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Australia is next market for AIFMD-compliant MAP

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Amundi Alternative Investments was one of the first managed account platforms in Europe to become fully AIFMD-compliant. With approximately USD5billion in assets, the Dublin-domiciled platform is perfectly placed to capitalise on growing demand from the USD2.02trillion Australian Superannuation market for investment solutions that offer a clear value-add (and value for money). 

At least this is the view of Michael Hart (pictured), deputy CEO and global head of business development for Amundi's alternative asset unit. Having just returned from Australia, Hart says that the main concern of institutional investors is transparency and identifying potential conflicts of interest. 

"The Australian government is saying that pension funds need to focus on the fees they pay. There can be no control over the outcome of an investment but there can be control at the beginning of an investment in terms of what is paid. That's not an argument that the pension funds are particularly in agreement with. They might be paying X amount in fees for a manager delivering superlative performance but what the government is implying is that they should focus on the cheapest (but not the best) managers to invest with. I think this has rattled a few of them a bit," says Hart.

And herein lies the opportunity for Amundi. It is extremely competitive on fees, and is probably one of the most cost-effective managed account providers. Not only can it address the fee issue, and deliver tangible value for money solutions without compromising the quality of managers, it can also help pension funds with respect to transparency and governance; two other important metrics that their performance is being judged on.

"This plays into our hands," says Hart. "Unlike a lot of other fund managers, we have no conflicts of interest or even potential perceived conflicts of interest. We have gone down the AIFMD route with our MAP. We can't, for example, use our own in-house prime broker. Instead, we have a list of 15 or so external prime brokers that our underlying hedge fund managers use. 

"So our model is as `clean' as it possibly can be and that should help us in Australia. When I explained what AIFMD is, and why Amundi had decided to go down that route, it was received extremely positively. As sophisticated investors, they are relatively agnostic in terms of investing onshore or offshore as long as they can get access to first-class managers and can benefit from a governance viewpoint." 

The Amundi MAP currently invests with 26 managers although the analyst and due diligence team have a wider universe of 80 or so managers that remain on the radar, should Amundi decide that one or more would fit with a particular client's customisation requirements. At present, the 26 managers fit its clients' specific needs. "We are only as good as the managers we work with or research. The team in London search for new managers on a daily basis," notes Hart. 

One of the big advantages to a MAP is that institutional investors have greater transparency into how their investments are playing out. They can ascertain a particular manager's sector exposure, country exposure (e.g. China over the summer, when its stock market lurched wildly), what the aggregate beta exposure is and so on. 

As such, daily liquidity is less of a concern. According to Hart, institutional investors are more concerned with operational risk, governance, and accessing decent managers with a solid track record than having daily liquidity. 

"With respect to Australian institutional investors, they want value for money and any managers that they invest with have to offer extremely competitive fees. It depends on the manager and the strategy they run but it is our job to negotiate, as hard as possible, on behalf of the client. We have to be seen to be adding value in as many areas as possible. It's a competitive market out there," comments Hart.

Manager selection is critical. Like US and UK pension funds, many of the Australian pension funds know the blue-chip billion dollar names in the industry and are quite capable of accessing them on their own. Where they want value from a MAP provider is accessing mid-sized and emerging managers. "With those, there is far greater business risk so you need to have robust due diligence and an experienced operations team, which Amundi has.

"We've also just onboarded Complus, which is a mid-sized global macro discretionary manager based in Hong Kong. We are the only platform they are on. They've got a 15-year track record, never had a negative year, but a lot of people are unaware of them. When I was talking to pension funds in Australia, a couple of them had heard of Complus and when we mentioned the fact that they had just joined the platform, they said that that was exactly the kind of manager they were looking for. Being able to invest in managers like this via a managed account mandate, which reduces business risk, is very attractive to them," suggests Hart. 

Earlier this year, Amundi awarded a EUR50million mandate to Connecticut-based FrontFour Capital Group, a boutique event driven manager. The mandate was to develop an AIFMD-compliant version of the US fund, which has a track record dating back to 2006. 

These are precisely the kinds of managers that global institutional investors want access to, and why they are increasingly turning to platforms to create segregated mandates to off-set the fact that mid-sized managers might not be as operationally robust as a USD1billion manager. 

"Investors expect us to have a global reach and identify emerging managers and mid-sized managers in all regions, otherwise I'm not sure they would consider working with a platform like ours. They know what they want, many of them have extremely knowledgeable in-house teams and they are extremely well run. All the Australian Supers hire talented people within the industry to work for them internally. You really need to be on your toes when working with them, and bring something of clear value to the table; to help them either as an extension of their in-house team or to work on developing external mandates," explains Hart. 

Indeed, the majority of Amundi's mandates are fully customised dedicated accounts for single investors. One of the advantages of the MAP is that it doesn't have an umbrella structure, legally speaking. Every client is in a separate silo so there is no potential for contagion. 

"Although it's more expensive, structurally, for Amundi to do this, it is far safer for our clients. And again, this is something that has been well received by the Australian institutional market. If the client wants to move their investment out of one of the funds on our platform, or increase their allocation, it has no impact on the other investors," adds Hart.

With market volatility returning with a vengeance in 2015, hedge fund managed account solutions are looking as attractive as ever. For those wishing to build a defensive position to protect against downside risk in their overall portfolio, hedge funds are a vital tool. In Hart's view, there is no doubt that Australia offers huge potential as the pressure on fees paid by pension funds continues. 

"It's not going to happen overnight but I'm far more positive having now been to Australia and spoken to some of its institutional investors. In my view, Amundi ticks a lot of boxes for them. They have to justify why they intend to stay in hedge funds and to show they are obtaining value for money for their hedge fund managers. 

"If they can demonstrate that they are using a platform where there are no conflicts – or potential conflicts – of interest, where the mandate is legally segregated and where fees are properly negotiated and demonstrate that they are following a code of best practice, that helps enormously," concludes Hart

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