Bernstein’s star burns bright

A stellar performance in the highly competitive Australian equities sector and an exceptional result at a difficult time on international markets has propelled Alliance Bernstein to the highly coveted overall prize in the Money Management Fund Manager of the Year awards.

The award, which will no doubt be seen as a major coming of age for the US manager in the eyes of local investors and advisers, comes just four years after the group set up its Australian business.

The win also highlights a major shift in the funds management market in Australia. The trend throughout the 19 year history of the Fund Manager of the Year Award has been for funds management groups to rely on excellent results over a large range of asset classes to carry them over the line for the prestigious prize.

But Alliance’s win was built on truly stand-out results across the fewer number of asset classes it chooses to manage in Australia — a clear signal that no group over the past year has managed to ace the full gamut of asset classes, and that the era of the specialists in funds management may have well and truly arrived.

Veronica Gullo, associate director — fund ratings at Assirt, explains: “This year, not many of the big managers have been able to perform well across all the asset classes they have. And groups like Alliance Bernstein just really stood out. While it doesn’t offer your full gamut of asset classes, you just couldn’t go past the fact that it is an exceptional group in managing equities.”

Gullo adds that funds management groups which focus their expertise on a particular asset class are increasingly seen by researchers as demonstrating astute business acumen, which contributes favourably to the qualitative measures used in judging the awards.

“There is something to be said for a fund manager that knows where its expertise lies and sticks to it, rather than trying to satisfy the whole market by putting out products or putting together teams that are second-rate,” she says.

Exceptional performance

Exceptional performance has been the recurring theme for Alliance Bernstein, which has also taken out the international equities category in this year’s awards.

Over the past 12 months, Mercer figures have given Alliance Bernstein’s global strategic value fund second place with a return of 17.7 per cent, first place in emerging markets funds with 45.1 per cent, and fifth place for the Australian equity value fund with 36.7 per cent — a remarkable achievement considering this fund was launched only two years ago.

As a fund manager, it has a five-star rating from Assirt, as well as an AA rating from van Eyk Research.

Despite being a relatively new entrant to the Australian market, Alliance Bernstein is well known for its value investment style in the US, having been founded in New York in 1967.

In 2000, the organisation was acquired by the Alliance Capital Management Group, allowing Alliance, a growth manager, to offer both styles of funds management to investors. The chinese walls between the two fund managers have remained firmly in place.

In 2001, a 50/50 joint venture between Alliance Capital Management Australia and AXA Asia Pacific brought Bernstein to Australia, where its retail offering in international equities is available to financial advisers as the AXA Global Equity Value Fund, while institutional investors will know it under the Alliance Bernstein brand.

Investment process

According to Michael Bargholz, chief executive officer at Alliance Capital Management Australia, Alliance Bernstein’s success can be attributed to one factor — research.

This is a view confirmed by Gullo, who says: “It has got a team of extremely experienced global analysts, and these guys effectively provide the forecasts and views behind every stock.”

Bargholz adds: “Research is our calling card in that it, more than any other attribute, really defines who we are. We have a big commitment to global research.

“It’s also the scope of the research — having analysts around the world searching for performance based not on geography or sector, but at a company level.”

As an active, bottom-up, fundamentally-driven manager, Alliance Bernstein is also committed to ensuring that all investment professionals within the organisation follow a consistent approach.

US-based Kevin Boreen, senior vice-president and senior portfolio manager for global equities, explains: “We have a very consistent value investment philosophy, which is something that I think our clients really treasure. We don’t really deviate from that style and we don’t trend follow.

“We combine that value philosophy and research in a very disciplined and repeatable process. I think our clients sleep well at night because they understand how the portfolio comes together.”

With offices in New York, Sydney, Tokyo and London, Alliance Bernstein has 50 industry analysts, 25 quantitative specialists and around 40 portfolio management professionals.

According to Gullo, the firm is also unusual in that it has an internal investment policy group, which acts as the lynchpin for all stock decisions.

“The portfolio is not just reliant on one or two portfolio managers, but a team of eight or nine people with in excess of 20 years experience. They interpret what the analysts are telling them and put that together in a portfolio. So you’ve got that depth from the investment team.”

Boreen adds: “These are rigorous two or three-hour sessions per model. The investment policy group goes through line by line assumptions to ensure it really is the best possible forecast.”

The organisation also boasts excellent staff retention rates — the average tenure for professionals working at Alliance Bernstein is 11 years.

Australian offering

In Sydney, the team is headed up by Stuart Rae who holds the position of chief investment officer in addition to his qualifications as a Rhodes Scholar and Oxford PhD.

Elizabeth Foley, head of investments at AXA, is quick to applaud the success of his work in establishing an Australian share fund.

“Now that we have two years performance, this fund is winning more institutional support, and then you will see the trickle down process to the retail market. It does take time, as Stuart was an unknown here, but he’s certainly proving himself in his investment performance.”

Currently, the Alliance Bernstein global equity fund has over $770 million in retail funds under management (FUM) in Australia, while the Australian equities product is now attracting inflow, with over $100 million currently in FUM.

Finalists

Tyndall, another bottom-up, value manager, was named finalist in the overall Fund Manager of the Year award, along with Citigroup, which was also commended in the categories of property and Australian fixed interest.

Tyndall was also a runner-up in the international fixed interest category, and possibly the only fund manager in that category to run its operation from an Australian-based office.

Michael Good, chief executive officer, says: “We are specialists in Australian shares and Australian fixed interest. The spin-off of our global fixed fund is due to the fact that in order to manage money here in Australia, you have to know what’s happening worldwide. If we are out there doing the work on macro economics, then it’s natural that we are able to manage a global bond fund.”

— Larissa Tuohy