Australian Ethical, which is already the equal-largest manager of specialist ESG-related funds in Australia, alongside Vanguard, is now aiming to be among the largest of all managers with Australian businesses operating in the wholesale and retail space. And it is hoping technology will help.
The manager (ASX: AEF) has partnered with a specialist start-up Alta Vista to review its asset allocation framework and has appointed John Woods as head of asset allocation, responsible for the firm’s balanced fund and overall strategic asset allocation.
The review by Alta Vista is being led by consultant Ashby Monk who will help design what is being billed as a “world-class innovative approach” to asset allocation. Monk, a director of Alpha Vista, is also a research director of the Stanford Global Projects Center and has consulted to some of the larger pension plans around the world. He is also a member of the Future of Finance Council at the CFA Institute.
David Macri, AEF’s CIO, said: “Australian Ethical already has a long track record of producing above-market returns by specialising in responsible investment. Investing in future-focused talent and technology will help us to maintain this position and continue to keep us in good stead in achieving these stellar results.
“Alpha Vista [is] commercialising a deeply researched big-data, artificial intelligence technology platform that has been evolving for the past 10 years. Partnering with them will eventually allow us to have a single view of all our portfolios and more accurately manage risk and will contribute to overall portfolio performance… This year, we are investing in our growth, and setting the ambitious target of becoming one of Australia’s largest investment managers by 2030.”
According to Morningstar data, Australian Ethical, which has three ESG-related funds in its dataset, equalled Vanguard with a market share of 20 per cent across Australia and New Zealand as at December 31, 2020. The next-largest active manager in market share was First Sentier Investors, which came in fifth. Third and fourth were BetaShares, with 7.6 per cent, and Dimensional Fund Advisors, with 5.4 per cent.
But, after years as battling along as a boutique, AEF has finally hit a market sweet spot. The Morningstar December quarterly report on sustainable funds showed they have comfortably outstripped the broad universe of all Morningstar funds – which don’t include big super fund mandates – for fund flows since 2018. Their growth accelerated during 2020 while most funds had a very tough year.
Generally speaking, passive funds have had stronger positive flows than active in ESG funds, similar to their showing across all fund types, since 2017.
AEF’s total funds under management, as of December, came to $5.05 billion, indicating a long road ahead to catch the broad-market leaders. ABS figures for December estimate the total managed funds industry having nearly $4 trillion in assets, but that figure is very misleading, including a lot of double counting. Rough industry estimates, again excluding mandates, are less than half that.
Macquarie is by far the largest manager in Australia, with more than $400 billion, followed by institutional manager IFM Investors, with about $180 billion.