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Improving the Odds on Discovering Skilled Equity Managers

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In the next section of our Chasing Alpha series, we are honing in on selecting skilled equity managers, specifically long-only, active managers. Manager skill can essentially be defined as the fund’s alpha, or benchmark-adjusted expected return. Identifying equity managers that can consistently generate alpha is a Herculean task. Why is this? Once an equity portfolio manager starts generating alpha, that manager or strategy will surely get noticed in this world of informational transparency and gossip. Second, as managers hoard more assets to oversee, the opportunity set for specific strategies gets more challenging. This is why sovereign funds like the Abu Dhabi Investment Authority (ADIA) employ both external fund managers and utilize internal staff on equity portfolios. External fund managers can implicitly or explicitly lend investment theme ideas to their clients. Third, with rapid advances in technology, proliferation of education and intelligence, the competitive advantages of equity portfolio managers can begin to erode as stock selection transforms more into an art versus science for active managers. Access to company management has never been easier in the past decade. Earnings calls and transcripts are recorded through technology providers. This has also led to an increase in concentrated equity strategies among asset owners like Canada Pension Plan Investment Board (CPPIB). But with a little analysis and adopting a multi-pronged approach, institutional investors can increase their luck on finding them.

High-quality investment conferences also permit asset owners to connect with peers, possibly to share success stories.

Baby Steps

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China’s Central Bank Creates Macro-Prudential Management Bureau

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The People’s Bank of China (PBOC) created a new department to oversee and attempt to eliminate financial risks to the system. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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Like its U.S. Peers, Legg Mason Seeks to Trim Costs

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Legg Mason Inc., a Baltimore-based asset manager, has announced a reduction in workforce as is prepares to streamline operations and save money. Legg Mason’s leadership commented that assets under management fell 5 % year-on-year. Legg Mason currently manages US$ 727.2 billion (as of December 31, 2018), which is down from the previous US$ 767.2 billion. CEO Joseph A. Sullivan noted that a global operating platform will centralize fund administration, IT, and other departments that work with affiliates. Sullivan did not discuss the number of layoffs expected, or specify which areas would be impacted. Legg Mason disclosed they planned to close a quarter of its exchange-traded funds in March 2019. These three ETFs include a U.S. strategy, emerging markets, and a developed markets strategy outside the U.S. However, these funds run around US$ 28 million in assets under management.

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Monetary Authority of Singapore Establishes Corporate Governance Advisory Committee

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On February 12, 2019, the Monetary Authority of Singapore (MAS) revealed the creation of a Corporate Governance Advisory Committee (CGAC). CGAC was formed to advocate for good corporate governance practices among listed companies in Singapore. Bobby Chin, Director of Singapore Telecommunications Limited, will be the Chair of CGAC. According to a MAS press release, “CGAC will identify current and potential risks to the quality of corporate governance in Singapore.”

MAS formed the Corporate Governance Council (Council) in February 2017. The Council was dissolved after it pushed out a publication of its final recommendations on August 6, 2018.

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