Mark Lazberger: grand growth plans

For a man wearing two hats, Mark Lazberger seems very cool. Then again, the hats are almost identical – one says chief executive of First State Investments, a UK and Asian business, and the other says chief executive of Colonial First State, the business back home in Australia.

Both are owned by the Commonwealth Bank of Australia, and although the name difference is largely to take advantage of the brand strength of Colonial in its home country, the businesses look different.

“We’ve got a very diversified book of business in Australia, but outside of Australia we are really specialised,” says Mr Lazberger.

Australia provides about two-thirds of the A$144.3bn (£83.2bn, US$128.2bn, €101bn) assets under management, but the remaining third from the rest of the world generates more than half the company’s revenue.

“A lot of the difference is asset mix,” says Mr Lazberger. In Australia, he says, Colonial First State is a provider of core services to superannuation (pension) funds, covering the full range of asset classes. This includes low-margin fixed income and mainstream equities, which drag down average margins.

The rest of the world is not so interested in Australian debt, Colonial First State’s main area of fixed income expertise, but it does very much want access to emerging market equities, an area where First State has recently had a good record.

“When investors’ risk appetites started to reignite, emerging markets, particularly emerging market equities, was one of the first cabs off the rank,” says Mr Lazberger. “We’re seeing investors, particularly institutional investors, starting to look at emerging markets in a more strategic way. They represent [in investors’ view] the demographic future.”

Although an Australian asset manager might be thought to offer emerging markets expertise because its geographical location could mean it is less Euro- or US-centric, First State’s specialism is not due to anything quite so obvious.

“It’s an accident of history,” says Mr Lazberger. “Back in 2000, Colonial bought Stewart Ivory [an Edinburgh-based investment company] and the emerging markets team was part of the deal.” That team is now the only part of the Scottish business still standing, but it has “been a cornerstone of how we built our business outside of
Australia”.

He has grand plans for the future growth of the First State business: the goal is for it to grow at twice the rate of the Colonial First State business, exploiting the opportunities he sees in both Europe and Asia.

The US is to be more cautiously approached, he says. “We have a growing number of relationships there. It’s a pretty big, very competitive marketplace – for us it’s going to be something we do only after considering it very carefully. We have, to a degree, the luxury of time.”

Europe, which has “large contestable pools of assets”, and Asia’s rapidly growing economies, however, are clearly “very important opportunities for us”, he says. The growth he hopes for could come either as a result of organic growth – more money going into existing products to be managed by teams already in place – or inorganic growth. The latter could take the form either of bringing in established asset management teams with a particular speciality, or by acquisition.

Once more, Mr Lazberger refers to the luxury of time, available to First State because of the helpful attitude of its parent.

“We’ve got a very supportive parent, taking a very long-term view of our contribution to
the bottom line.”

In the context of potential acquisitions, this support can be translated into the ability to take the time to ensure any potential target would provide the right cultural fit, he explains.

This cultural fit would require a commitment to active management, since being competitive in the passive space requires a scale beyond the capacity of First State, and even more a commitment to the UN’s Principles for Responsible Investment. This is not a question of feel-good virtue, but a fundamental belief that “those six principles represent things that should be in the investment process”.

The two concepts – active management and responsibility – are inextricably linked, as far as Mr Lazberger is concerned.

“Engagement and responsibility; they’re the sort of things an active manager should be doing.

“Increasingly, also, investors are asking about it.”

One potential area of business Mr Lazberger has no interest in is funds of hedge funds. Colonial First State had a funds of hedge funds division that struggled to perform and was closed in 2008, prior to his arrival.

“I’ve never been completely sold on funds of hedge funds,” he comments, a savvy attitude following the financial crisis when investors became disillusioned with products that charged a double layer of fees but failed to deliver performance.

This is not a prejudice against alternative investments generally, says Mr Lazberger. Colonial First State has long-short products in its resources section, and it offers short extension products (such as 130-30 funds) to its Australian clients. He has also not ruled out the possibility of developing an inhouse hedge funds offering.

“We do see hedge funds representing a long-term feature in investors’ portfolios. The only way we’d be interested though is if we were managing the money.”

There are stumbling blocks however, to do with ensuring there are no conflicts of interest between a hedge fund business and the established long-only business, and finding an appropriate level of fees.

Until recently, investors have accepted high fees from hedge fund managers, but since the financial crisis, says Mr Lazberger, “we’re seeing a lot more focus on fees from
investors”.