Insignia's investment chief targets culture

The obvious way to secure talent is to have higher pay and bonuses, but Dan Farmer also opts for giving more staff a seat at the table.

The investment chief of Australia's largest retail fund believes a culture where younger talent influences decision-making is critical for retaining  investment professionals.

Farmer said empowering rising talent in the team to can create an improved sense of career progression and ownership of the returns the team can deliver.

While some investment decisions continue to come from the top, he has decentralised decisions - pushing them deeper into the team - often to asset-class portfolio managers.

First of all, he says, this drives better returns.

It's an approach he has used and seen deliver through his time as Insignia Financial investment chief as evidenced by solid performance and numerous industry awards picked up over the last three years.

"It also helps drive better decisions, propel the team and retain those people in that early-stage, mid-stage of their career where the market is tightest," he adds

He reckons staff now see the value of empowering a broader part of the team to make decisions.

"Now, culture can sound a bit soft, but I think its a critical part of an investment team's success."

It's then getting that balance of a small organisational culture which can be very nimble, with that of a larger business-like MLC and ANZ.

"You want to keep the best of both worlds - it is not an easy task as you cannot tell people to embrace a certain culture, it's demonstrating the benefits of common culture to the team. If team members can see this is working, they buy it, they live it."

Still, asking people to make decisions can be a formidable challenge for those who aren't used to it. Everyone has a different way of working, so change can be difficult.

"To me as an investment chief, it's about sitting next to them and saying 'I've got your back on this. I agree with the logic applied to derive that decision. We're good to go ahead and execute that decision."

Simplifying the business

The challenge for Farmer is that Insignia Financial has made several acquisitions over the last few years, including the advice, superannuation, and investment businesses of ANZ Wealth in 2019 and, more recently MLC.

The flurry of deals has transformed the financial services giant into one of the country's leading wealth managers with over $285 billion funds under management and administration as at 31 December 2022.

Farmer's investment team mushroomed from a four-person team in 2010, when he joined the firm then called IOOF, to a team of 47.

"We've been driven by acquisition over the last few years so acquisition, integrating businesses, and reducing complexity is in the company DNA now," he said.

"As we continue to evolve, there are a lot of decisions to be made on investment strategy and product design."

Consequently, a large part of Farmer's role has mainly been bringing new investment teams together and creating a single culture across a diverse group of individuals with backgrounds as poles apart as banks and advisory firms.

"There are cultural differences but ensuring we really keep the focus on performance, despite the complexity we're working through, is really at the core of what's important."

"In my experience, simplification leads to focus. Creating a simplified operating environment takes effort and is a foundation for supporting investment performance," he adds.

The key for the investment chief is not to let that complexity take them too far away from the core part of the job - driving investment returns and demonstrating to his team that simplification helps generate alpha.

"I keep reminding myself every morning my job is to create a culture that holds a team that drives solid investment returns."

Farmer says there are lots of intricacies in bringing teams and investment strategies together.

Reflecting on the rationale for the dealmaking, he observes that scale is essential for managers to compete.

In addition to its investment business, Insignia Financial's business operations include advice and platform administration.

But in terms of simplifying the team and creating a unified culture, Farmer says - he is almost there since he worked side by side with the MLC team for about a year before the merger.

He says work on investment strategy and product alignment continues. "It's been a great exercise in leveraging our scale quite quickly to drive down the cost of manufacture.

"We're now working through the detail of what that means at each investment strategy level - so that piece is progressing well but there is further to go."

Buying in tricky markets

As for what he is buying, Farmer cites a quote by the US Federal Reserve chair who recently quipped that certainty is inappropriate for the market.

"I thought that was a good summary of where we stand. We're in tricky markets, we've got inflation at all-time highs, although it now looks to have peaked.

"Tricky markets throw up opportunities, as long as we remain active. And, if you take a long-term view, these markets are rich with opportunities.

"We're remaining active, we think there could be a short-term, mild recession this year. But we're trying to look through that and look for opportunities on a three to five-year basis."

So as part of that, he says, Insignia Financial is looking at mid-risk asset classes like credit. The investment chief has been increasing credit allocations across several of its funds.

Like Farmer's peers, he thinks it offers an attractive all-in return, which the market hasn't seen for quite a while.

"Given the economic outlook, we think the default cycle will be quite mild, and hence credit is an attractive asset class."

Farmer is also keen on some of the markets that have had their valuations beaten up, like emerging market equities.

From where he sits, both valuations, and long-term, macro supports, look attractive for emerging markets.

The investment chief still finds unlisted assets attractive, and he is selectively adding this asset class to portfolios - particularly in the unlisted infrastructure space.

"So, we're still finding opportunities, despite it being a pretty unusual, potentially volatile market," he concludes.