ANNUAL REVIEW - Australian Centre For Financial Studies

ANNUAL REVIEW
09

INDUSTRY
MISSION
To build links between academics, practitioners and
government in the finance community, to enhance
research, practice, education and the reputation of
Melbourne’s financial institutions and universities,
and of Australia as a financial centre
KEY ACTIVITIES OF MCFS
– Funding industry relevant research
– Contracted consulting and research services
– Organising conferences and workshops
– Contributing to public debate on financial services issues
ACADEMIA
GOVERNMENT
2

Striding towards
its mission
SYD BONE
KNOWLEDGE CREATION
On behalf of the Board of the Melbourne
Centre for Financial Studies (MCFS) it is my
pleasure to present the Annual Review of
MCFS’s activities for 2008/09 and its plans
for the forthcoming year.
MCFS is a not-for-profit consortium
of Monash University, the University of
Melbourne, RMIT University and Finsia
(Financial Services Institute of Australasia).
Funding by external sponsors and partners is
a key component of the business model, with
special thanks to the Victorian government,
AAMI and the Commonwealth Bank for their
strong support.
Now in its fourth year, MCFS has
already made great strides towards achieving
its mission of linking together finance
practitioners, academics and government
to facilitate and disseminate knowledge
through the greater finance community.
MCFS has developed a strong
reputation for its ability to attract high profile
speakers to its outstanding events, for the
depth of research it has funded, and for
its strong unbiased contributions to public
debate on financial services issues. The
information contained in this Annual Review
provides an excellent summary of what
has been achieved during 2008/09 and I
commend it to you.
The challenge going forward for MCFS
is to build on the strong base now in place. It
is indeed an exciting time in this regard, with
MCFS set to expand its activities significantly
in 2009/10 by launching the Melbourne
Mercer Global Pension Index in October and
assuming responsibility for the Melbourne
Financial Services Symposium held annually
in March.
Another key initiative underway is
the formation of three Research Reference
Groups made up of senior industry and
academic leaders in the banking, insurance
and funds management fields respectively.
The intent is to identify and develop research
issues that are most relevant to industry.
This will then provide direction for research
students and staff of the consortium
universities, for the annual MCFS research
grants offered to the universities, as well
as provide consulting opportunities and
introductions.
PAYING TRIBUTE
I cannot let this opportunity go by without
paying tribute to the outgoing Chairman
of the Board John Unkles, who has been
involved with MCFS from its inception. John’s
vision and leadership will be surely missed,
and we thank him for his contribution.
At management level, we welcomed
Professor Deborah Ralston first as Acting
Director of MCFS whilst Kevin Davis was on
sabbatical in the UK, and more recently as
its Director now that Kevin has returned to
take on the role of Director of Research. The
skills and experience of both Deb and Kevin
dovetail exceptionally together and augur
well for MCFS’s future success.
Finally, I wish to thank the Board, our
management team and all our sponsors
and partners for a great year in 2008/09.
We look forward to another strong, indeed
groundbreaking, year ahead.
Syd Bone, Chairman,
Melbourne Centre for Financial Studies,
September 2009
A NOTE FROM THE CHAIRMAN
3

A year with plenty
of highlights
PROFESSOR DEBORAH RALSTON
DIRECTOR’S REPORT
4
ACHIEVEMENTS
2008-2009 has been a busy year for MCFS
with many highlights.
MCFS has held a number of
conferences this year including the
second Superannuation Fund Governance
Conference (held jointly with AIST), the
Consumer Finance Symposium and the
Banking and Finance Conference (both in
conjunction with Finsia). The 14th Melbourne
Money and Finance Conference was timely
and well attended by practitioners and
academics alike, given its theme of ‘Financial
Globalisation: Implications for Australian
Financial Institutions and Markets’.
It was also a strong year for events.
‘Voodoo Banking – the Outlook for Banks’
by Satyajit Das attracted in excess of 500
across Australia. MCFS also presented the
3rd International Distinguished Lecture with
UBS Global Asset Management Chairman
and CEO John Fraser, addressing the topic, ‘A
Tumultuous Year or So’. The following month
saw the Future Fund industry briefing. Both
events attracted over 250 attendees.
Last but certainly not least has been
our research program highlighted by the
completion of contracted research for
the Australian Council of Superannuation
Investors (ACSI). The completed report
included an analysis of recent case studies
on governance issues arising from private
equity takeovers, leading to ACSI-endorsed
guidelines and a code of conduct for boards
in dealing with such events.
The ACSI report and papers from
all conferences and events are available
on our website. A number of the papers will
also be published in forthcoming editions
of JASSA.
These activities and other regular
events such as our Finance Forums
contribute to outcomes of MCFS which has
since its inception:
• allocated over $1.4m in research grants
and commissioned research;
• established an annual cycle of academicpractitioner
events;
• contributed to high profile academic
journal publications;
• established links between academics,
government and business to provide
introductions and interaction;
• provided media comment and thought
leadership; and,
• contributed to the awareness of Melbourne
as a centre for finance research.
LOOKING FORWARD
From 2009 we are moving to a new business
model which has resulted in a number
of projects strategically aligned with the
direction of MCFS, bringing us together with
prestigious partners and assisting MCFS to
achieve a financially sustainable position.
Some of these projects are outlined in this
report including the Melbourne Mercer
Global Pension Index, the MCFS ANZ
Trustees Share Price Database and the
Melbourne Financial Services Symposium.
Across our University consortium
partners Melbourne, Monash and RMIT
Universities, MCFS has access to over
100 finance academics and over 200
postgraduate students engaged in finance
research.
From 2009 we look forward to
strengthening the links between industry,
academics and postgraduate students by
introducing research reference groups in
banking, funds management and insurance.
We intend to ensure that research coming
from MCFS initiatives is relevant, rigorous and
reliable.
Professor Deborah Ralston, Director,
Melbourne Centre for Financial Studies,
September 2009

Melbourne Mercer
Global Pension Index
PAUL COSTELLO
In March 2009, Mr John Lenders MP
the Treasurer of Victoria and Minister for
Financial Services, announced MCFS
has been contracted by the Victorian
Government to undertake a pilot study
to compare pension and superannuation
systems on an international basis.
MCFS has sub-contracted key elements to
Mercer in Melbourne which in turn is drawing
on its global network for data collection
and validation. The study will result in the
production of the Melbourne Mercer Global
Pension Index (the Index).
The study will highlight the relative
merits of national superannuation and
pension systems, both public and private,
and their capacity to meet the long term
retirement needs of each country’s
population. Such a study however, is not
without challenges. Comparing retirement
systems is sure to be controversial as every
system is different and has arisen from
each country’s particular economic, social,
cultural, political and historic circumstances.
Consequently there is no perfect system that
can be applied universally.
Having recognised these constraints,
the pilot study will undertake a comparison of
retirement systems in 11 countries: Australia,
Canada, Chile, China, Germany, Japan,
the Netherlands, Singapore, Sweden, the
United Kingdom and the United States of
America. The countries have been chosen
to provide a robust comparative sample of
well established and emerging systems.
Data will be drawn primarily from OECD and
other official sources and supplemented by
in-country data collected and validated by
an international network of Mercer pension
specialists.
The Index is constructed from three
sub-indices: benefits, sustainability and
integrity. While the central purpose of a
retirement scheme is to provide benefits,
which are therefore accorded a greater
weighting in the Index, it also needs to be
sustainable in terms of the economy and
government’s ability to deliver benefits into
the future.
The final sub-indice measures the
integrity of each system in terms of the
regulatory oversight and governance of
private pension funds.
In developing the Index, MCFS has
brought together a reference group of
senior industry and academic experts to
oversee the study and sought input from
authorities such as the World Bank, the
OECD and the International Centre for
Pension Management at Rotman University
in Canada.
• Syd Bone, Chairman, Melbourne Centre for
Financial Studies
• Jeremy Duffield, Managing Director,
Vanguard Investments Australia
• Dr Vince Fitzgerald, Chairman, Allen
Consulting
• Assoc Prof Roger Gay, Monash University
• Prof Richard Heaney, RMIT University
• Dr David Knox, Worldwide Partner, Mercer
• Assoc Prof Matt Pinnuck, Melbourne
University
• Ian Silk, Chief Executive, Australian Super
They have been joined by occasional
invited experts and by the project team from
MCFS and Mercer.
The Index will be released in mid-
October 2009 and is expected to stimulate
debate and research activity among
policy-makers, regulators and the funds
management community globally.
CASE STUDY 1
5

Industry relevant
research
PROFESSOR KEVIN DAVIS
RESEARCH REPORT 2008-2009
6
MCFS aims to both promote the creation of
knowledge by academic finance researchers
and to disseminate that knowledge to
industry and government. It also aims
to transfer knowledge from industry to
academia, recognising that many advances
in financial research have their origins in
practice, and that the subject matter of
academic research is ultimately the product
of industry activities and practice.
To achieve the aim of knowledge
creation, MCFS provides competitive
research grants to its research associates
at the consortium universities, undertakes
in-house research, and brings together
industry and academic research partners.
To facilitate knowledge transfer, it conducts
research related conferences, seminars
and workshops aimed at a mixed ‘pracac’
audience and drawing on researchers
from both industry and academia. Media
commentary and contributions to public
debate are also fundamental to the
knowledge transfer role.
At the heart of the MCFS research
program is the academic research grants
program. To date MCFS has distributed
around $1.4 million to associates providing
funding for 78 research projects. Articles
resulting from these grants have been
published in academic journals such as
the Journal of Finance, Journal of Portfolio
Management, Journal of Financial and
Quantitative Analysis, as well as in other
international and Australian finance
journals. Recipients of grants have made
presentations at a range of international
conferences as well as at MCFS organised
conferences, workshops and seminars.
Publications in high quality academic
research journals are a key aim of academic
researchers and the research grants
program, and such outcomes contribute to
the recognition of Melbourne as an important
centre of finance research and activity. But
the transmission of knowledge to industry
is also important, and in that regard, MCFS
has been responsible for the production of
several special issues of Australian journals
with an applied/practitioner focus. Most
recent among these was the 2008 special
issue of JASSA presenting 12 papers from
that year’s Melbourne Money and Finance
Conference on Recent Developments in
Australian Debt Markets. Among the topics
covered were ‘Recent developments in
Securitisation’, ‘Kangaroo bond issuance in
Australia’ and ‘Australian hybrid securities:
two decades of evolution’.
Moving forward, MCFS aims to
concentrate its research agenda on the
three industry sectors of funds management,
banking, and insurance, and further
strengthen the academic-industry research
links. In doing so, we have developed
Research Reference Groups in those three
areas, comprising key individuals from
industry, regulatory agencies, and academia.
Emerging issues of interest to industry
which are suitable for academic research
will be identified, and mechanisms for
encouraging and facilitating such research
and its dissemination back to industry will be
reviewed.
Naturally, MCFS welcomes any
suggestions from industry about how to
further develop its ‘prac-ac’ research agenda.
Professor Kevin Davis, Research Director,
Melbourne Centre for Financial Studies,
September 2009

Melbourne Financial
Services Symposium
As from 2010, MCFS has assumed
responsibility for the high profile Melbourne
Financial Services Symposium held in March
each year.
Garry Weaven, Chairman of Industry
Funds Management, relaunched the
Symposium at a function held on the 19th of
August 2009. Honorary guest at the function
was Treasurer John Lenders, Minister for
Financial Services who also launched the
strategy for Victoria’s Financial Services
Sector.
First held in Melbourne in 1998, the
Melbourne Financial Services Symposium
brings together national and international
thought leaders to identify critical issues that
will impact the growth and development of
the Financial Services Sector in Asia Pacific.
Past symposia have seen thought
provoking discussion of topics such as
emerging trends in the funds management
industry both globally and within the region,
and the rapidly expanding developments in
private markets including infrastructure and
private equity. In 2009 almost 700 people
attended the event, with 550 participants at
the opening dinner.
A highlight of the Symposium is
the award presentations which recognise
excellence in the funds management industry.
The annual Investment Stewardship
Awards are made recognising long-term
achievement. The judging panel considers
not only financial results, but product
innovation, service quality, investment
philosophy, corporate governance, risk
management and approach to ESG issues.
Category winners this year were Unisuper
(superannuation funds) and Lend Lease
(investment managers).
The annual Victorian Innovation in
Funds Management Award acknowledges
new investment strategies and products
developed by boutique Victorian fund
managers. The award was decided on a
number of criteria, including innovation
in investment processes, innovation in
investment products, and innovation through
a financial crisis. The winner this year was
boutique investment manager, SG Hiscock &
Company (SGH).
MCFS will be able to build on
the success of the Symposium to date,
bringing both expertise in designing event
programs and contacts with high profile
potential speakers. It is intended that the
event program will be shortened to a more
focussed half day before the opening dinner,
followed by a workshop and lunch the
following day in conjunction with the Institute
of Actuaries of Australia.
As always corporate financial support
is critical, and at the time of writing confirmed
sponsors for the 2010 Symposium include
the Environmental Protection Authority,
Department Industry Innovation Regional
Development, Franklin Templeton, Victorian
Funds Management Corporation, Austrade,
Northern Trust, Treasury Corporation of
Victoria and the City of Melbourne.
CASE STUDY 2
7

2008-09
SUPPORTERS
Consortium members
Financial Services Institute of Australasia (Finsia)
Monash University
RMIT University
The University of Melbourne
Corporate sponsors
13th FINSIA-MCFS BANKING AND FINANCE CONFERENCE
AAMI
Commonwealth Bank of Australia
Corporate partners
Mercer
ANZ Trustees
AIST
ACSI
Event sponsors
MICHAEL ULLMER
Infosys
Janus Capital Asia
KPMG
NAB
Australian Bankers’ Association
AFM Investment Partners
ANZ
APRA
ASIC
Department of Industry, Innovation and
Regional Development
Goldman Sachs JBWere
RiskMetrics
Thomson Reuters Markets
Vanguard Investments
Victorian Funds Management Corporation
8

2008-09
EVENTS AND CONFERENCES
2008
8 July
MCFS-Janus Capital Funds Management Forum Series
Topic: Boutique Equity Managers in the Australian
Marketplace
Presenter: Andrew Bell, Portfolio Manager,
Bellwether Partners Limited
17 July
Seminar: The Euro Challenges the Dollar in
International Finance, Financial Globalisation and
International Financial Stability
Presenter: Prof Richard Portes CBE,
London Business School
19 August
Finsia-MCFS Consumer Finance, Investment and
Regulatory Issues Symposium and Academic
Workshop
28 August
Twilight Seminar: Securities Lending in Australia:
Current Issues and Challenges
Presenters: John King, Partner, Mallesons Stephen
Jacques and Assoc Prof Olan Henry, University of
Melbourne
1 September
Alternative Investments Industry Update with Chartered
Alternative Investment Association (CAIA), USA
29-30 September
13th Finsia-MCFS Banking and Finance Conference
and Dinner
Topic: Recent Developments in Australian
Debt Markets
Event Sponsor: Infosys
28 October
MCFS-Janus Capital Funds Management Forum Series
Topic: Generating Alpha Without Picking Stocks
18 November
Seminar: The Credit Crisis - Counterparty and
Operational Risk Issues
Sponsor: RiskMetrics
21 November
Symposium: Islamic Financial Services - What Role
for Australia
Sponsor: Department of Innovation, Industry and
Regional Development
26 November
3rd International Distinguished Lecture
Topic: A Tumultuous Year or So
Presenter: John Fraser, Chairman and CEO,
UBS Global Asset Management
Sponsor: KPMG
6 December
MCFS Special Event: Industry Briefing - The Future
Fund
2009
12 February
MCFS-Finsia Executive Luncheon
Topic: Voodoo Banking - the Outlook for Banks
Presenter: Satyajit Das
23 February
Occasional Seminar Series and Book Launch
Topic: Forecasting Credit Portfolio Losses for Economic
Downturns
Book: Stress Testing for Financial Institutions edited by
Prof Daniel Rosch and Dr Harry Scheule
Presenters: Prof Daniel Rosch, Head of Institute
Banking and Finance, Leibniz University, and Dr Harry
Scheule, University of Melbourne
Sponsor: Ernst & Young
31 March
MCFS Finance Forum: The Future of Hedge Funds
Presenter: Geremy O’Connor, Director and Portfolio
Manager, Attalus Capital (US)
Sponsor: AFM Investment Partners
7 April
Melbourne Derivatives Research Group Conference
Topic: Finance Down Under
Hosts: University of Melbourne and Financial Integrity
Research Network (FIRN)
1 May
MCFS-Janus Capital Funds Forum Series
Topic: Stochastic Portfolio Theory - Using Maths to
Generate Alpha
Presenter: Robert Garvy, Chairman and CEO,
Enhanced Investment Technologies (US)
5 May
AIST-MCFS Superannuation Fund Governance
Conference
Topic: Superannuation Board Governance:
Search for a Super Model
1-2 June
14th Melbourne Money and Finance Conference
Topic: Financial Globalisation: Implications for
Australian Financial Institutions and Markets
Sponsors: ANZ, APRA, CBA, RBA and NAB
Programs and papers from most of these events can
be found on the MCFS website.
9

Public Companies being taken private:
a research report into private equity
DAVID MICHELL
CASE STUDY 3
10
In 2008 the Melbourne Centre for Financial
Studies was contracted by The Australian
Council of Superannuation Investors (ACSI)
to conduct a study into the key governance
issues arising from recent private equity
activity.
During 2006 and 2007, large debtfunded
bids to privatize a number of major
public companies (such as Qantas, Coles
and Alinta) prompted shareholders to
question the governance arrangements for
such bids. Areas of concern were scope
for ‘owner-agent’ conflicts of interest and
the possibility that private equity bidders
were being advantaged over the company’s
existing owners in their access to information.
ACSI’s intention in commissioning
this study was to provide some guidelines
which would assist boards to improve their
governance practice and ensure that existing
shareholders did not unnecessarily surrender
value to PE bidders.
ACSI members manage $250 billion
on behalf of 5 million superannuation fund
members. ACSI provides independent
research and advice to its member funds
on environmental, social and corporate
governance investment risk.
Lead investigator for the project
was Dr Chander Shekhar, Senior Lecturer,
Department of Finance at University of
Melbourne who has published widely in
corporate governance field. His co-author
was David Michell of MCFS, who has
previously worked as a portfolio manager
and company secretary. Research assistance
was provided by Ewa Krawiec of MCFS, and
University of Melbourne post-graduates. The
work is expected to provide a basis for future
academic publications.
The MCFS research report ‘Public
companies being taken private’ reviews
academic literature, analyses Australian
and international case studies, and applies
finance theory to the specific questions
raised when public companies are subject
to bids intended to take them into private
ownership.
Key issues were information
asymmetries between bidder and existing
shareholders, the role of executive and nonexecutive
directors in companies subject to
the bids, director and manager remuneration
pre and post bid, and the identification and
mitigation of conflicts of interest for these two
groups.
Key outcomes of the research are a
set of Guidelines and a Code of Conduct
which have been adopted by ACSI.
Guidelines for company boards
subject to PE bids may be summarised as:
1. Target shareholders must be given a
reasonable opportunity to consider and
decide on any bid that involves a change
of corporate control.
2. The target board must ensure that the
bidder does not have any advantage
in information quality and quantity over
target shareholders.
3. An independent board committee, led
by non-executive directors and excluding
any participating insiders, must control all
aspects of the takeover including setting
limits on insider participation, disclosing
identity of insiders, and incentives offered
to them.
Additional guidelines were developed
for participating insiders, investors and nonexecutive
directors. A copy of the Report
including Guidelines and Code of Conduct is
available at www.acsi.org.au and
www.melbournecentre.com.au.

The people
behind MCFS
PROFESOR KERYN CHALMERS AND
PROFESSOR PAUL KOFMAN
MCFS Board
SYD BONE became the independent
Chairman of MCFS in May 2009. Formerly
CEO of Victorian Funds Management
Corporation, Syd brings with him a strong
resume of local and international experience.
Syd is a Director of the International Centre
for Pension Management and is a member of
Victorian Finance Industry Council.
PROFESSOR KERYN CHALMERS represents
Monash where she is Head of Department
of Accounting and Finance at Monash
University. Professor Chalmers has been
in academia since 1987 and prior to
joining Monash in 2003, held positions at
The University of Melbourne and Victoria
University.
ANTHONY DURAKOVIC is Executive General
Manager, AAMI. Anthony joined AAMI
in 1994 and was appointed Executive
General Manager in October 2007. Anthony
represents AAMI, a Suncorp company
headquartered in Melbourne, on the Board, a
corporate sponsor of MCFS.
MARTIN FAHY is Chief Executive Officer
of Finsia and was formerly Director for
Asia Pacific for the Chartered Institute of
Management Accountants where he led
CIMA’s expansion in the region. Finsia is a
founding consortium member and provides
a direct line to 17,000 financial service sector
members.
PROFESSOR PAUL KOFMAN represents
the University of Melbourne where he was
appointed as Professor of Finance at the
University of Melbourne in 2001 and became
Head of the Department in January 2006.
Paul has worked at Erasmus University in
Netherlands, Monash University, UTS and
UNSW.
PROFESSOR TONY NAUGHTON represents
RMIT where he is a Professor of Finance
has been Head of the School of Economics
and Finance since 2003. Tony has worked
at the universities of Leeds, Birmingham,
Wollongong, New South Wales and Griffith.
MCFS Staff
DIRECTOR: PROFESSOR DEBORAH RALSTON is
a Professor of Finance at Monash University
and has been with MCFS since January
2009. Deborah has held a number of senior
university appointments most recently pro
Vice Chancellor at the University of Canberra
and her research interests include the impact
of financial regulation, the strategy and
management of financial institutions and
regional economic development.
ph: (+61) 03 9666 1010
deborah.ralston@melbournecentre.com.au
RESEARCH DIRECTOR: PROFESSOR KEVIN
DAVIS is professor of Finance at Melbourne
University. Kevin was the founding Director
of MCFS from June 2005. His primary
research interests are in the areas of
financial institutions and markets, financial
engineering and corporate finance. He is
co-author/editor of 16 books in the areas of
finance, banking, monetary economics and
macroeconomics, and numerous journal
articles and chapters in books.
ph: (+61) 03 9666 1050
kevin.davis@melbournecentre.com.au
BUSINESS DEVELOPMENT MANAGER:
DAVID MICHELL. Having started in retail
banking, David has worked as an economist,
a portfolio manager (asset allocation) and a
professional association technical director.
ph: (+61) 03 9666 1012
david.michell@melbournecentre.com.au
RESEARCH FELLOW: JOHN FOWLER. Having
had a long career in corporate finance roles
culminating as CFO of CUB and Fosters Asia,
John has since worked as a management
consultant and financial researcher.
ph: (+61) 03 9666 1011
john.fowler@melbournecentre.com.au
RESEARCH ASSISTANT / ADMINISTRATIVE
OFFICER: EWA KRAWIEC
ph: (+61) 03 9666 1050
ewa.krawiec@melbournecentre.com.au
MCFS BOARD AND STAFF
11

Industry Advisory Committee and
Reference Groups
PROFESSOR BOB OFFICER
CASE STUDY 4
12
Facilitating links between academia,
industry and government has been a primary
objective of MCFS since its inception.
Enabling these links has been the role
of the Industry Advisory Committee (IAC).
The IAC is chaired by Emeritus Professor
Bob Officer, and is comprised of around 23
senior managers from Melbourne’s finance
community.
The IAC meets at least four times each
year to give the MCFS directors and Board
guidance on the needs of industry and to:
• provide practical advice on broad research
directions for MCFS, which reflect MCFS’s
goal of facilitating research which is
innovative, high quality and of value to the
Melbourne financial sector;
• assist MCFS in developing its network of
contacts with industry; and
• review the activities of MCFS to ensure that
they are appropriately targeted towards
achieving its objectives.
The composition of the Committee
is determined so as to provide a range
of expertise across the areas of interest
to MCFS. As well as representatives
from a number of industry sectors, there
are members from a range of relevant
professions, as well as a blend of experience
across private, public and academic sectors.
Commencing in 2009 the work of
the IAC is being supplemented by three
Research Reference Groups, which will drill
down further to develop a research agenda
of industry relevant topics for staff and
postgraduate students of the consortium
universities. The intention of the Reference
Groups is to increase the interaction between
industry and academia and maximise the
outcomes of industry relevant research.
The research focus of each group will
be broadly:
• Funds Management – superannuation/
pensions, venture capital, managed funds,
private equity, charitable trusts etc. –
chaired by Syd Bone
• Insurance - general insurance, risk
insurance – chaired by Professor Bob
Officer
• Banking – retail and wholesale issues –
chaired by Professor Kevin Davis
• Wherever possible, research will be
empirical and of practical relevance to
industry in its focus. Common elements of
each group’s considerations will be aspects
of:
• Regulation – impact and effectiveness,
cost and benefit trade-off; efficiency vs.
equity considerations,
• Governance – how will excellence in
the field (product design, organisation/
industry structure, efficiency) contribute to
improved governance outcomes
• Innovation - in financial products/markets/
services is an important part of dynamic
efficiency and applies equally across
all areas. Successful implementation
of innovative instruments/techniques/
processes is a key element of value
creation in financial services.
The reference group will also advise
MCFS on potential industry partners with
reference to their ability to fund and/or
participate in research projects (including
submissions to government and regulatory
bodies) and support post-graduate and other
academic interns.
Each of the three reference groups will
be charged with developing each year a half
(or full) day research symposium involving
practitioners, academics and postgraduate
students.

Australian Equities
Database
The Melbourne Centre for Financial Studies,
together with ANZ Trustees, has developed a
unique digital database of Australian Equities
for the years 1966 to 1980. The database will
present monthly pricing, capital, earnings,
dividend, turnover, and related data for all
listed industrial companies and major mining
and oil companies.
The database is designed to fill gaps
which presently exist in available electronic
databases of Australian shares as well as to
provide a more comprehensive base for the
analysis of portfolio formation strategies and
capital asset pricing models.
The period covered by the database
is a fascinating one, where the economy
experienced the triple 1970s extremes of
negative real interest rates, double digit
inflation and arguably the most volatile equity
prices seen last century.
MCFS reviewed both the range of
data sources available and the best available
technology for extracting and recording
data for this period. Currently available
library, microfiche or commercial databases
50
40
30
20
100
-10
-20
-30
-40
-50
Jan-67
Jan-69
Jan-71
Jan-73
Jan-75
Jan-77
Jan-79
Jan-81
Jun-66
Jun-68
Jun-70
Jun-72
Jun-74
Jun-76
Jun-78
Jun-80
for the period are limited in range of
information as well as in accessibility of data.
Technological options reviewed have included
manual extraction, microfiche extraction,
photocopying, imaging and scanning / OCR.
The preferred option of scanning and then
digitising the information to MS Excel using
OCR technology was found to be non-feasible.
Preparation of the Australian Equities
Database (AED) consisted of the following
stages:
• Local imaging of the hard copy published
data.
• Extraction of the original data by way of
independent, double-keyed entry to an MS
Excel spreadsheet format.
• Database consolidation and structuring
• Identification of equity capital changes
• Estimation of database extensions (eg.
‘value’ ratios); estimation of individual
equity and market Price Index (PI) and
Accumulation Index (AI) measures.
The database incorporates a total of
1,748 companies and presents monthly data
for measures such as number of shares on
Market Annual % Price Change Real 10 Year Bond Yield % pa CPI % pa
6.0
18 %
16
4.0
14
4.0
12
0.0
10
-2.0
8
6
-4.0
4
-6.0
2
-8.0 0
Jul-66
Jul-68
Jul-70
Jul-72
Jul-74
Jul-76
Jul-78
Jul-80
issue, face value of shares, reported earnings
per share, net tangible assets per share,
dividend declared, dividend payment dates,
dividend yield, monthly turnover of each
equity, and price (low, high and closing).
This basic data enabled preparation
of the following ‘extension’ estimates: market
capitalisation and weighting, risk and equity
returns, price and accumulation index,
dividend yield, dividend payout ratio, price /
earnings ratio, book to market ratio and stock
turnover rates.
Appropriate portfolio risk and
return estimates, together with Price and
Accumulation Indexes, are estimated at
market level and for each company.
The database is then being applied to
a Portfolio Formation Model which is capable
of accurate and detailed sensitivity testing
of risk and return outcomes for alternative
portfolio strategies. The model developed
is capable of identifying factor-return and
factor-risk relationships. The model estimates
separate return, risk and equity characteristic
for every equity and every portfolio at
every time point across the 15 year period,
identifying the company constituents of
each portfolio generated. The model is
capable of generating both capital-weighted
and un-weighted portfolio estimates and is
capable of identifying top 50, 200, 500 or
total list groupings by month.
The project has been conducted for
MCFS by its long-time Research Fellow John
Fowler.
CASE STUDY 5
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Working with MCFS
Sponsorship Opportunities
WORKING WITH MCFS
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With links between academics, practitioners
and government, you can work with MCFS
in several different ways: as a corporate
sponsor, event sponsor or as a research
partner.
Corporate sponsorships
The strategic direction and activities of
MCFS are overseen by a Board which
comprises consortium members and
corporate sponsors. Through membership
of the Board or the IAC, corporate
sponsors become involved in the strategic
management and research direction of
MCFS. Other key benefits available to
sponsors are:
• The preparation of thought leadership
pieces and bespoke research papers
providing timely, independent and well
considered commentary on industry
relevant issues;
• Direct involvement in our Research
Reference Groups to facilitate access
to academic researchers and
postgraduate students, and contribute
to broader industry relevant research
outcomes;
• Recognition through logo and
acknowledgement on Melbourne Centre
for Financial Studies website and all major
marketing documents;
• Enhanced opportunities to engage with
high quality post graduates and the
professional development of existing staff
through MCFS activities; and,
• Involvement as a guest at all major
MCFS events. Notably, these include the
Melbourne Financial Services Symposium,
the International Distinguished Lecture
and the Executive Conference Dinner of
the Banking and Finance conference.
The sponsor will also benefit from
leveraging opportunities via connections
to internationally-renowned academics
and local media exposure (MCFS has an
extensive finance and business media
distribution list.)
AAMI has been an inaugural Corporate
Sponsor for four years. AAMI raised with
MCFS a fundamental problem facing
the general insurance industry relating
to chronic underinsurance, brought to a
head with the recent Victorian bushfires.
MCFS prepared a thought leadership
piece entitled ‘Underinsurance: a case of
moral hazard’ that addressed key issues
including:
• the extent of the problem in property;
• the social and economic costs of
underinsurance to the public and
government;
• costs outweighing benefits especially for
the young, single and less educated;
• taxes and levies in premiums being
disproportionately high and inconsistent
between states; and
• the need for the Henry Review to
address these tax inefficiencies.
Event sponsors
During the year MCFS runs events bringing
members of the finance community together
to discuss and disseminate the latest industry
developments.
MCFS’s events have become a ‘must
attend’ item on the calendars of leading
decision makers, academic analysts,
practitioners and government reflecting for
the event’s promotion of critical thinking and
applications of finance research.
There are three main categories
of events: large scale conferences and
presentations, finance forum and academic
seminars.
Large scale events include the
Consumer Finance Symposium (August)
and the Banking and Finance Conference
(October) both held jointly with Finsia,
the Superannuation Funds Governance
Conference (May) held jointly with AIST, the
Melbourne Money and Finance Conference
(May-June), the International Distinguished
Lecture series (summer), and from 2010, the
Melbourne Financial Services Symposium.
The last year has seen the participation
of prominent presenters such as John
Fraser (UBS Global Asset Management),
Prof Stephen J Brown (NYU Stern School
of Business), Dr Robert A Eisenbeis
(Cumberland Investors), Satyajit Das, and
Senator the Hon Nick Sherry.
The finance forums and academic
seminars are both part day events which give
academics and practitioners the opportunity

CONSORTIUM PARTNERS
INDUSTRY BRIEFING: THE FUTURE FUND
RESEARCH PARTNERS
to hear from leading practitioners and
leading local and international academics
on current issues facing the local and
international finance community.
MCFS promotes these events through
its database of around 4,000 stakeholders
in the finance community across industry,
academia and government. Sponsoring an
event or research can get your name to the
desired audience.
Sponsorships in the past have
included benefits such as branding events or
research, the opportunity to have a speaker
at an event and visibility on MCFS marketing
documents, website and e-newsletter.
Research partnerships
MCFS facilitates research with major
corporate partners and through the
academic staff and postgraduate students of
consortium partner universities.
Across the three consortium
partners we have access to over 100
finance academics and in excess of 200
postgraduate students working in finance
research.
Through the work of our Industry
Advisory Committee (IAC) and Research
Reference Groups, MCFS plays a critical
role in identifying areas for investigation in
industry related areas of interest.Our aims
are to produce research outcomes which
are industry related, of high quality in terms
of academic outcomes and invariably have a
policy implication.
Research ideas generated by the IAC
and through the Research Reference Groups
inform the academic research agenda and
provide a source of ideas for intending
postgraduate students.
MCFS also conducts and facilitates
research with corporate partners, looking
at current issues and trends in the financial
services industry.
CORPORATE SPONSOR
15

Level 43, 80 Collins Street
Melbourne Vic 3000
Australia
T +61 3 9666 1050
F +61 3 9666 1099
info@melbournecentre.com.au
www.melbournecentre.com.au
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