Canadian corporate pension fund | Summer 2017
Engagement at a glance
This Canadian corporate pension fund wanted to replace one of its ‘global ‘equity managers (ACWI ex Canada) and one of its ‘international’ equity managers (ACWI ex US), each of which was managing approximately USD 240 million.
This pension fund was strongly of the opinion that their retained investment consultant did not have deep coverage of the global and international equity manager universes, and perceived an excessive bias towards US-based managers in their research. This was one key driver behind the partnership with bfinance.
The investor was keen to identify partners that would complement the other incumbent equity managers. The manager was also keen to see long track records – nine years and above – to see how they performed through the market cycle and, in particular, the financial crisis. They also indicated a preference for managers that included emerging markets, although they were open to considering others. Relatively low tracking error and low downside capture were seen as positive characteristics.
- bfinance provided analysis of 67 ACWI ex-Canada strategies and 72 ACWI ex-US strategies. This broad universe far exceeding the investor’s expectations and previous experiences, particularly given the high hurdle of a nine-year track record in the relevant strategy. This included a geographically diverse roster of firms based in the US, Canada, the UK, Germany, Luxembourg, Hong Kong, Australia and more.
- Equity portfolio diversification and complementary style characteristics were prioritised; rather than viewing managers in isolation, bfinance analysis was oriented towards finding strategies with well-differentiated alpha profiles.
- The investor was comfortable with the quality of managers presented at second stage and depth of analysis on each; as a result, they quickly whittled this down to a select group for due diligence.
- Although the original intention had been to replace only one incumbent manager in ACWI ex-Canada, the investor was impressed by two managers at due diligence phase for this asset class and therefore opted to replace both of their incumbents.
Our specialist says
This investor’s incumbent consultant was relatively restricted in terms of research coverage and tended to conduct due diligence on managers that were in close proximity geographically, namely in North America. We consider it a high priority to cast the net wide and avoid explicit or implicit biases in terms of location, philosophy or implementation style. Although a nine-year track record limitation could be slightly restrictive, this breadth of coverage meant that there were still a very large number of appropriate strategies to consider.