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Everett led by detailing the asset allocation of theVirginia Retirement System as follows:
20% Fixed income40% Long only US equity17% Non US9.0% Global equity4.5% Private equity3.5% Real estate3.5% Hedge funds
She stated that alpha is by definition a relativeterm—that one must talk about benchmarkingwith respect to describing alpha. “Value relativeto what?” is her question. While this may be aneasy calculation for publicly traded strategies, it isnot easy when investing in private assets andtrading strategies. “We need to understand howmuch risk you took to produce that alpha.”
Everett described for the audience 5 ways to addalpha to a pension fund. These include:
1. Leverage—rare at a total fund level butbeing discussed
2. Active management—more typical3. Tactical asset allocation—popular in the 80s
and 90s when markets were returning 15%but a bit ”tarnished“ currently. Also valuetrading.
4. Lower cost of management5. Strategic asset allocation
Virginia’s historical returns have been dominatedby private equity. Pension funds are worriedabout how liabilities match those returns—“you’ve got to protect your downside.” The realityis that volatility in the short term is very difficultfor pension funds to withstand.
“Every 10 years you need to make one reallygood decision. And then you need to be able tohave the fortitude to stick to that decision.”Private equity was Everett’s “good decision” butit did not look so good through most of the 90s.
Everett’s advice to marketers? See the person whodeals in your asset class and be prepared to havea benchmark discussion. In addition, be preparedto have a candid discussion of risk. At the totalfund level, be prepared to look at your strategyrelative to other places the fund is investing.
Polon described the Disney Company fund as $5Btotal with $3B in defined benefit plans and $2B in401K assets.
A capacity crowd turned out for AIMSE’s 28thAnnual Conference at the Westin La Paloma Resort& Spa in Tucson, Arizona. Conference Co-ChairsJoanne Hickman and Kurt Wood programmed anagenda of powerful keynote speakers and presen-ters in a highly concentrated format that proved avery effective environment for learning and net-working.
Keynote Speakers
Keynote addresses were very well received fromTom McCarthy of Tom McCarthy & Associates andPeter Ricchiuti of Tulane University’s A.B.Freeman School of Business. Corporate consultant,trainer and coach McCarthy gave attendees aroadmap to dramatically increase their level of per-formance in business and in life. Tulane AssistantDean Ricchutti had the crowd rolling in the aisles—a great way to start day 2 of the conference—withhis sense of humor and insight into the capital mar-kets and how trustees and institutional investorsare reacting to them. Many of the conference par-ticipants noted that Ricchiuti was “one of the bestspeakers AIMSE has ever had” at an annual con-ference.
General Session—”In Search of Alpha”
In addition, conference attendees were treated to ahighly informative general session entitled“Searching for Alpha” and featuring NancyEverett, former Chief Investment Officer of theVirginia Retirement System (and now current ChiefInvestment Officer of General Motors PensionPlan), Michael Polon, Vice President, FinancialRisk Management in the Corporate TreasuryDepartment of The Walt Disney Company, andAlexander Klikoff, Managing Partner of FintanPartners, LLC and former Managing Director ofthe absolute return portfolio for StanfordUniversity. In this off the record session, moderatorMarsha Roth, Partner of Angelo, Gordon hadEverett, Polon and Klikoff speaking very candidlyabout the challenges of trying to achieve a reason-able return in a very low rate environment. Theseleading institutional investors offered their insightsand advice to traditional and non-traditionalinvestment firms about which alpha generatingstrategies are of interest going forward and why, aswell as how these programs are bought (and sold)most effectively. Finally, each of the investors gavethe audience perspective on how they monitor port-folios and what information they require frommanagers to successfully implement these pro-grams.
A D V I S O RJournal for Members of the Association of Investment Management Sales Executives
F a l l 2 0 0 5
In this Issue:
Fall ConferencePreview
.
Annual ConferenceHighlights
.
Graf ReceivesLothrop Award
.
Callan ContinuesInstitute
.
China to Play LargerRole in Global
Portfolios
.
CanadianOpportunities
Beckon
.
Calendar of Events
Highlights
Continued on page 2
AIMSE 2005 Annual Conference
2
Disney uses alternatives for return premium butalso for diversification. They have a higher risktolerance due to the younger age of their benefi-ciaries and the subsequent longer duration ofliabilities.
The company uses limited partnerships andsome separate accounts and does not manageassets internally. Planning cash flows is impor-tant.
Disney first started investing in private equity in1992. Its “sweet spot” is lead investors, con-sumer retail-oriented funds, small to mid sizetarget companies and mid-size funds. Currentlythey are invested in 25 funds.
With respect to venture capital, they want to bewith top tier funds as “they get the best deals.”Polon focuses on technology and biotech—mostly early stage. Disney started investing inventure in 1997 and currently has 18 funds.Venture has been the best performing asset classbut also the most volatile—“you need to havethe stomach for it.”
In real estate, Polon primarily use opportunisticfunds as the company does not need the liquid-ity of core funds. First investment in real estatetook place in 1995 and the fund currently has19 funds with 10 general partners. Polon cur-rently is increasing allocation to this sector.
Alex Klikoff believes that the measurement ofalpha is critical and that one must define bench-marks in advance. Klikoff is critical of bench-marks generally and believes peer universes to“be even worse.”
However, as a practical matter, Klikoff prefersto use cash based benchmarks—looking atabsolute returns relative to cash. He prefers tofocus on downside protection believing thatstandard deviation, value-at-risk and Sharperatios understate risk.
Klikoff focuses on fixed income and emergingmarkets—“this is a dangerous time to be look-ing at past performance to evaluate any man-ager.” He believes that past performance doesnot capture the impact of capital flows and thatmany alternative strategies are not scalable.
Roundtables
AIMSE members had four two-hour opportuni-ties to meet with consultants and investmentofficers in the ever-popular roundtable format.Moderators Cheryl King of Victory CapitalManagement and Keith Lewis of T. Rowe PriceAssociates, Inc. arranged two opportunities onMonday for attendees to meet with investmentofficers including:Jesse Bean, Catholic Healthcare WestLisa Higa, Fluor CorporationJerome R. Judd, Catholic Healthcare PartnersClare Murphy, San Francisco City and CountyChristina Samson, American Red CrossThompson H. Sawyer, Jr., CommunitiesFoundation of TexasAnnette St. Urban, San Joaquin CountyEmployees Retirement AssociationDoug Wynkoop, Houston MunicipalEmployees’ Pension System
It was standing room only on Tuesday as mod-erators Chris Austin of Standish Mellon AssetManagement and Robert Connin of LazardAsset Management provided conference partici-pants with the opportunity to share informationat individual discussion groups with consul-tants:Toni Brown, Callan Associates Inc.Sarah Cleveland, CRA RogersCaseyKC Connors, Jeffrey Slocum & Associates Inc.David Katz, Rocaton Investment Advisors, LLCChris Meyer, Fund Evaluation Group, LLCGreg Nordquist, Frank Russell CompanyKristin E. O’Donnell, Mercer InvestmentConsulting, Inc.Patrick Thomas, Strategic Investment SolutionsHoward Yata, Wilshire Associates Inc.
Workshops
Workshops were concentrated with 6 offeringsin two-hour sessions to give participants a realopportunity to “dig into” subjects including thenature of institutional credibility, building effec-tive sales presentations, building and managingeffective sales teams, a crash course in the hedgefund marketplace, mastering finals presenta-tions, compliance issues for marketers, and avery candid session with veteran institutionalmarketers Dick Graf of WestAM, Susan Leaderof Trust Company of the West, Rick Rockwell of
T. Rowe Price Associates, Inc. and John Seiterof Capital Guardian Trust Company.
Some of the pearls of wisdom from these ses-sions include:
1. Credibility in a nutshell is telling the truth,managing expectations and execution.
2. Common sense strategies to achieve institu-tional credibility include:a. clients firstb. rally the troopsc. lead by listeningd. honesty is the best policye. focus your messagef. get the bad news out of the way early
and move forwardg. under-promise and over-deliverh. seek advice—don’t think you know
everythingi. speak from the heart—what convinces
is conviction.3. Your most valuable players are able to
demonstrate leadership, collaborate anddeliver performance.
4. The great differentiator is the ability to col-laborate—you don’t want “lone stars.“
5. Through collaboration, MVPs take theirsuccess and “spread it around.”
6. The MVP matrix:
7. Beware the “dark twin”—they look likeMVPs but can be really dangerous—theseare the prima donnas. Know the differ-ence.
Tucson, AZ
28th Annual Conference HighlightsContinued from page 1
Competencies Behaviors
Collaboration Team orientation SociableCommunicativeOpen
Leadership Problem solving ExtrovertedAdvanced social Principledskills Value creatorsSuccess orientation
Performance Top performance —Role expertiseLearning orientation
M E S S A G EF R O M T H E P R E S I D E N T
Dear AIMSE Members,
I have had the privilege of being a member of AIMSE since Dick Lothrop and the Frank Russell Company decided that the investmentmanagement industry needed help in selling its products. Watching our Association grow to its status today has been exciting, rewardingand very beneficial to me in my career. Where else can any of us go and share ideas with peers who actually want to help you succeedand get educated at the same time?
As I look forward, as your President, I see your Board and Staff working on a very ambitious agenda for 2005–2006. We have completeda very successful 28th Annual Education Conference in Tucson and are in the planning stages for the 29th Annual Conference inOrlando next spring. Between now and then you will have great opportunities to attend our Fall Conference in New York on September19–20, regional breakfasts, an exciting Hedge Fund Conference in New York in February 2006 and the AIMSE Wharton InvestmentInstitute in January, 2006. Remember, the Wharton experience is only available every other year so please plan now to attend.
We all are working very hard on your behalf but, as I learned many years ago, to really benefit from your association with AIMSE youhave to get involved. We have seven standing committees that could use your help. Contact the Chairman of the committee that interestsyou and volunteer to participate. The Board will appreciate your help but, more importantly you will benefit from the interaction withother members who have volunteered their time to move AIMSE forward and make it stronger for us all.
You can expect to hear from me often during the year. I welcome your input and ideas that will help me lead the organization and ultimately make your membership in AIMSE as rewarding as possible.
Safe Travel and Best Regards,
Gregg Smolenski
3
At the Annual Conference, AIMSE announced the recipient of the 2005 Richard A. Lothrop Award recognizing an individual who,
through his/her efforts and activities in the investment management industry and in his/her community, has contributed significantly to
the betterment of the investment management industry and to mankind. The Lothrop Award was established in memory of Dick
Lothrop, formerly of the Frank Russell Company and a pioneer and innovator in the investment management marketing and sales indus-
try. Lothrop is recognized as the founder of AIMSE. The 2004 Lothrop Award winner Mike Fisher presented this year’s award to Dick
Graf of WestAm. The full text of Graf’s comments follows:
Dick Graf Receives 2005 Lothrop Award
I want to thank AIMSE, the Board and Staff forthe Lothrop Award. I am humbled to receiveit—thank you.
Just a few comments:
I have always believed that ours is a peoplebusiness. And I have believed in the adage“You are only as good as the people that sur-round you.” I have been fortunate throughoutmy career to have been surrounded by wonder-ful people.
I look at the people spectrum in two areas: per-sonal and professional.
In the personal area there are your family andfriends. I have been blessed with a greatfamily. Our daughter, Alyssa, who is not herebecause in her position with the Society Of Petroleum engineers she is handling theirannual conference in Houston which is a littlebigger than ours—40,000 plus. Chris, our son,is also busy in his job at Sanford Bernstein tend-ing to clients’ needs.
Of course the anchor to our family is my wifeAnnette, without whose support none of uswould be where we are today. And, she is as
worthy of the Lothrop award asI am. I thank her and love herdearly.
Professionally the people aroundus are many and diverse; our col-leagues, our support teams,and our clients, to highlight a few.
AIMSE has been the heart of thisindustry and profession. Someof those I have worked with arehere today including Neal Howe,Mark Sullivan and Jan Pieterse.I thank them. I thank the sup-port people behind the sceneswithout whom we can not do ourjobs as well as we do. We wouldnot be in business without ourclients and many in my case havebecome my friends. I thank them too and Icherish those relationships.
I am only here today because of the peoplearound me. I accept the Lothrop Award on theirbehalf.
A final comment in closing: the next time you arein an airport lamenting a tough day and where
you are going or where you have been— lookaround the terminal and when you see a youngman or woman in desert fatigues, stop and thinkabout where they are going or where they havebeen. You will realize that you do not have it quiteso tough and take a moment to thank those sol-diers for their service to our country. They are sovery important to our way of life.
Thank you.
Dick Graf receives the 2005 Lothrop Award from MikeFisher, former AIMSE president and previous LothropAward winner
4
Save the dates September 19–20 for a rare opportunity to meet and learnfrom top industry consultants and plan sponsors at AIMSE’s AnnualConsultant-Manager-Plan Sponsor Dialogue to be held at the Grand Hyattin New York.
The conference will begin with a keynote presentation on September 19 at6:00 pm with Jim Ware of Focus Group Consulting who will offer tech-niques for developing and leveraging the talent within investment organi-zations. A principal at Focus Consulting Group, he is the author of “ThePsychology of Money: An Investment Manager’s Guide to Beating theMarket” and “Investment Leadership: Building a Winning Culture forLong-term Success.” His presentation, Seven Critical Behaviors forInstitutional Investment Marketing Sales Professionals is sure tostimulate your thinking and help you generate ideas for your own organi-zation. Ware’s presentation will be followed by a reception complete withwine tasting.
On September 20, come prepared for a jam-packed agenda beginningwith “Shaping Leaders—Driving Results” a discussion with JohnCasey, Casey, Quirk & Associates; Mike Manning, New England PensionConsultants; and Allen Reed, General Motors Asset Management of thethree major trends that have had a major impact on our industry. Led byLarry Pokora of Chartwell Investment Partners, these industry leaderswill offer insight on how these trends affect our ability to perform salesand marketing duties as well as shape and guide our organizations.
Following the opening session, stay tuned as panelists Nick Visconti, NewYork City Firefighters; Larry Zielinski, Evaluation Associates Inc. give youthe “Keys to the City” or the insider’s view to their organizations. Thissession will reveal board insights, historical decision processes and generalplan information to help you make educated decisions in your sales andmarketing efforts.
Also on offer is the Pension Plan Roundtable, an opportunity to meettop plan sponsors in an intimate roundtable setting. Ask them the ques-tions you have always wanted the answers to and learn more about how togain access and meet their needs. Jack Gastler, Acadian AssetManagement will moderate a panel including Keith Bozarth, OrangeCounty ERS; Larry Krummen, MoDot & Patrol Employees’ RetirementSystem; Denise Outram, NY City Employees Retirement System;Frederick Volp, NY State Teachers Retirement System and SteveYoakum, Public School Retirement System of Missouri.
As if that weren’t enough, AIMSE also gives you the ConsultantsRoundtable. Roll up your sleeves and join top consultants for true“roundtable” discussions of the pertinent issues we all face today. There’sno podium and no audience—just individual discussion groups at eachroundtable. You’ll benefit from the insights of the consultant at your tableand the final “reporting back” from other groups. In an intimate andinteractive setting, you’ll hear straight talk on how to streamline yoursales and marketing efforts, develop productive relationships with influen-tial consultants and connect with the plan sponsors who need your ser-
vices most. Maureen Beshar, Lazard Asset Management will moderateand panelists include: Cliff Axelson, Callan Associates Inc.; BruceGraham, Shields Associates; Orim Graves, Fiduciary InvestmentSolutions; Beth Henderson, CRA RogersCasey; Lillian Jones, DahabAssociates and Ron Partain, Consulting Services Group.
Finally, no AIMSE Fall Conference would be complete without the“Candid Conversation with Plan Sponsors and Consultants.” As theconference finale you will have the opportunity to ask the really toughquestions—the ones you have always wanted to ask but you couldn’t—orwouldn’t. Consultants who have spoken throughout the day will join thisno-holds-barred session and take on those probing questions that havebeen submitted anonymously to protect the innocent.
For more information or to register for the Fall Conference, please contactAIMSE at 800-343-5659 or 202-296-3560 or visit www.AIMSE.com.
14th Annual Fall Conference Preview
SEATS ARE GOING FAST!Sign up today for the AIMSE/Wharton Investment Institute
January 8-13, 2006
The Wharton School
University of Pennsylvania
Philadelphia, PA
AIMSE/WHARTON
Consultant • Plan Sponsor •
Manager Dialogue
Strategies for Creating
Value in our
Sales and Marketing
Practices
September 19–20, 2005Grand Hyatt HotelPark Avenue at Grand CentralNew York, NY
Ron Peyton, President and ChiefExecutive Officer of CallanAssociates, Inc. is proud of his firm’seducational activities, including itsCallan Investments Institute. Theindustry flap about potential con-flicts of interest hasn’t convincedhim to end this well-known educa-tional business which brings togetherplan sponsors and money managersannually for a major conference andother activities.
The main message that Peytonwants to convey is that “We’re com-mitted to education. We think thateducation and networking in thisindustry are extremely importantbecause all parties have to under-stand each other’s issues and prob-lems — and we have to worktogether as a team — to achieve thebest results for the beneficiary.”
The flap started back in May 2005when an SEC Staff Report said,“Concerns exist that pension consul-tants may steer clients to hire certainmoney managers and other vendorsbased on the pension consultant’s (oran affiliate’s) other business relation-ships and receipt of fees from thesefirms, rather than because the
money manager is best-suited to theclients’ needs.” For example, thereport mentioned eight consultantshosting conferences that plan spon-sors attend for free, while moneymanagers pay fees. Since that reportwas issued, most of those firms can-celed their conferences. Peyton says,“The SEC has never said anythingabout that to us. I’ve only readabout it in the press.”
The press has focused its attentionon these conferences and perfor-mance software for which manyinvestment firms pay consultants.A large part of the SEC consultantinvestigation, mostly ignored bythe press, identified conflicts ofthose pension consultants withaffiliated broker-dealers or rela-tionships with unaffiliated broker-dealers. Fifty-eight percent of the24 consulting firms examined bythe SEC had such a conflict. Callandoes not.
Peyton says that any business hasthe potential for conflicts of interest.Callan addresses that through dis-closure and by putting firewalls inplace. However, says Peyton, “Thebottom line is that you’ve got to
have honest and ethical peopleworking for you.”
The front page of the latest CallanLetter features an article called“Celebrating 25 Years of FiduciaryEducation.” The article states that“the real value-added of the Institutelies in the white papers and surveys itproduces to help participants betterfulfill their fiduciary roles.” As exam-ples, it cites Callan’s periodic surveyof actual fees paid by plan sponsorsto investment managers and a whitepaper on small cap equities recentlypublished in the Journal of PortfolioManagement. The article concludeswith a quote from Ken Brunke, exec-utive director of the institute. “We’llnever lose sight of who we’re allworking for,” says Brunke.
Peyton says that Callan lists thenames of all of its money managerclients and will disclose amountspaid by a manager upon plan spon-sor request, if the manager agrees.
“The institute has been part of ourbasic business strategy for the last25 years,” says Peyton. If he has hisway, those 25 years are only thebeginning.
5
Callan Proudly Continues its Institute
“We think that education
and networking in this indus-
try are extremely important
because all parties have to
understand each other’s issues
and problems ”
China to Play Larger Role in Global PortfoliosEverybody’s talking about China.Sometimes your clients speak at ageneral level — about the revalua-tion of China’s currency or thecountry’s impact on the globaleconomy. At other times, their talkis specific to investments. Whenwill there be a good way to harnessChina’s power in their investmentportfolios? Some of them reckonthere’s a big hole in their portfoliowhere China should be. If you cantell your clients something thatthey don’t already know about thiskind of new investing frontier,you’ll be a more effective salesper-son, says AIMSE Vice PresidentKurt Wood of DePrince, Race &Zollo.
Lack of liquidity in the Chinesestock market has deterred invest-ments there, says Wood. Indeed,according to Chris Ruffle,Shanghai-based director of MartinCurrie Investment ManagementLtd., more than 65% of China’smarket capitalization — domesti-cally-listed Chinese stock, known
as A shares and denominated inlocal currency — has been lockedaway in the hands of the Chinesestate or company owners. But thatis changing. The Chinese govern-ment is pushing hard to makemore Chinese shares tradable.
The shift began earlier this year,when thegovernmentdecreed thatmanage-ments shouldcome upwith a com-pensationpackage tomake allshares trad-able. Thesolution,according toRuffle, isthat each existing holder of a com-pany’s tradable shares receivesadditional shares — for example,each holder of 10 shares gets anadditional three. “That way there’s
no dilution,” he says. The actualproportion of new shares varies bycompany, with management-owned companies generally beingmore generous than state-ownedcompanies.
The project started with four com-panies in May and added another
42 in June.Ruffle antici-pates that theproject willexpand toinclude theentire marketby the end ofAugust.
London-basedAlexanderTreves, fundmanager, AsiaPacific equi-
ties, with Merrill Lynch InvestmentManagers is not as optimistic.“First, we believe that it’s not quitetrue that the Chinese governmentis going to make all of its nontrad-
able shares tradable this year.Rather, it is making some firstexploratory steps.” And, makingadditional shares available comesat a significant cost. “It depressesvaluations, raises the cost of capi-tal, diminishes its own eventualproceeds, aggravates currentinvestors etc, etc.,” says Treves. Inthe meantime, “Offshore investorswith access to Chinese equities —not to mention Mainland investorsthemselves — are likely to findtheir positions buffeted as Chinamoves to a solution.”
On the positive side, “This appearsto signal that China’s governmentis moving towards placing morereliance on market mechanisms,with ramifications for the way inwhich China interacts with the restof the world in general. Theyshould see this as a money-makingopportunity for clients in the longrun once the problem has beensorted out, given increased investor
Continued on page 7
If you can tell your clients
something that they don’t
already know about this kind
of new investing frontier,
you’ll be a more effective
salesperson...
6
The lifting of Canada’s limit on foreign content in pensionplans presents opportunities for U.S. money managerswith expertise in managing U.S. and global stocks andbonds. The old 30% limit has been abolished, retroactiveto January 1, 2005.
It’s a development that’s welcomed by Canadian pensionfunds, including the Association of Canadian PensionManagement (ACPM/ACARR), which published a paperon “The Foreign Property Rule: A Cost-Benefit Analysis”in 2002 and had lobbied for elimination of the limit.
But is a quick and dramatic change in Canadian pensionplans’ asset allocation in the cards?
Industry pundits suggest that foreign content will rise to50% over the next five years, says Michael Gillis, vicepresident of marketing with SEAMARK Asset Managementin Toronto. “I personally think it will grow faster becausethe Canadian market could slow and the U.S. could dowell.”
Current Status of Canadian Pension Plans
A recent survey put many Canadian pension plans in thelow to mid-20% range for foreign content, according toGillis. Those plan sponsors apparently haven’t feltcramped by the 30% limit.
Investing in the U.S. has been a tough sell for somebecause Canada has performed well, partly because of for-eign exchange rates. “The Canadian dollar rose — or theU.S. dollar fell — significantly in 2003 and 2004, causingthe Canadian dollar to look good in comparison,” saysGillis. Managers of U.S. equities for Canadian clients havefelt the pain of exchange rates. In 2003, SEAMARK’s U.S.equity product beat the Standard & Poor’s 500 by 800basis points, but when returns were translated intoCanadian dollars at year end, they didn’t even beat bonds.“That’s why some plan sponsors don’t go up to the 30%limit,” says Gillis. It’s also an indication that currencyhedging strategies will be critical if and when allocationsoutside Canada rise significantly.
On the other hand, prior to the removal of the limit, plansponsors who wanted to exceed 30% foreign content haveachieved that legally by using derivatives or a master truststructure. RBC Financial Group reached 40% foreign con-tent using a master trust, according to Terri Troy, directorof pension investments with Royal Bank of Canada (RBC)in Toronto.
Until this year, Canadian pension plans have allocatedmost of their foreign investments to equities, mostly typi-cally splitting their foreign content equally between U.S.and international equities, says Gillis. A classic 60–40stock-bonds mix might include 30% Canadian equities,15% U.S. equities and 15% international equities, saysGillis. His personal preference is to weight the U.S. moreheavily. Over at RBC, the 60% equity weighting is 20%Canadian equities, 12.5% U.S. equities (large-cap andmid-cap), 12.5% EAFE equities and 15% global equities,says Troy.
Bonds will be Big
However, look beyond equities to find the biggest opportu-nities for foreign managers. RBC is on the verge of allow-ing their fixed income managers to tactically manageCanadian and non-Canadian bonds. “We’re looking forfixed income managers who have expertise in managingCanadian and foreign bonds in an integrated fashion,”says Troy.
Gillis agrees that bonds will be the biggest beneficiaries.“When you could only do 30% foreign content, youwouldn’t use it on bonds,” he says.
Passive hedging strategies and active currency managerscould also benefit as Canadian pension funds allocatemore to foreign markets. “Significant foreign exposuretranslates into significant currency risk which will need tobe managed either strategically or tactically,” says Troy.
Outlook for U.S. Firms
Can American firms compete in Canada? Troy seestremendous opportunities for experienced global bondmanagers. “Foreign managers have the specialized globalcredit capability for corporate bonds including high yielddebt, mortgage-backed securities, and emerging marketdebt and they can make sector and country calls,” saysTroy. For structural reasons, Canadian fixed income man-agers haven’t fully developed those capabilities, but theycould.
Gillis points out that Canada has many more balancedmandates than in the U.S., though the number is shrink-ing. Those could present an appetizing opportunity forU.S. firms.
American firms don’t need to open a Canadian office tocompete in this market, according to Troy, though Pimco,at least, did open an office there during the last year. Withor without an office, however, U.S. firms must raise theirprofile in Canada to make local fund sponsors aware oftheir expertise.
And what of the outlook for Canadian money managers?According to a study by Mercer Investment Consulting -Canada, “Over 70% of the Canadian investment managerssurveyed in Mercer’s 2004 Fearless Forecast . . . believedthe removal [of the foreign content limit] would not have asignificant adverse impact.”
Some Canadian money managers are hustling to formalliances with foreign firms. For its part, SEAMARK isworking to boost its credibility in Canada as a manager ofU.S. equities by marketing its U.S. equity management inthe U.S. through a third-party marketing firm. “There is abias among larger Canadian plans that Canadian man-agers can’t manage as well as a U.S. manager,” he says.U.S. managers might be wise to start their marketing now,before that bias is overcome by more Canadians buildingmarketing track records.
AIMSE CanadaCanadian Opportunities Beckon
7
choice, the theory of improved cor-porate governance, and the removalof the overhang,” says Treves.
However, an increase in tradableshares doesn’t mean that foreigninvestors can immediately grab alarge proportion of Chinese marketcapitalization. That’s because for-eigners can only buy through theQualified Foreign InstitutionalInvestor (QFII) program. It’s a quotathat’s currently limited to $4 billion.To put that in perspective, $4 billionaccounts for less than 1% of overallChinese market capitalization.
However, the Chinese are expected tomake an additional $6 billion avail-able by the end of August 2005, saysRuffle.
With these changes, Treves expects
“both supply and demand of invest-ment products incorporating Ashares to increase, barring the sortof economic and stock market melt-downs there which cause investorsto flee an asset class (not our centralscenario).”
All of these moves are graduallyreducing the barriers to Chinese Ashares being incorporated intoMSCI’s broader indexes. Once thathappens, investors may pile intoChina. “It’ll be a bigger risk not toinvest in China,” says Ruffle.
But doesn’t MSCI already have an Ashare index? you may ask. Yes,there’s the MSCI China A Index,launched in May 2005. But that’s anindex for domestic Chinese investorsbecause they have much moreaccess than foreigners to A shares,
emphasizes Ken O’Keefe, an execu-tive director with MSCI Barra.That’s different from the firm’sinternational indexes, which arebuilt from the perspective of foreigninvestors. As noted above, the QFIIprogram puts strict limits on foreigninvestors buying Chinese shares.That’s why they’re not incorporatedinto an MSCI international index.“MSCI has no current plans or afixed time frame for incorporating Ashares into MSCI internationalindexes,” says O’Keefe.
MSCI could change its mind aboutChinese shares. Indeed, in its pressrelease about the A share index itannounced plans to open a salesand client service office inShanghai. However, incorporatingA shares into other MSCI indexeswouldn’t happen overnight. Such
changes can take more than a yearand would include a formal reviewprocess that be announced inadvance, says O’Keefe.
Treves suggests that investors con-sider making money on the Chineseeconomy through vehicles otherthan A shares. “Chinese companiesmay be poor stewards of minorityinvestors’ capital, and A share valu-ations may not reflect that yet. TheChinese economic model appears tofavor revenues and market shareover profitability, and as such theequities of foreign companies whichsell to China, or which benefit fromcheap Chinese costs, may outper-form Chinese equities.”
Institutional investors will watchclosely as the Chinese stock marketdrama continues to unfold.
Strategic Planning Committee
Chair: Neal J. Howe Merrill Lynch Investment [email protected]
Communications Committee
Chair: J. Kurt WoodDePrince, Race & Zollo [email protected]
Awards Committee
Chair: Doreen MochrieCyrus Capital [email protected]
Program Committee
Chair: Tom Barron Harris Associates [email protected]
Education Committee
Chair: Andrea BollykyAetos Capital Management, [email protected]
Membership Committee
Chair: Rachel S.L. MinardCorbin Capital Partners, [email protected]
Canadian Committee
Chair: Michael GillisSeamark Asset Management [email protected]
International Committee
Chair: John Gee-GrantMerrill Lynch Investment Managers020 7743 [email protected]
For more information on how you canbecome involved in a committee’s work,please contact AIMSE at 800-343-5659 or 202-296-3560 or visitwww.aimse.com.
AIMSE Standing Committees and Responsibilities
China’s Role in Global PortfoliosContinued from page 5
So Far in 2005
AIMSE International has already enjoyed a busy andsuccessful 2005 with much still on the agenda. InFebruary we held our Annual Conference in London,attended by over 60 delegates, on Looking Forward– Learning from the Past. In June we held a round-table on Body Language in Business – Instinct orExtinct? which was a lively event attended by over30 delegates.
Coming Up in 2005
Our next event will be the AIMSE Negotiation SkillsWorkshop held on 5-7th September at the Lythe HillHotel in Surrey followed by our annual ConsultantsConference which will be taking place on 20thOctober at the Russell Hotel in London. The topicthis year will be What Are the Challenges FacingAsset Managers and Consultants in the RapidlyChanging Pensions World. More news later thisyear on our European Consultants Conference. The
date for our 2006 Annual Conference is set forFebruary 2; we hope some of our overseas colleaguescan join us.
Encouraging Wider Membership
As always, we are looking to welcome any new mem-bers to join AIMSE International. This is an excep-tional forum for anyone wanting to get involved inthe European Asset Management Industry.
We are also always on the look out for new and othersuccessful ideas for our events and welcome any feed-back for any other members or non- members onthis. Feel free to let us have any comments.
I look forward to seeing you at an AIMSEInternational event in the near future.
John Gee-GrantInternational Director
AIMSE InternationalUpdate
Published quarterly in Washington,DC as the official publication of theAssociation of InvestmentManagement Sales Executives, thispublication is free of charge toAIMSE members.
OFFICERS OF THE BOARD:2005-2006:
PresidentGregg J. Smolenski Dean Investment Associations
Vice PresidentJ. Kurt Wood DePrince, Race & Zollo, Inc.
TreasurerKeith W. LewisT. Rowe Price Associates Inc.
President EmeritusTom Sorbo
BOARD OF DIRECTORS 2005-2006:
Catherine B. AlsopFranklin Templeton Investments
Niels AndersenAltrinsic Global Advisors, LLC
Curtis BakerCapital Guardian Trust Company
Thomas BarronHarris Associates
Maureen BesharLazard Asset Management
Andrea BollykyAetos Capital Management, LLC
Jack BoyceGE Asset Management
Gerard BrankaFidelity Investments
Colleen CaseyAngelo, Gordon & Co.
John Gee-GrantMerrill Lynch Investment Managers
Michael GillisSEAMARK Asset Management
Neal HoweMerrill Lynch Investment Managers
Timothy McAvoyMarvin & Palmer
Lori McEvoyInvestment Management Solutions,Ltd.
Rachel S.L. MinardCorbin Capital Partners, LP
Doreen MochrieCyrus Capital Partners
Larry PokoraChartwell Investment Partners
AIMSE OFFICE:1320 19th Street, NW, Suite 300Washington, DC 20036800-343-5659 or 202-296-3560202-371-8977 faxwww.aimse.com
Executive DirectorF. Norbert [email protected]
Director of Membership and MeetingsPam [email protected]
Membership/Conference CoordinatorJennifer [email protected]
ADVISOR PUBLICATION GROUP:Managing EditorJ. Kurt WoodDePrince, Race & Zollo Inc.
EditorJane N. AbitantaPerceval Associates, Inc.(212) [email protected]
Associate EditorSusan B. Weiner
A D V I S O R
ADVISOR Journal for Members of the Association of Investment Management Sales Executives Fall 2005
Association of Investment ManagementSales Executives
132019th Street, NWSuite 300Washington, DC 20036
C A L E N D A RAIMSE North America Events
September 19–20 AIMSE Fall ConferenceGrand Hyatt Hotel Consultant-Plan Sponsor-ManagerNew York, NY Dialogue
January 8–13, 2006 AIMSE/Wharton InvestmentThe Wharton School InstituteUniversity of PennsylvaniaPhiladelphia, PA
April 23-26, 2006 AIMSE 29th Annual Marketing and Omni Orlando Resort Sales ConferenceChampionsGate, FL
AIMSE Advisor Welcomes Susan B. Weiner, CFA, Associate EditorAIMSE is pleased to welcome Susan Weiner to the team at the Advisor.
A CFA charterholder and Harvard University graduate, Susan is an experi-
enced manager of investment-related marketing communications for
major asset management firms. She is a seasoned reporter for business
and financial publications and has been published in American Banker,
Boston Business Journal, Boston Globe, CFA Magazine, Foreign Trade,
Mutual Fund Market News, and Registered Investment Advisor.
Check out Susan’s stories on Callan, China and the Canadian pension
market in this issue.
