Colonial's perseverance pays off
A fortnight ago, Colonial was awarded the highest accolade for the investment performance of an Australian fund manager - the Money Management Fund Manager of the Year. Jason Spits takes a look at the team behind the award winning funds.
A fortnight ago, Colonial was awarded the highest accolade for the investment performance of an Australian fund manager - the Money Management Fund Manager of the Year. Jason Spits takes a look at the team behind the award winning funds.
Until this year, no fund manager has won back to back awards but with the an-nouncement of Colonial taking out the coveted award again for 1999, a new bench-mark has been set.
Colonial also snagged first place in 1996 (then as First State), and has been in the top three fund managers for three more years giving it a top three profile in six years out of the last ten.
However, Colonial First State chief executive officer Chris Cuffe says the groundwork for its success in the late nineties was created during its time as the new kid in town back in the late eighties.
"The process we have now is similar to that of 1988 which was strengthened in 1990 when I took over. Prior to this time, the whole investment approach was small and we were working on our roles in the funds management area," Cuffe says.
"After 1990, we began to concentrate on our investment philosophy and we have grown accordingly, passing $1 billion in funds under management in 1993 and by the end of 1999 that figure was $30 billion."
Van Eyk Research managing director Stephen van Eyk says keeping up the momentum of the late 1980s has been critical in creating the Colonial we see today.
"Colonial had the right start and setup as an active, boutique manager. The per-sonnel and process they favoured paid off in the low inflation 90s," van Eyk says.
"More resources and people were added to build around the philosophy and proc-ess. Even though it was the right start at the right time, it still would have fallen apart without good management building up the business."
According to Cuffe, the philosophy formed over a decade ago and in place ever since has been an effective even as the fund manager has increased funds under management substantially.
Colonial has become a sizeable manager in the last four years due in part to two acquisitions in 1998 - Prudential and Legal & General.
"Last year saw organic growth within CFS as we bedded down the acquisitions of the previous year and it really showed that Colonial was active in its own right," Cuffe says.
He says the active, disciplined approach which has avoided emotive, herd-type mentality is also one of the manager's key planks.
"We are a demonstrably active manager. The way we look at this is across all sectors and classes with a focus on earnings. It is essential to apply this type of management across the board to take out the top position," Cuffe says.
"Our aim is to do better than the benchmarks which are only mathematical limits. There are certainly no black box processes in use. We regard our style rather as a mix between art and science and putting our money where our mouths are."
In maintaining this style, Colonial relies on finding the best value stocks and being guided by the earning potential that goes with them.
"What it means is buying an income stream based on old fashioned stock selec-tion. We haven't strayed from that since day one and it is the same focus ap-plied to the Colonial technology fund," he says.
The Colonial technology fund which was made available to retail investors in No-vember last year had, $140 million under management by the end of January.
However, the active process and stock selection which have assisted growth are held together by another key plank - the people who run the process.
Cuffe says the investment team has only ever lost two people they wished to keep, since kicking off in 1988.
Each member of the team is actively involved in the investment environment which also gives a degree of stability.
"We spend a lot of time getting the right people as we are fussy about who comes on board. We seek people who work in a like manner with a similar behaviour and approach to our culture," he says.
The effort has reaped rewards for Colonial with the size of the investment teams in each class growing and attracting further managers to the Colonial flag. At present, the investment management team numbers 70, up from only 20 in 1996, with the attendant increase in expertise in each asset class.
At the same time, the culture which has given rise to the investment process, work environment and approach to funds management transcends the people who make up the group while also being embodied by them.
"There are more than 600 people in Colonial. It is self-perpetuating but the top dozen managers also represent living examples of the culture. We've gone for not only a skill set but attributes which drive the culture and process too," Cuffe says.
"The process is long standing and documented and so our philosophy rules with the individual taking an important secondary place in the investment process."
But will this change after the merger with the Commonwealth Bank? Cuffe doesn't think so. He believes the value in leaving the process and culture intact are obvious.
"I don't think the merger will have any long term effects on funds management or the processes and philosophy involved. After the merger, I expect we will see CFS ring fenced," he says.
"The actual positives will be an enhanced international equities profile with the ability to offer a new level of service as international managers."
Cuffe emphasises there are few Australian fund managers competing off their own bat with overseas international equities managers.
He says Colonial is also unique by having a direct property investment capabil-ity as well as unlisted infrastructure and venture capital. Yet, at the same time, Cuffe is well aware of the role financial planners play in its success.
He says Assirt figures show Colonial as the most used fund manager by financial planners and that 6000 have done business with the fund manager last year.
"The financial planner market has been crucial since day one wit 80 per cent of business coming from external financial planners. This is indicative of us work-ing on our merits and being chosen in a competitive market situation based on what we do," Cuffe says.
"Performance and service are joint issues and planners will no longer go with products based purely on performance alone. The challenge is to take our brand-ing to the world and broaden our business on a global stage."
What then does the next year hold in store for Colonial? Cuffe remains confident that things will continue to improve and expects to come out somewhere near the top again, this time next year.
"We will be placing more resources into our international investments. We remain happy with the progress of the other classes but a big focus will remain on all classes."
"In the future we hope to pick up some awards in the international equity classes, as well as a number of others we are already active in."
AUTHOR
Jason Spits
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