Page 35 - Transforming To Stay Successful

3 Strategy Three:

INTERNALIZING ASSET
MANAGEMENT

Earlier, on page 20, we talked about our competitive fee, plus they take a 20 per cent share of the profits.
advantages. One of them, our long-term outlook, is By managing assets in-house, we keep those profits for
especially relevant to strategy three. As you know, our our clients.
pension fund clients don’t have an immediate need to
There are other advantages to this model too — it gives
pay pensions. This means they can allocate more capital
us greater control over assets; allows us to actively
to asset classes that are long-term and illiquid (private
manage those assets to increase the long-term value;
equity, mortgages, real estate, renewable resources, and
and align investment interests with those of our clients.
infrastructure).
Becoming an in-house manager affects the talent
Our new investment strategy allows clients to increase
we employ; our data and technology needs; the
their allocations to illiquid markets. A typical client
processes we depend upon; and even the networks we
portfolio could go from a 25 to 42 per cent allocation by
tap into. The first steps to achieving this model are to
the end of F2020, a shift that will significantly increase the
ensure we have a robust investment risk management
probability of meeting their basic return requirements.
approach, as well as the right skills and systems in
While illiquid investments do provide stable returns place to expand our capability to source, negotiate,
and consistent cash flows, they are resource intensive and manage investments in-house — part of strategy
— requiring various teams to work together; thorough two, strengthening the base.
research and due diligence; and regular face-to-face
with a portfolio company’s board and management. This is a longer-term initiative. We will be
And so, by nature, these assets are more expensive to thoughtful and measured, only moving the
manage than publicly-traded stocks and bonds.
management of assets in-house when the
As returns are reported net of all fees and expenses, costs Chief Investment Officer and Executive
matter. We’re committed to being as cost effective as
possible, which is where strategy three comes into play. Management Team are confident that the
We’ll manage more of our assets in-house, which is more necessary skills and expertise are in place.
cost-effective in the long run. The reason being: external
managers are 300 to 700 per cent more expensive We’ve already seen progress with this strategy since
than internal managers. Generally speaking, external we began our transformation in 2015. In fiscal 2017, for
managers charge two per cent for their management example, we committed $9.9 billion to illiquid assets.

THE STRATEGIES THAT DRIVE OUR TRANSFORMATION 35