He has also bought a farm, which provides another form of exercise but also is a “long play on soft commodities,” he said. “My wife was keen to have a holiday retreat, and because we live close to the beach there's no point in having a beach place. I didn't want to buy a house in the country and just sit and look out over things. So we bought a farm.”
What is driving your global growth? The move outside Australia (started) a number of years ago was driven primarily by our client base in Australia.
It's the fourth largest pension market in the world, and in essence the amount of savings in the pension pool is greater than the size of the Australian stock market. So, increasingly our clients have been looking to invest offshore — both because of good portfolio construction reasons and because of the size of the (investment) pool (in Australia).
Our clients, as they were looking for opportunities outside the Australian marketplace in those areas where we had depth of experience, (asked us to take them) into markets outside the Australia market. That led to our establishing an office here in the U.K. (in 2005) in terms of infrastructure, primarily on behalf of our clients in Australia, and we've deepened that capability over a number of years. And we're hoping to do that in the U.S.
How has your focus changed over the years? It started with working with our clients in Australia to take them offshore, but as we've done that successfully we've seen increasing interest from clients in Europe to invest in infrastructure, both in the region but also to tap into our capability to invest in the Asia-Pacific region.
Also, we have a global infrastructure debt capability, and we've found strong demand for that across both Europe and out of (clients in) Japan and China.
You invest in a broader set of asset classes in Australia than what you offer the rest of the world. Do you expect that to continue? It's really the property and infrastructure (capabilities) that we're taking global. I think the capabilities (beyond those) we're growing in Asia-Pacific will appeal to pension funds (in Europe). Presently, the demand is in the infrastructure space, but we do think in due course we'd like to have a broader relationship with pension funds here in Europe.
Which are your top regions for growth? At the moment our growth is evenly distributed between our domestic and international businesses, (with international flows) up from zero as of about 2002. There is significant opportunity (in Europe). They think about infrastructure in its variety of forms and it can fit into a range of investment opportunities, whether you're a defined contribution or defined benefit plan.
And when I look at Japan, I think there is an equally significant opportunity, as (corporate pension plans are) awakening to the benefits of investing in infrastructure.
What are the hurdles to infrastructure becoming a mainstream asset class? The key hurdle is understanding, because it had been perhaps misclassified as a private equity or property investment. It has its own unique characteristics; people need to spend the time to understand it and the various ways you can get exposure to infrastructure. This requires an investment of time and energy and engagement to understand it and how it fits into a portfolio. But our experience has been as plan sponsors and trustees spend the time ... progressively it becomes a more mainstream proposition, as it has done in Australia.
To what extent are you looking to grow through M&A? Our primary focus is through organic growth. There will be small bolt-on opportunities that come our way, which will be terrific. But our focus is primarily on growing our capability organically and looking for opportunities where we can establish relationships with houses that can really use our capability (as with Mitsubishi UFJ). That type of business expansion works very well because you have two groups coming together, each bringing specific, complementary skills and assets, rather than “Let's go buy another firm and bang them together.”
Is now a difficult time to be building a business in Europe? No, I don't think it's any harder than anywhere else in the world. Our view is that we'll see five or so years of stabilization and the opportunities in Europe are significant. Obviously European pension funds are more comfortable investing in the region than perhaps outside. But our clients in Asia-Pacific are also interested in investing in the region.
And regulators are getting more involved in all of the regions (in which) we operate. That's just something we have to deal with. The world's changed, and you need to have good relationships with the regulators.
Is AMP Capital well-placed for the move to DC outside of Australia? We're well-placed to engage with plan sponsors to talk about how infrastructure or illiquid assets can play a part in DC investment strategies. We've been doing that for many years in Australia. We can share that experience and how it's worked so DC plan sponsors can learn from that experience and that insight.
How do you deal with illiquidity and daily pricing in DC plans? Infrastructure as a stand-alone investment proposition for DC doesn't work because you can't deal with that flow of money in and out. But you can embed it in an overall diversified multiasset fund. (It's possible to) have an overall portfolio with illiquid (assets) of around 10% to 15% as long as they're regularly valued. We value infrastructure assets twice a year and have rolling valuations for property assets. That frequency is enough to provide daily pricing for overall diversified multiasset funds.
How will the LIBOR scandal affect your firm? We have funds which in some cases have benchmarks (based on) or assets priced to LIBOR, so we need to look at the appropriateness of those benchmarks going forward. But at this point in time we don't see it as fundamentally affecting the attractiveness of those assets. The more fundamental issue is around trust. The challenge for not just the banking industry but the broader financial industry is we do need to focus on regaining the trust of our client base. n
This article originally appeared in the August 6, 2012 print issue as, "Looking outward".