VFMC_and_Vanguard_MR_2007_08_07.pdf (PDF - 46KB)

Melbourne, 7 August 2007 - The Victorian Funds Management Corporation (VFMC) will introduce Centralised Portfolio Management (CPM) for part of its Australian equities portfolio to cut costs caused by inefficient and unnecessary trading between different fund managers' portfolios.

VFMC, which manages more than $40 billion of the state's assets, has appointed Vanguard Investments Australia to manage the CPM service.

Scott Lawrence, Vanguard's Head of Investment Solutions and Research, said: "CPM is an innovative technique that allows large investment funds who use a multi-manager structure to implement their Australian equity investment strategy more efficiently.

"Compared with a traditional multi-manager Australian equity portfolio, the gains that can be earned from CPM are about 60 basis points annually across the portfolio. By using a central portfolio, turnover rates generally reduce by 50-75 per cent of the weighted average of the underlying managers - which can have a huge impact in reducing the portfolio's costs and therefore increase net returns."

As a leading index manager with over $65 billion under management, and an investor in many Australian companies in the market, Vanguard is in a unique position to be able to offer this solution to clients. Furthermore, being an index manager, Vanguard is focused on best practice investment execution, not active investment management.
Kent Sutherland, VFMC's Investment Director (Australian Equities), says: "Although the CPM service will initially play a minor role in our Australian equity strategy, we envisage it expanding in the future.

"We believe it's an opportune time to slowly introduce CPM to part of our Australian equity portfolio. It will not change the way we manage money for clients; it will simply reduce the market impact, transaction costs and unnecessary trading across the active Australian equity managers we invest in."

CPM is a relatively new concept in Australia. Vanguard pioneered the model in 2004 with MLC and is helping large superannuation funds and multi-manager investment managers reduce overall transaction costs on their portfolios and be more tax efficient.