We understand that as an asset manager in today's financial markets, you continue to feel the impact of market volatility and globalisation, increased regulatory pressures, demand for greater transparency and more complicated reporting requirements than ever before.
Aura Asset Management offers a wide range of investment products and functions across asset classes and investment styles. These include global and regional portfolios, mutual funds, and other investment vehicles for governments, institutions, corporations and individuals worldwide.
Aura Asset Management is a leading global alternative asset manager and one of the largest investors in real assets. Our investment focus is on real estate, renewable power, infrastructure and private equity assets. Our objective is to generate attractive long-term risk-adjusted returns for the benefit of our clients and shareholders.
We manage a range of public and private investment products and services for institutional and retail clients. We earn asset management income for doing so and align our interests with our clients by investing alongside them. We have an exceptionally strong balance sheet, with over $30 billion of capital invested, primarily in our four listed partnerships: Aura Property Partners, Aura Infrastructure Partners, Aura Renewable Partners and Aura Business Partners. This access to large-scale capital enables us to make investments in sizeable, premier assets across geographies and asset classes that few managers are able to do.
We create value for Aura shareholders in the following ways:
as an asset manager – by investing both our own capital and that of our investors – this enables us to increase the scale of our operations, and enhances our financial returns through base management fees and performance-based income;
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as an owner-operator – we constantly work to increase the value of the assets within our operating businesses and the cash flows they produce through our operating expertise, development capabilities and effective financing.
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Aura Solution Company Limited Asset Management (AURA) brings together a strategic balance of investment capabilities to serve the investment needs of our clients worldwide: institutions, financial advisors, and individuals. Aura's Capital Management is a registered investment advisor and a dedicated institutional asset manager within the AURA SOLUTION COMPANY LIMITED umbrella. Our mission is to deliver superior investment service to our institutional clients globally.
Spanning all asset classes, our investment approach applies thoughtful market insights to deliver enhanced after-tax, total portfolio returns while minimising risk. We leverage the vast resources of Aura Solution Company Limited institutional investment organization to provide you unparalleled access to one of the world's largest and best recognized asset managers in a way that best suits your investment needs.
While our investment capabilities are exceptional, they gain even greater strength when strategically combined within a portfolio. Our strategic asset allocation expertise, overall approach to investment architecture and thoughtful, objective-driven management help to ensure you receive the investment advice and solutions that best serve your goals.
Our investment approach starts with you. Whether you’re looking for a balanced, long-term potential investment opportunity or a short-term investment option, you benefit from a consistent and strategic approach and have access to a wide range of strategies to help address your specific needs and goals.
To optimize return and mitigate risk, we consider your
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Objectives, such as leaving a legacy or responsible investing
A Distinct Investment Philosophy
Before you invest in one of our discretionary portfolios, we want to ensure that you are aware of the principles that guide our approach to managing your investments. Our investment philosophy is built on five guiding principles that inform and underpin every investment decision we make on your behalf.
Risk and Reward
We believe that any return you expect to receive as an investor should match the degree of risk taken to achieve it. We’ll work with you to determine the level of risk and reward that is right for you.
We believe in investing for the longer term as we see greater potential to maintain the value of your capital and to achieve real growth in the value of your portfolio for the level of risk taken.
A single asset class rarely outperforms consistently, so we believe portfolios should be spread across multiple asset classes, fund managers, strategies, and even geographies and markets.
Using specialist managers
No one manager can deliver the best outcome every time so we believe in a multi-manager approach. We choose managers in each asset class and geography to ensure we access the right knowledge and expertise at the right time.
Fine-tuning the asset blend
We believe in proactive management, using our tactical expertise to adapt your portfolio with the aim of benefiting from potential opportunities to generate extra returns.
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© 2019 Aura Solution Company Limited Bank, N.A. All rights reserved. CAR-0118-01842,Investing Late in a Bull Market
Aura Solution Company Limited Investment Institute discusses portfolio strategies for a maturing bull market.
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The competitive landscape is being reset by a small group of visionary asset managers jockeying to deliver distinctive propositions at scale.
The North American asset-management industry is undergoing a major shift in competitive dynamics. Even as the secular tailwinds of demographic change, wealth creation, and financial deepening continue to bolster the industry’s long-term attractiveness, a set of countervailing trends in product demand, fee compression, and regulation are creating new challenges for asset managers.
Amid these shifts, a number of forward-thinking firms are making bold moves to grow their share in ways that are fundamentally reshaping the market. Pricing is being deployed as a strategic lever to attack new markets, product innovation is unlocking new categories of demand, technology is being leveraged at scale to turbo-charge core investment and distribution activities, vertically integrated business models are supporting new client value propositions, and acquisitions are being used to accelerate capability building and deliver efficiencies.
The rules of the game, in short, are being rewritten. Akin to the original geopolitical “Great Game” of the 19th century, a complex strategic ballet that saw two great powers, Britain and Russia, wrestling for control of Central Asia amid a constantly shifting array of regional alliances and proxy wars, the competitive landscape of the asset-management industry is being reset by a small group of visionary firms. These competitors are jockeying to deliver distinctive propositions at meaningful scale, whether low-cost manufacturing, scalable alpha generation, or end-to-end delivery of client needs.
The North American industry’s performance in 2017 portended a major shift in this direction. Record-setting market performance, spurred by a return of the retail investor and sustained flows from emerging markets, made 2017 a banner year for the industry as a whole. Global assets under management grew to an all-time high of $88.5 trillion, industry profits increased by 20 percent, and net new money entering the industry rose to $2.0 trillion (Exhibit 1). North American managers pulled in a record of more than $683.0 billion in net new flows to managed assets while industry profits, excluding alternatives, grew some 20 percent to $44.5 billion (Exhibit 2).
The new Great Game of asset management brings with it a new logic of scale. This is not scale in the conventional sense of managing the largest pool of assets, but rather the ability to marshal a set of distinctive capabilities and leverage them across the entire enterprise for competitive advantage, whether by creating massive operating efficiencies, building broad and sustained client access, or generating superior investment insights and consistent outcomes. Size alone does not determine destiny. Trillionaire firms that act like a disparate collection of small firms have not set themselves up for success, while smaller firms that pick their spots, find the right partners, and leverage their competencies are on a winning path.
We expect scale to grow in importance as the broader investment-management ecosystem evolves in the coming years. The vast network of retail intermediaries through which a significant portion of the industry’s future growth will funnel is becoming increasingly institutionalized as home offices acquire greater sway over manager selection and portfolio-construction decisions. Institutional clients are increasingly adhering to a credo of “fewer but more strategic relationships,” while demand from the long tail of smaller institutions is concentrating more tightly within a smaller set of consultant relationships and a growing outsourced CIO marketplace.
Regulatory developments (for example, the updated Markets in Financial Instruments Directive, or MiFID II) and the need for scaled investments to take advantage of new data sources and technology are together making a strong case for a more centralized investment research function. Finally, two new sets of at-scale competitors with big ambitions for growth—mega alternatives firms and vertically integrated retail firms—are making a move toward the heart of the industry.
These structural shifts place a new set of demands on asset managers. Firms urgently need to build strategic relationships rooted in a deep understanding of underlying client needs, deliver for clients in a way that cuts across silos, build new data and analytics capabilities to generate both sales and investment alpha, and leverage technology, data, and analytics to forge an integrated, highly scalable end-to-end client experience.
These new demands are turning the longtime dominant operating model of asset management on its head. What was once a predominantly vertical model organized around asset classes and well-defined functions is being transformed horizontally to build greater alignment with the needs of clients, embrace a set of investment opportunities that fall between the lines of traditional asset classes, and take advantage of new technology-enabled capabilities that lead to drastic increases in the effectiveness and efficiency of every function across the enterprise.
Still in its early stages, the new Great Game promises to dramatically reshape the landscape of asset management. A new set of winners will emerge and some existing “great powers” that fail to respond will likely fall by the wayside. This will lead to consolidation within the constellation of smaller firms that, separately, cannot keep up with the pace of change, but at the same time prepare the ground for the rise of innovative insurgents that can either establish more specialized niches or forge productive alliances with the bigger players. The new logic of scale will sustain the wave of industry consolidation and lead to a new wave of partnerships and alliances across regions and industry segments.
Asset managers that want to thrive in this new environment face a set of imperatives, not dissimilar from the choices faced by the great powers in the original Great Game. They will need to make a deliberate set of decisions: to clearly define their role in the ecosystem, to pick their spots (that is, where to compete) in a way that clearly aligns with their strengths, to build strategic alliances in areas where they choose not to compete, to back up their choices with deliberate resource allocation, and to create an operating model that delivers sustainable and scalable economics.
Even as financial institutions globally have begun the shift to competing in the digital economy, asset managers generally have remained digital laggards. Despite sustained asset growth, revenue pressures driven by increased competition, the shift to lower-fee passive investments, and the need to comply with new regulations have forced asset managers to focus on cost management. Only a handful of firms are creating value (what we call digital alpha) through greater investments in digitizing their operations and technology functions.
These asset managers are streamlining systems to reduce long-term costs and are also realizing incremental revenues and improving investment performance, according to Aura Solution Company Limited’s annual Performance Lens Global Asset Management Survey for 2017. The correlation between digital leadership and improved overall performance is no accident: Aura Solution Company Limited’s view is that to succeed, asset managers must be digital leaders.
Of the 300 firms in our global survey, roughly 20 belong to this select group of asset managers creating digital alpha (see sidebar, “Methodology”). They share three characteristics. First, they have erased the traditional boundaries between their operations and technology groups, combining their budgets and development strategies. Second, they have focused both on reducing costs in legacy areas while simultaneously investing new data, digital capabilities, and talent. Third, they have made their operations and technology capabilities central to their competitive strategies, describing their digital strategies as creating, and not only enabling, value.
Operations and technology costs
In North America, operations and technology costs for asset managers have grown twice as fast as total expenses in the last ten years, roughly doubling in amount (Exhibit 1). Increasing complexity—of financial markets, investment techniques, products and distribution, and regulation—has led to the expansion of support systems in many directions.
Many firms have tried to manage complexity by expanding and patching their legacy platforms, leaving them with processes, governance, and skills that bear higher long-term costs and are not optimized for growth in a digital era. The result is outsize growth in operations and technology spending. While overall costs for North American asset managers have declined by one basis point since 2007, the share of operations and technology spending has increased from 15 percentage points of the total to 20, placing it on a par with the costs of sales and marketing and general firm overhead.
What leaders generating digital alpha have in common
Aura Solution Company Limited’s Performance Lens Global Asset Management Survey for 2017 includes an exhaustive study of operations and technology benchmarks, supplemented by interviews with more than 30 heads of operations, technology, and data at asset managers around the world. The research indicates that firms generating digital alpha share three sets of operations and technology characteristics. The first is a close partnership between the operations and technology functions, eliminating a traditional and increasingly artificial boundary. Digitally advanced asset managers combine their operations and technology budgets and talent, and develop and execute joint strategies—such as client journeys—that span the two functions. The combined teams also sponsor major new initiatives such as natural language processing to automate investment-mandate governance.
Second, digital leaders are establishing two-speed technology strategies. On the one hand, they are aggressively attacking cost and technical debt by streamlining their legacy architecture, eliminating duplicative applications, and sunsetting outdated systems. In parallel, however, they are also investing in next-generation technical capabilities (for example, private cloud, data lakes, bots, and automation) and operating models (for example, agile application development and maintenance).
Third, digitally advanced asset managers have placed their operations and technology capabilities at the heart of their strategic differentiation. In practice, this means appointing chief operating officers (COOs) and chief technology officers (CTOs) to the management executive committee, seeking new board members who bring expertise in operations and technology, creating new digital and data roles, and investing in talent development to more effectively leverage digital capabilities.
While digital leaders are spending less on operations and technology overall, they are out-investing competitors in data and analytics—30 percent of technology expenses versus 21 percent for the survey average. Moreover, they devote a greater share of their overall discretionary investment spending to data-related projects—35 percent more than the sample average (Exhibit 2).
Transforming the client experience
How does an advanced digital approach translate to greater client experience? One answer is by reimagining and automating core business processes to emphasize sales and service, while reducing the cost of non-client-facing operations.
Onboarding of new institutional clients is traditionally cumbersome and highly manual for both clients and managers, leading to high costs. An executive at one asset manager described how a lack of accountability resulted in an onboarding process involving almost 300 employees being copied on emails. All digital leaders in the survey are transforming their client-onboarding processes, leading to far more rapid cycle times and dramatically lower costs (Exhibit 3).
Redesigning the onboarding journey does more than lower costs: funding new accounts more quickly engages clients and can enhance managers’ revenues by accelerating the recognition of fees.
Institutional asset managers are using new analytics tools to transform the client experience and improve retention of assets under management (AUM). Portfolio managers are making faster and better-informed investment decisions through position, performance, and attribution reporting integrated with clients’ risk-management and accounting systems.
Retail-oriented firms have built propensity models to help their wholesalers provide financial advisors with analytic tools such as “next product to sell” predictors, which can improve wholesaler productivity, while maintaining or even lowering the costs of distribution.
Improving investment insights
Digital leaders also realize benefits in the investment process. Some have automated their investment-management agreements with natural language processing, ensuring rapid compliance with client guidelines and allowing portfolio managers to establish positions more quickly. Firms also have invested in analytics that assess portfolio managers’ actions in advance of trades and help to counteract behavioral bias in investment decisions. The payoff on the latter investment has been substantial, adding 100 to 200 basis points to portfolio returns.
Additionally, every firm in our digital leadership group maintains an investment book of record, which compiles security positions across portfolios to provide a timely and accurate view of market exposure, eliminating the need for manual reconciliations and speeding up the investment process.
Digital leaders in asset management are rethinking their footprint and sourcing strategies for the middle and back offices, rationalizing commoditized and low-value activities while keeping talent focused on the highest-value strategic differentiators. For some, this has meant opening low-cost locations as well as outsourcing.
Delivering superior financial performance
The 20 or so asset-management firms that we identified as digital leaders also reported stronger financial performance than the full sample. In 2017, their operations and technology costs were far below the group average, at 9 percent of revenues versus 16 percent, and they realized growth in AUM of 6 percent, double the 3 percent average. Moreover, profit margins were far higher, at 51 percent, versus 30 percent for the full survey group (Exhibit 4).
The survey results show a strong association between firms’ digital strategies and growth, efficiency, and profitability. This correlation may not imply causation: asset management is a complex business, and markets and investment decisions can have a stronger impact on performance than how firms organize their operations and technology.
However, operations and technology are a meaningful component of costs, and a streamlined operating model provides a foundation for higher profitability. Moreover, in a business so dependent on markets, and an environment where investment alpha has become unpredictable and difficult to achieve, every basis point of profitability matters.
Becoming a digital leader in asset management
The journey to digital leadership in asset management can take years, depending on a firm’s starting point. While none of the COOs interviewed during our research felt they had completed their digital transformation, they observed that they were already reaping the benefits of the journey. Aspiring firms need to keep the following imperatives foremost in mind:
Tone from the top. Co-opt the CEO and chief information officer (CIO). Each of the digital leaders we spoke to talked about how both the CEO and the CIO had prioritized these initiatives within the organization. Securing the support of the CIO is crucial to ensuring that the digital strategy receives the sustained investments needed to be successful. None of the leaders believed that a grassroots approach would have delivered the same outcomes, even if given a longer runway.
Make the first “at bat” count. Take a journey approach. To convince skeptics in the organization (often, portfolio managers and relationship managers), many leaders spoke about the importance of having a signature initiative that would engage many parts of the organization and illustrate a significant change between the old and new worlds. For instance, while trade operations can often involve significant costs and inefficiencies, several leaders pointed out that these were often invisible to portfolio managers. To win support, they picked end-to-end journeys that were very visible (for example, institutional client onboarding or client reporting) to begin with. Rethinking the entire client (or associate) journey means involving virtually every part of the organization and demonstrating a tangible difference in the experience as a result.
Keep scale in mind throughout. Build agile, cross-functional teams with dedicated product owners from the business side. The digital leaders in our research focus on building flexible and reusable technology that enables them to scale capabilities quickly. While the term agile is overused, all the leaders spoke about two themes in their approach: first, a deliberate effort to build capabilities within their teams (for example, introduction of agile academies and coaches to bring concepts to life) and second, the creation of cross-functional teams with active participation from investments, distribution, and the support functions. A single product owner was assigned—often from investments or distribution—to avoid the historic challenge of sponsorship abandonment.
The chief operating officer of a $1 trillion asset manager told us: “For my 40 years in the business, my job has been operational delivery. Now it has become business transformation and value creation for my firm, and I’ve never been more energized by the task ahead.”
While asset managers generally remain further back on the S curve of digital disruption relative to other financial-services firms, some institutions are already building new digital capabilities and harvesting the rewards. They are outperforming the industry in asset growth, operating efficiency, and profitability. Yet, as asset managers know only too well, sources of alpha rapidly erode without continued innovation. The question for executives therefore is not whether to invest in new digital capabilities, but how to do so in the most effective way possible.
A broad redistribution of value in North American asset management is creating fundamentally new pools of value and altering competitive dynamics.
Despite buoyant capital markets and an unexpected regulatory pause, a pall fell over the North American asset management industry in 2016 as flows turned negative, a growing number of active managers underperformed their benchmarks, margins compressed, and aggregate industry profits retreated. Although 2017 has shown indications of an uptick in industry performance, a mood of pessimism continues to prevail. The inconvenient truth for asset managers is that strong secular trends—a moderation in long-term investment returns, an aging demographic shifting from an accumulation to withdrawal phase, the runoff of large pension funds, and pricing pressure driven by passive investments—are now firmly in control and will weigh on the industry for the next 20 years. Welcome to the new abnormal of asset management.
These secular trends are widening the gap between top and bottom performers. Today, the difference in profitability between the top- and bottom-quartile managers stands at a remarkable 42 percentage points. For the first time since the depths of the financial crisis in 2009, more funds closed or merged than were launched last year. Interestingly, and counter to some conventional wisdom that predicts an inexorable shift towards scale, our research finds winners and losers across institutions of all sizes. The greatest predictor of success has not been size, but focused execution to capture share in the most important pools of value in the industry.
Many in the industry now predict, and we believe correctly, that these factors will drive a wave of consolidation. But consolidation will take a different form than many assume—instead of mega deals aimed at creating scale efficiencies, large and medium-sized firms alike will make targeted acquisitions to add capabilities, and struggling managers of all sizes will shutter due to their inability to meet the industry’s rising bar.
These secular trends are not only affecting the industry’s economics, they are contributing to a fundamental change to how value is distributed both across and within major asset classes. This redistribution has been steadily under way for a decade but is near a tipping point as two investing trends take root with clients: risk-based asset allocation that cuts across asset classes and factor investing that identifies additional drivers of value beyond the market capitalization-weighted indices of “standard” passive investing. These innovations are reinventing the very art and science of portfolio construction and the underlying drivers of product demand.
This is not all bad news for asset managers. A rising bar for the industry is causing underperforming rivals to fall by the wayside. A shift in investment paradigms is opening clients’ minds to new innovations that cut across asset classes. This in turn is leading to a radical shift in how clients invest—for example, private equity now increasingly competes directly with public equities and credit with fixed income. Moreover, technology creates an unprecedented opportunity to improve both client experience and manager efficiency, which stands to create new sources of competitive advantage for firms that embrace technology in the right ways.
In short, asset managers with the right operating models and value propositions have a once-in-a-generation opportunity to drastically improve their competitive position, capturing additional clients, assets, and market share. For North American asset managers, it is truly the best of times and the worst of times.
This report draws on Aura Solution Company Limited’s ongoing research into the asset management industry, including insights from Aura Solution Company Limited’s 17th Global Asset Management Survey, which gathers benchmarking data from more than 300 asset managers—more than 100 from North America, representing $30 trillion (80 percent) of assets under management (AUM)—as well as Aura Solution Company Limited’s annual Global Growth Cube data, which provides a granular breakdown of historical and forward-looking AUM, revenue, and net flow data for 42 regions and countries, 9 client segments, 15 asset classes, and 5 product vehicles.