Andrew Lill… ‘the core of our process is really dynamic asset allocation’
We talk a lot about culture in the funds management industry. Apart from money, it’s what attracts people to work at an organization, be it a funds management firm, a super fund, dealer group or asset consultant. For Andrew Lill, the newish chief investment officer for the APAC region at Ibbotson Associates Australia, part of the Morningstar Investment Management group, culture has been a big driver in his career choices. He speaks to Greg Bright.
Morningstar, Inc., a Nasdaq-listed company where the founder, Joe Mansueto, still has effective control, is picking up the pace in a program to internationalise the business. As part of the program the former Australian-based chief investment officer, Daniel Needham, was promoted and transferred to London to adopt a global role and Andrew Lill, a former senior consultant working for AMP Capital, was tapped to take up a new spot to oversee investments for the APAC region from early this year.
For Lill, there were several aspects about the job which attracted him, such as the growth prospects, but the clincher was meeting Joe Mansueto and understanding the philosophy behind the business.
“He’s a Buffett advocate,” Lill says of Mansueto. “He looks to buy companies according to the principles of a long-term value investor. He focuses on running an efficient organization and he instills a philosophy of doing what’s right for clients and investors.”
Importantly for Lill, the company is also research-driven. In Australia, Morningstar is a major provider of research and investment data to financial advisers, investors, and institutions. It sees the value-added services in retirement, investment management, and advisory which Lill oversees as one of the major drivers of its future growth.
After a spate of acquisitions between 2006 and 2011, including Intech in Australia, Ibbotson in the US, Aspect Huntley in Australia (which included my old shop of Investor Weekly, Investor Daily and IFA magazine, subsequently onsold), Morningstar has settled down to focus on three core offerings —software, research and data, and investment management. In Australia, the investment management bit, Ibbotson Associates Australia, handles about A$4 billion (of US$164 billion globally), which came primarily from the Intech purchase. Among others, Needham and Michael Coop, the head of alternatives, spent most of their careers at Intech and have stayed with the firm through its ownership changes.
Lill’s main career focus was also with asset consulting. And this is the reason he believes that fund managers, as well as asset consultants, should have investment research and sustainable performance as their central mantra – not the sale of hot products.
After graduating with a Masters of Economics from Cambridge and on the way to picking up an actuarial designation, Lill commenced his career in London at R Watson & Sons, which subsequently morphed into the global firm of Towers Watson.
But his ‘gap year’ after university was a bit different to most. He tried his hand as a professional middle-distance runner. While at university Lill had risen to make fifth in the world at a junior championship and subsequently represented England at the 1994 Commonwealth Games in the 800m track. All-up he represented Great Britain in 36 international events. That’s actually how he ended up in Sydney in 2000.
Lill, who was by then a partner in a UK-centric asset consulting firm, LCP, came to Australia as a support person for the Great Britain track team. The following year LCP was taken over, Lill crystalised his equity and embarked on a new adventure. Stephen Roberts, the business head of Russell Investments at the time, offered him a job as senior consultant in Sydney, where he became Director of Consulting and stayed until joining AMP Capital as head of investment solutions in 2009.
While at Russell, Lill watched the organisation change. In 2001, George Russell (son of founder Frank Russell) sold the company to Northwestern Mutual. Under Northwestern and a succession of CEOs, the culture gradually changed and the firm began to be better known globally for alternative asset products and indexes. It also grew by acquisition in Australia, acquiring most of the business of the old Towers Perrin.
AMP has some “really strong” investment teams, he says, but he found that he was more strongly attracted to Morningstar’s philosophy and approach.
The Intech that Daniel Needham knew, privately owned by a group of shareholders including founders Ron Liling and John Schaffer, and the then chief executive tasked with selling the business, Brett Elvish, and other luminaries, had a quant orientation and an evolving belief in the importance of dynamic asset allocation in adding value. This made it a good fit for Morningstar.
“Our focus is really on fundamental asset allocation,” Lill says. “The core of our process is really dynamic asset allocation. That’s the ‘value’ bit in our philosophy.”
He describes it as “bottom-up asset allocation”, by which he means the views are driven by a lot of research into corporate earnings, profit margins and other corporate data in each asset class. It is perhaps not as sentiment-driven as other asset allocators.
“We’re prepared to make a small number of high-conviction asset allocation moves. We look at investment decisions from a long-term perspective based primarily on exceeding CPI-plus-based objectives… We’ve always thought about outcomes. I think what’s changed since the GFC is the definition of risk.”
Risk, he says, is now more widely perceived as a permanent impairment of capital “or losing the clients’ money”, rather than underperforming a benchmark. “That’s a more practical but harder way to look at risk.”
In the current environment, he says, it is not easy to find value. Equity markets look reasonably priced, bond yields are emerging from historic lows and currencies are being affected by the tapering of the US quantitative easing program.
“So we are looking to seek out value within major asset classes by allocating to specific countries or sectors and generally retaining a conservative stance for future opportunities. Our capital preservation focus also supports diversified alternatives strategies. Our high-conviction multi-manager equity funds remain top of our peer group over most longer-term periods.”
The main challenges he sees for himself and the broader Morningstar investment group are blending together the various groups and teams, including acquisitions, into a cohesive global Morningstar Investment Management, and winning new business in Australia in an environment of consolidation and insourcing.
“I believe in the idea that unless we stand for something, we shall fall for anything,” he says. “The good thing though is Morningstar is very clear about where it’s going.”