In easier markets, some managers got used to bending mandates and providing less than complete explanations to investors. Manuela Thies at Allianz Global Investors talks about restoring high reporting standards
“We have a great advantage in regards to fund costs, as Allianz Global Investors holds high volumes of assets in external funds, so we can benefit from great pricing power in the interest of our clients.”
Thies says of the general advantages of open architecture funds of funds: “You can enter markets without having in-house experience in the relevant asset segment or investment style.
“If you want to allocate to exotic markets or new investment themes, for example, you do not have to have your own experts. You can buy alpha generation capabilities and respective beta exposure from other houses.”
Each member of Thies’s team of seven investment professionals has both fund research and portfolio management responsibilities, so they analyse individual managers constantly.
“We look at how active managers are with their strategies and ranges, as well as if there is a gap between what a fund manager is actually doing and what he tells us he is doing. Questions we ask include ‘Are there very large bets in his portfolio, for example, which are inconsistent with the fund’s general investment strategy?’”
This year, there have been times of “risk-on” then “risk-off”, and it is difficult for a portfolio manager to stick to their investment ideas in that kind of environment.
But Thies looks for managers who stick to their strategy, even if markets get rough, with high conviction and managers with concentrated portfolios.
“If we are convinced by a portfolio manager and know the current positioning, then we can hold on, even if there is a short period of underperformance,” she says.
“We prefer managers with a clear view over managers who just reflect the markets.”
Some people may regard the fact Thies gives team members analytical and fund management duties as procedural and of little importance. But she would disagree.
“Some houses have separate divisions for fund research and management, but our team is doing both as it is very important to understand how each fund we analyse works. We want to know how the manager thinks and what the process and universe is, so we can comfortably use the funds in our asset allocation process.
“In addition, we exchange opinions and know-how with another in-house fund research capability. Only if you truly know how the funds you invest in work can you implement your investment and asset allocation strategies.”
The team screens funds quantitatively first – for a range of metrics including risk/return profiles – before conducting further, qualitative due diligence on managers who are of use to pursue chosen investment themes.
Strong familiarity with managers allows occasional investments in target funds before their third birthday.
Thies’s team determines its own asset allocation strategy, before a second meeting decides which managers are most attractive to implement this.
She does not want a manager’s actions to cloud her team’s view on asset allocation, so they prefer target funds not to be rich in cash and not to invest with strategies that give themselves too much latitude.
“When we buy portfolio managers, we do our own asset allocation, so we try to avoid funds that are asset allocators [themselves]. We therefore do not buy balanced funds.
“We also try to avoid global equity funds because we do regional allocations ourselves. Some balanced funds are very skilled, and we have some global portfolios in our funds that are flexible, but there are only small weightings.”
An overriding goal for Thies is to find and exploit different sources of alpha. These can range from selecting asset class exposure to manager expertise, asset allocation or choice of instrument by her team.