Most people may not know it, but the Australian investment industry has just been through one of the great marketing campaigns of its history. Unfortunately, in a case of professionals versus amateurs, the result was never really in question. Nevertheless knowledge of the end result does not lessen its fascination.
It is the case of Colonial First State (CFS) going ex-Greg Perry, involving the CFS marketing machine versus the disjointed, poorly equipped financial planners and the embattled and gun-shy retail research houses.
The battle lines were drawn in February. Greg Perry, stock-picker extraordinaire was to leave at the end of June. The obvious question was would advisers and researchers inflict damage on CFS’s business by downgrading their funds?
In the weeks and months before the battle began, CFS had been working fervently while most advisers and investors were oblivious to it all, pouring as much money into CFS as ever.
The key to the battle from CFS’s perspective would be the role of the retail research houses, so the logical approach was to put them on the defensive. “You can’t buy credibility, you earn it”, the CFS advertisements shouted, from bus shelters and investment magazines everywhere, with the names of the three major research houses prominently displayed. After all, it was unlikely the research houses would shoot you while you are holding them up as the bastions of investment industry credibility.
When the announcement came, the first news everyone heard or read was that Chris Cuffe was staying with the group and, almost as an aside, Greg Perry was leaving. Within a day of this surprise announcement, a wad of documents arrived that looked like they had taken weeks or months to produce.
Once the news was out, the research houses knew they needed to be seen to be doing something so they loaded their guns with rubber bullets and fired off a few rounds. One downgraded them from very positive to positive. A second one said they would review them in May (maintaining its very strong rating until then at least). Another put them on hold.
The masses were somewhat unsettled and perplexed. Very positive to positive — does this mean sell, reduce, hold, do nothing or continue to buy more? Greg Perry was the star manager and his imputation fund had outperformed the other CFS Australian equity funds. Why was he leaving? Did CFS already have too much money under management? A few institutional mandates had already left but the retail masses were dependant on the signals from the research houses.
CFS managed to prevent more serious consequences at this point through a marketing masterstroke. There was to be no immediate decision on who would run the imputation fund. Greg Perry was still there until June, but the issue was who would they bring in to replace him? If you don’t know who the new target is, it’s hard to shoot at them.
This allowed CFS breathing space. Time for the initial news to become distant, for the emotion to die down and to allow them to infiltrate the masses, drop some more leaflets and win over some converts.
They provided a slick Web cast to planners in early March using an interview format and without an ‘um’ or an ‘ah’ uttered. Presentations to researchers were more realistic but just as well rehearsed.
Planners were clearly impressed. They had heard it from the very lips of the CFS team. Everything would be okay. There was no need to be concerned.
After a few weeks of waiting came the announcement that existing CFS portfolio manager, Simon Shields, would become manager of the Imputation Fund. The strategy had worked. The research houses succumbed. One reiterated its positive recommendation while a second continued to say they would review them in May. Another took off its hold recommendation and gave back the imputation fund’s previous A rating.
There was one minor setback. A video hook-up with a group of Perth advisers involving Chris Cuffe and some of the CFS investment team got off to a bad start when the advisers could hear CFS’s pre-presentation discussion without them knowing it. The thrust of the words emanating from one of the main CFS presenters was “if there is another fund manager out there with okay research and a 10th of our funds under management then we can’t really argue with that”. However, in this and many of the presentations to advisers and researchers one could be easily mistaken that this was exactly what they were arguing against.
Still, despite this setback, the CFS business development team was in overdrive, placating the financial planners who could now rest in peace knowing that their clients’ many dollars invested with CFS had been given the research stamp of approval. Damage had been averted, at least for now.
Greg who? I hear the planners are already saying. After all, “Isn’t it really the process that counts” and “what about all those other smart people they have in the investment team?” “Anyway what’s wrong with Greg what’s-his-name taking time off to spend with his family?” Perhaps if he wants to come back to the funds management game after a while he might even jump back into the CFS Australian equity team.
Planners can ease their minds with such thoughts and fantasies as they contemplate their clients’ portfolios exposure to CFS and reminisce about the glory days of BT, that other great fund management favourite of years past, before a multi-year period of investment team departures, funds growth and changing focus altered its personality significantly and permanently.
Others with a longer tooth might reminisce back to CFS’s early days where the investment team and process mattered less because Greg Perry was really the only one there. Where active funds under management was less than a few per cent of what it is today and where First State was often considered a small cap/value-biased fund manager. To a time where it was no better known than a dozen other boutiques around today that most planners have not heard of.
Others still can go back further to the days when the company did not exist. When BT was biting on the ankles of the life office elephants of the day and size and name was all that really mattered — investment performance was not really important. (If only the life offices had better marketing departments back then!) History never repeats but it rhymes as Mark Twain used to say.
Planners and investors find it easy to fall in love with a fund manager. Unfortunately, separation or divorce is always more drawn out, painful and sometimes bitter. However, it is not surprising people seek to avoid it, at least until performance deteriorates and loathing escºalates to a level where termination is actively desired, at least by one party.
As for the retail research houses, one is reminded of the marriage counsellor who desperately wants the union to remain intact despite a nagging feeling that it is over. Of course, they will point out a few problems and issues but in the end they cannot bring themselves to recommend an end until the bruises are clearly visible.
Perhaps it can work, but in a role that should be about forward looking qualitative views and judging the odds, looking for all the reasons not to take a view is hardly the right course. Nor is eventually making reactive recommendations only after a situation has deteriorated markedly.
Of course, in this case the love affair is still largely intact, although the personality of one of the parties has changed markedly over the years. The credit has to go to CFS. They know the game and have made the progression from an investment-focused organisation to a much larger marketing focused one hardly missing a beat. BT could learn a few lessons.
Therefore, don’t let anyone ever tell you that CFS is not a brilliant organisation. They have clearly proven it. As for the prospects for their Australian equities investment returns looking forward, well that’s a topic for another day!
