fpmi inside: get-together at AGI
28. Oct 2010, Munich Financial Centre Initiative
It was both a crash course in asset management and a way to get to know new and interesting people – fpmi inside’s 4th get-together. Held on October 26, 2010, the networking event was kicked off by a talk by Joachim Faber, member of the executive board of Allianz SE and CEO of Allianz Global Investors.
The first three fpmi insides had been staged by Munich Financial Center Initiative (known by its German abbreviation of “fpmi”) on the premises of the Munich Stock Exchange. This one, in a change, took place at Allianz Global Investors (AGI), and was attended by some 60 guests, each of them trainee managers and specialists selected to attend by the executive board members and managing directors of their employers.
The evening started with words of welcome from Christine Bortenlänger, fpmi’s speaker. Then Joachim Faber took the floor. He started off his talk with an assertion:
“Asset management is the really shaking-and-moving area in the world of finance.“ Faber went on to offer a large number of facts substantiating this assertion. He then explained that the mission of AGI is to provide services assuring the protection and increasing the wealth of its clients. The former objective is especially important to large-sized institutional investors. The key to satisfying the highly variegated requirements deriving from this responsibility is, increasingly, finding an optimal way of allocating investments in assets. This need to properly structure portfolios has primarily and strongly strengthened over the past few years, Faber explained. He added: “Some 90% of the performance – defined to be the sustaining of results exceeding the respective benchmark – attained by an asset manager stems from this allocation, with the rest accruing from the alpha.“
The asset manager’s main responsibility of properly serving clients is complemented by one towards the companies in which he or she has invested. Faber took a skeptical view of making attention-getting scenes at AGMs. These are “not very productive” in his opinion. As Faber explained, AGI’s way of exerting its influence is through the consulting on a regular basis with the managers of the companies in which it had invested. Such meetings are the proper place to discuss any problems. In response to a question, Faber confirmed that AGI does of course exercise its voting rights at AGMs. “Unfortunately not all assets managers do that.” Making this even more regrettable is the fact that asset managers hold 30% - 50% of the equity of each of the world’s 500 largest companies.
Pensions: engine of growth
In his talk, Faber identified the demographic transformation as being a prime mover among the mega-trends, as it yields – “via pensions – a major driver of growth. The funding required for old age care will not stem from the public sector, due to demographic trends and to the state of the sector’s finances,” he noted. These trends are also forcing companies to dispense with pay-as-you-go pension plans, as they yield unacceptable risks. Both the problems arising in this area as well as the approaches promising to solve them will stoke the demand for asset management services, stated Faber. This stoking will be enhanced by the “gigantic growth” in demand stemming from emerging markets.
A question frequently discussed in the world of finance and in the media is whether hands-on or laissez-faire asset management is more productive. Faber came out strongly in favor of the former. “We do not view passive asset management as being capable of adding value.” Often-cited studies have found that the performance of actively-managed investments lags, in the final analysis, behind that of respective indexes. Faber called the studies “probably not incorrect, but unfair.” The studies cover all asset managers. Taking a look at the top ten asset managers would yield highly different results. Hands-on management does not, in any case, necessarily have to be inherently associated with a great expenditure of resources. “Cases exist in which laissez-faire management can give rise to a greater expenditure than hands-on one.“
Staff members: determinant of success
Faber identified talent management as being one of the factors determining the success of asset management services. “And this isn’t a matter of a board member’s saying the things expected of him.” Its staff members constitute an asset management firm’s prime asset. In no other field of finance do staff members have such an opportunity to make an impact. “Investment bankers need to avail themselves of the financial strength of their companies. That’s not the case with asset managers.”
Faber’s talk was followed by a get-together. At it, participants exchanged views on the evening’s and other topics, set forth previously-begun discussions, and networked, while enjoying the buffet and bar. The organizers expressed their great satisfaction with the get-together. They stressed that staging fpmi inside at a variety of venues would facilitate the forging of ties among the players forming Munich’s financial community.