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People: Michael Good
A Good six years

In the past six years New Zealand's managed funds industry has experienced tremendous changes. Guardian Trust chief investment officer Michael Good reflects on those changes and sums up the state of the industry.

Tuesday, August 10th 1999, 12:00AM

by Philip Macalister

When Michael Good came across the Tasman to take up the position of chief investment officer at New Zealand Guardian Trust six years ago the business was not renowned for its funds management operations. In fact many people may not have even put the two, Guardian Trust and funds management, together.

Now though Guardian Trust is considered one of the better managers around and it is still relatively in tact, even though the acquisitive Royal & SunAlliance now own the business.

The fact the business is being substantially retained by RSA is recognition of the changes Good has spearheaded at the organisation. Furthermore, Good has now been sent back to Sydney to try and repeat the transformation with RSA in Australia.

Essentially his brief is to build up a successful funds management operation encompassing the resources of RSA, and specialist equities manager Tyndall Australia (which formerly owned Guardian Trust).

In his six years in New Zealand Good has experienced significant changes to the managed funds landscape. For instance merger and acquisition activity has narrowed Guardian Trust's field of serious competitors down from 20 to about six, and on the product front things like index funds have wrought major change.

The changing face of the industry presents some compelling questions such as; is the choice of fund management firms become too restricted, what's the future of small, boutique firms and what has happened to the level and quality of asset management staff?

Although there are fewer funds management firms in the market now, there are two distinctive groups, the big (who are getting bigger) and the small boutique firms, investors still have plenty of choice, Good says.

"Half a dozen good managers - that's more than enough."

He believes New Zealand investors are well served at the moment, and the overall quality has improved.

However, he sees two potential problems, one is the viability of the niche manager, the second is the depth of talent within asset management teams.

Good says the market is not physically big enough to ensure that the fringe managers will survive. He says there isn't the money there to support them and they lack the necessary distribution power to go up against the big managers.

On the people front Good points out things are OK at present. There is relative stability in teams, and the quality has improved. However, because the New Zealand industry isn't people tend to be less mobile and they run out of options pretty quickly.

When they decide to leave there emerges a problem of finding experienced replacements.

Another area where Good sees changes is in research.

"The funds management industry is the most researched of any industry I know," Good says.

He says there are six firms (retail researchers IPAC and Morningstar, and wholesale researchers Mercers, Watson Wyatt, Aon and Frank Russell) and the quality if their work is varied.

"It varies from extremely good to the extremely bad," he says.

Some of the firms run high quality, well-resourced, internationally-linked operations, while others are poorly resourced with junior staff.

He says some of the researchers have a very closed mind to how a funds management business should be run. As a consequence if the business isn't being run like the researcher wants then it gets a poor rating.

"They are just time-wasters," he says of those people.

He also gets annoyed by some of the grandstanding performed by researchers. His advice is to look at the motives behind the public statements.

"Some are probably made more for publicity of research house. They can easily provide their comments to their clients without going public."

WHOLESALE MANDATES
One of the biggest breaks for Guardian Trust in recent years (and for other firms) was the spectacular demise of wholesale giants Southpac (then owned by National Bank) and Westpac. Back in the late 1980s and early 1990s these two firms had an iron grasp on the wholesale market and no-one else could get a look in, consequently very few mandates were being changed.

However, when these two started to fall apart, trustees began looking for alternative managers, and firms like Guardian Trust, Armstrong Jones and BT started winning mandates.

Guardian Trust had built up its people, processes and performance and has been a highly successful manager in this market.

Guardian Trust ranks highly as a manager in the Mercer wholesale survey, and is bidding for a lot of work.

"We have established ourselves as a quality manager and we are getting into most of the beauty parades," Good says.

Another of the major changes to hit the industry has been the development of index funds, and it is an area Guardian Trust has also done well in.

Part of the group's philosophy has been that if it was going to launch a new product it had to be one of the first out of the blocks. Following the Stock Exchange's launch of top 10 tracker TeNZ, GT established the NZGT30, and that was followed by a series of listed funds which track Australian and New Zealand property indices.

Good says passive funds add a new dimension to the market and it has forced managers to "get out of the closest" and be either passive or active managers, as opposed to being index huggers.

Overall Good is pleased with the performance of Guardian Trust in the past six years. It is now recognised as a quality funds management company, the business has been built up, and it is profitable. The job now is to recreate that success on a bigger scale with Royal & SunAlliance in Australia.

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