Macro Migro: A New York frame of mind

Michael Migro is a name many financial planners would not have any trouble recalling. During the 1980s and 1990s he held high profile roles in the emerging financial services industry in Australia — with Perpetual Funds Management as chief executive from 1988 to 1997, and with Westpac Financial Services as head of retail customer management and then joint managing director from 1997 to 2001, when he joined Principal in Australia.

Then in 2003, he took on the role of chief operating officer of Principal Global Investors (PGI), and moved to New York to take on the world.

When Money Management caught up with Migro recently during a whirlwind visit back to Australia, he was 18 months into the PGI job, and still a bit dazzled by his life and work.

“Over the last 15 years, when I was working for other asset managers in Australia, every couple of years I’d go to the US and study their markets and see what they were doing and try and bring something back to Australia. So it’s great to now be working in the largest asset management market in the world. It’s very exciting.”

It’s also very busy.

Migro has responsibility for technology, investment operations, human resources, compliance and global trading, as well as for PGI’s offices in Sydney, Singapore, London and Tokyo. And with three subsidiary asset managers, nearly $130 billion in assets under management and 950 staff, it’s no mean feat.

And that’s the thing that dazzles him most about the US: just how big everything is.

“What’s the biggest difference between Australia and the US market? Scale. It is enormous, it is absolutely enormous,” Migro says.

By Australian standards, PGI is massive, but in the US it is only a mid-sized asset manager — and while both are tough stomping grounds, Migro says that differentiation is the key to keeping your head above the crowd.

“In Australia you can only work either for one of the large four banks or you set up a little boutique and off you go, you wouldn’t want to be trapped in the middle ground. You could say the same about the US, you wouldn’t want to be trapped in the middle ground unless you actually had specialty asset management capabilities.”

And Migro says that this specialisation is increasingly important in US asset management, particularly in the institutional arena, with flows going to either passive enhanced index huggers or specialty niche players.

While the techniques for managing money tend to be universal, according to Migro, there are cultural differences when it comes to investment.

Balanced funds are much less widely used in the US, with inadequate knowledge of diversification amongst investors.

“Less than three years ago, you could talk to an investor about diversified portfolios and they would say, ‘of course I’ve got a diversified portfolio, I’ve got a large cap growth, a mid cap growth and a small companies fund’. Ultimate diversification,” Migro says.

However, with many US investors having experienced the fallout of dropping markets, this is slowly changing. It could be more difficult to tackle their attitude to offshore investing, however, which stems from the US’ cultural perception of itself as the centre of the universe.

“US planners and the US investing public still have the vast majority of their funds invested in the US. And I think the reason for that is that the US has had a strong economy for so many years and it’s a country of 300 million people and it’s the largest economy in the world. Generally people’s knowledge that other markets even exist is pretty low,” Migro says. “And when you look at it, why shouldn’t it be?”

Distribution and advice also works differently to what we know in Australia.

Rather than bank-based distribution dominating advice as it does in Australia, US state and Federal legislation preventing the establishment of financial conglomerates has been in place since the 1930s. This legislation has directed the development of the industry. As a result, stockbroking businesses such as Merrill Lynch and Smith Barney became the predominant providers of advice. However, it also means that Australia has ended up with a more egalitarian approach to financial planning.

“Banks in Australia are providing a great level of advice to the low-end consumer — the people who have $20,000 or $30,000 to invest. Whereas in the US, if you’ve got that amount to invest, you really don’t get investment advice.”

And unless you have big money on your side in America, don’t expect your other financial needs to be considered by your planner.

“The advice model tends to be very investment-specific, whereas in Australia the advice has evolved over the last five years to become much more holistic, and concerned about people’s insurance affairs, their tax affairs, their estate planning.

“There are those services in the US, but they are really for the very high-net-worth individuals.”

However, Migro thinks this will change over time, with higher levels of wealth and a similar baby boomer bubble to that in Australia necessitating a broader approach to financial advice.

The regulatory environment is also similar to Australia, Migro says, with one key difference: the US attorney-general Elliot Spitzer, who has been leading the enforcement charge since last year’s mutual funds scandal.

“At a conference I was at recently, which was full of chief operating officers and chief financial officers… we all agreed the worst thing that could happen to our business would be to go to the office on a Monday and find Elliot Spitzer in reception waiting for you to arrive. Whether you’d done anything wrong or not, you just know it’s going to be a painful experience.

“He has extracted from asset managers to date US$2.8 billion in fines over late trading and market timing, and he’s not finished yet.”

However, Migro believes that common sense will keep you out of trouble in both Australia and the US.

“It still goes back to the fact that there are certain responsibilities that fiduciaries have, and if you don’t break the responsibilities, I don’t think you’ll have problems with the regulator one way or another.”

“Clearly, there were a lot of very large asset management firms in the US that were not doing the right thing for their clients.”

Like in Australia, soft dollar is an issue the US is grappling with — although unlike Australia, there is no clear feeling on it.

“I think the industry will move into two camps, those who use soft dollars and those who don’t. I think there needs to be a lot of tightening up as to what you use soft dollars for, and a number of companies are reducing the level of their soft dollar spends.”

But Migro’s role gives him a much broader perspective than just the US, with very regular travel part of his routine.

“I spent last week in India, a few days in Bombay, then I was in Singapore, then Hong Kong, now I’m here in Australia, next week I’m back in New York on Monday and Friday, and on Tuesday, Wednesday, Thursday I’m in Des Moines.” He shrugs. “We have a global business.”

As hectic as it sounds, Migro isn’t complaining about the pace.

“It’s fantastic. It’s a really great market to work in. For me, I’d been in the Australian market for over 20 years, and worked for large and small organisations…but almost everything I do is something new in the US. So it’s a great learning experience, and I work with some really smart people who know a lot about the industry.

“Everything is bigger. It might sound really trite, but everything is so much bigger.”

And then there is living in the world’s most exciting city.

“New York is a great city to live in, it’s very high energy. We live in the city, which is another thing that is really different for us. For the first time in 30 years, I don’t own a vehicle and I don’t miss it. There’s lots to do. We live very close to Central Park, it’s excellent.”

With such enthusiasm for the global marketplace, one could imagine a transition back to the small pond of Australia might be difficult, and Migro doesn’t know when, or indeed if, he will return.

“I think you would need to change your outlook on things. The Australian market is a highly developed, highly competitive marketplace, and I enjoyed all the time I had there. When I eventually come back to Australia, if there was opportunity to work in the market, I’d do it, but I’m not sure when that’s going to be.”