fund is topical – we find that it is part of the Australian understanding that big funds don’t generate alpha,” Hennessy said.

“We are saying that that doesn’t have to be the case – there are reasons that someone like Capital Group can continue to generate the returns investors can expect to get from our capabilities.”

Budden said the fund had achieved a 14.7 per cent annualised return excluding asset growth over the 44 years since its inception, performance which was also driven by its large opportunity set.

“This is a global fund also investing in emerging markets and [the portfolio is] only 0.14 per cent of its investment universe, so it is clearly very small compared to the opportunity,” he said.

“It is also a fund that has particularly low turnover – more than half the portfolio’s holdings have been there at least five years.”

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