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‘Free On Board’* - shipping containers and investment platforms

, Jonathan Greenwold

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‘Free On Board’* - shipping containers and investment platforms

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Sometimes simple inventions can be the most transformative. Without the shipping container, it is unlikely the world trade in goods would account for 50% of the global economy. Jonathan Greenwold, Head of Legal, Risk and Compliance, explains how the development of the institutional investment platform offers the potential for similar efficiency in cross-border investment management and how platforms like AMX can be compared to a ‘shipping container for investment management’. 

 

Cost, risk and efficiency

 

Just as the shipping container reduced the expense of transporting goods so AMX can drive down investment management costs by using our scale to negotiate better fees for the investor.

Transportation becomes safer when merchandise is contained in a stable, easy to stack rectangular shape. Previously, loading and unloading individual goods was dangerous and accident prone with goods more likely to be damaged when moved between factories, trucks and ships. Similarly, an institutional platform like AMX can make the investment process safer for clients through effective governance and oversight.

By monitoring counterparties and overseeing investment and operational risks like liquidity, information security and trading errors, investment becomes less prone to expensive errors. Establishing robust legal and commercial terms, service credit regimes, and overseeing counterparties helps to protect the investment process and provide ‘damage limitation’.

As well as being cheaper and safer, standardisation makes things faster. Just as loading and unloading goods became quicker with uniform metal boxes, AMX facilitates investors’ ability to move investments quickly across different strategies on the platform.

When changing funds, an investor on an institutional platform can forgo a repeat of AML and KYC procedures and legal reviews, which are completed just once during initial onboarding. This reduces the administrative burden, saving internal time and making it easier to take advantage of market opportunities quickly.

 

Creating consistency

 

Just as a shipping container facilitates the transportation of goods of different shapes, weights and sizes, in using an institutional platform like AMX an institutional investor can maintain a highly diversified portfolio while receiving a more standardised and streamlined service.

Pension plans and other institutional investors usually invest in multiple funds. There will be a wide variety of fund structures and asset classes in such a diversified portfolio – allocations across, for example, global equity trackers, hedge funds and other less liquid vehicles make it difficult to manage information efficiently.

Reporting periods, methodologies and cost calculations will often be different. The investor will have to collate this information manually, for example to report to their investment committee.

Wrapping different managers, assets and strategies within an institutional platform like AMX provides investors with a standardised experience. The investor does not compromise on its diversified return stream but the investment information received is more user-friendly and consistent.

 

Navigating choppy waters

 

The safety benefits of an investment platform can be particularly useful during times of market turbulence. Just as stormy seas were more likely to result in lost or damaged goods before the advent of the container ship, so AMX’s investment platform can help preserve performance during times of sharp market corrections.

With a well-run platform, an investor maintains their ability to make strategic decisions safe in the knowledge that better management of risk can offer a degree of protection from negative performance.

For example, during the market turbulence in March 2020, prices in some assets dropped sharply while others, like corporate bonds, became hard to value. Investment risks spiked which needed careful management to resolve.

At the same time, effective management of treasury functions became more difficult with liquidity in certain money market funds drying up and interest rates falling sharply. Similarly, custodian banks became more concerned about counterparty risk

For most institutional investors, managing these hazards would have added to the complexity of navigating this crisis.

By using an institutional platform with robust operational and investment risk controls, investors can take comfort these dangers are being managed in the same way a container protects freight from salty storm waters.

This frees up the investors’ time to focus on strategic decisions allowing them to de-risk the portfolio or take advantage of opportunities as they arise.

 

Questioning the status quo

 

While simple inventions can herald periods of profound transformation, the biggest challenge is often overcoming vested interests. For example, trucking companies and dockworkers’ unions were resistant to the idea of freighting goods in metal boxes.

In the institutional investment management industry, AMX questions the status-quo for the benefit of the end investor. AMX makes fund investment lower cost and more efficient for institutions, and helps fund managers to attract a broader range of investors while still maintaining their client relationships.

Wrapping disparate investment strategies in an efficient and consistent way for delivery to the end investor aims to emulate the transformative effect the shipping container had on global trade.

 

*FOB, “Free On Board”, is a term in international commercial law specifying at what point respective obligations, costs, and risk involved in the delivery of goods shift from the seller to the buyer under the Incoterms standard published by the International Chamber of Commerce.

 

Photo credit: Felicity Kerridge


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