SQM Research Ratings Update
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Profile of the World's Largest 50 Fund Managers (by size)
One of the conventional wisdoms that has been debated for many decades is that to be successful as a fund manager, location matters. You need to be in one of the globe’s major financial centres, or at the very least a major city considered a second-tier hub.
The arguments for this proposition include:
Some counterarguments include:
- Being close to the source of news, data, announcements, and the people running major corporates, regulators, central banks, educational institutions that drive the important development in financial markets
- That’s where the clients are: institutional investors, pension plans, family offices, endowments, high net worth individuals, private banking clients etc.
- Ability to recruit from the best and brightest talent pool available – both seasoned professionals and graduates of the elite universities and colleges
- Greater set of opportunities for both investments and new client business
- Close access to the best vendors of information and technology needed to run a fund management business
- Lifestyle (amenities, cultural events, sporting) attractions that can assist in attracting or retaining senior experienced staff
There are many more points that can be made both for and against the usefulness of a financial hub location. The reality is it also depends on many idiosyncratic factors such as the manager’s investing style, security valuation and selection techniques, quantitative vs. fundamental, multi-asset vs. single strategy etc.
- Being close to the news, data, announcements etc. is distracting and produces more noise than signal. Getting away from the hub-bub can promote clearer thinking and better decision-making. You can get all the information you need instantly and globally thanks to modern communication infrastructure.
- Engaging with clients and new prospects can be done effectively through cheap and ubiquitous travel options, video conferencing, webinars and a variety of digital strategies. You don’t necessarily have to be where the client is – you can go to them
- Smart, talented, motivated potential recruits are not confined to mega-cities. You can find them almost anywhere if you know how to look and what channels to use.
- The technology and infrastructure to efficiently run a fund manager is available (almost) anywhere, particularly with the advent of cloud-computing. Regulation and compliance are the more challenging barriers to entry.
With that in mind, we present some data on the top 50 fund managers in the world – drawn from a study by Willis Towers Watson and Pensions & Investments.
The table shows mixed results. There is some apparent (moderate) dominance of mega-cities in the list. There is also a wide representation of many smaller cities as well.
The next two charts show that there is a positive statistical relationship between the size of a fund manager and the size of their headquarter city. However, the relationship is very modest – barely statistically significant. This would indicate that in many cases being located in a financial hub or a mega-city is not a compulsory pre-requisite to success in fund management.
The chart below shows the spread of smaller cities across all FUM sizes.
SQM Research's Top 5 SQM Rated Funds* for August 2019
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* Any Funds in this table that have international investments will have different hedging patterns, from hedged to unhedged or variable hedging. This may have an impact on fund returns. Please refer to the Fund's product disclosure statement for details.
SQM Research's Top 50 ETFs for August 2019
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SQM Research is an independent property advisory, ratings and forecasting research house which specialises in providing accurate property related advice, research and data to financial institutions, property developers and real estate investors. For more information please visit www.sqmresearch.com.au
In general, the assessment approach adopted by SQM Research incorporates a combination of qualitative and quantitative research techniques to assess property investment products. Information generated is passed through the SQM Research assessment model at the completion of the assessment process. The assessment model generates a product score, which correlates to a specific star rating (out of a maximum of five stars). Each star rating covers a scoring range, allowing products to be ranked within quarter star increments.
Following are descriptions for each of the star ratings, which have been developed as a guide for dealer group research teams and investment committees:
4.5 stars and above - Outstanding. Highly suitable for inclusion on APLs.
4.25 stars - Superior. Suitable for inclusion on most APLs.
4 stars - Superior. Suitable for inclusion on most APLs.
3.75 stars - Favourable. Consider for APL inclusion.
3.5 stars - Acceptable. Consider for APL inclusion.
3.25 stars - Caution required. Not suitable for APLs.
3 stars - Strong caution required. Not suitable for APLs.
Below 3 stars – Avoid or redeem. Not suitable for APLs.
Hold - Rating is suspended until SQM Research receives further information. A rating is typically put on hold for a period of two days to four weeks.
Withdrawn - Rating no longer applies. Significant issues have arisen since the last report date. Investors should consider avoiding or redeeming units in the fund..
* The definitions above are not all encompassing and not all individual items mentioned will necessarily be relevant to the rated Fund. Users should read the current rating report for a comprehensive assessment.
The rating contained in this document is issued by SQM Research Pty Ltd ABN 93 122 592 036. SQM Research is an investment research firm that undertakes research on investment products exclusively for its wholesale clients, utilising a proprietary review and star rating system. The SQM Research star rating system is of a general nature and does not take into account the particular circumstances or needs of any specific person. The rating may be subject to change at any time. Only licensed financial advisers may use the SQM Research star rating system in determining whether an investment is appropriate to a person’s particular circumstances or needs. You should read the product disclosure statement and consult a licensed financial adviser before making an investment decision in relation to this investment product. SQM Research receives a fee from the Fund Manager for the research and rating of the managed investment scheme.