Mountains in Clouds


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Hall Road Investments #30

The Outsourced COO/CIO

Platforms IRESS has announced they will purchase OneVue for just a tick over $100M. Good news for Connie Mckeage and the list of long-term employees and stockholders. Anyway, further consolidation in the managed account, registry and portfolio admin space.

OneVue must be doubly happy as they have also offloaded Madison Advisers to Clime for $4.4M on gross revenue of $34M. Clime launched a placement to fund the buyout which is not that unusual. What is slightly different is the placement was fully underwritten by Primewest that now owns over 8% of Clime.

Portfolio Tracking – lots of feedback following my Addepar mention in the last email. I subsequently caught up with another US based tech firm called Eton Solutions. One thing I learnt was the important difference between a solution providing a general ledger and is a workflow-based system. In my mind, that allows for all the other aspects of running the office such as brokers, accountants etc to plug into this one “source of truth”.

Eton’s clients are typically offices that don’t outsource the operations and has staff to manage the platform inhouse. It’s still expensive, hopefully one of the big accounting firms pulls the trigger on using this tech so clients can leverage off it and provide much need rigor around Australian tax rules.

I’m still searching for the perfect tracking tool for custodial and non-custody holdings, pricing in all markets, easy benchmarking, no double handling of data…. It’s the dream and I feel it’s getting closer.

Value Investing – Magellan’s McKay announced the firm’s Flagship Fund LIC is holding nearly 50% in cash which is a big asset allocation decision for my equity slice. I wonder how it looks for investor portfolios – do advisers carve out the cash component when informing clients of their aggregate position?

And holy crap wouldn’t you know it, McKay has laid a lot of the blame on ETFs for the rebound in May which he missed: “"ETF trading is almost never associated with fundamental analysis of the underlying values compared with market prices of the individual components.”

What? Index investors don’t suddenly throw out all the basics of investing just because they don’t pick single stocks. The decision to invest is the same and it’s starting to give me the shits that “dumb money” is blamed for every misstep of active managers.

Oaktree’s Howard Marks, when asked on defending portfolios: “…one, is you sell some assets and you go to cash in part or in whole. Now this is very hard to do because this is black or white, wrong, or right. And rarely is it right to be overwhelmingly in cash. And on the rare occasions when it’s right, most people can’t find those occasions. So, going to cash is problematic. And by the way, if you go to cash and you’re wrong and you miss good performance in the market for a couple of years. The individual investor will rue the day and the professional investor might be out of work. So, cash is tough.”

Custody – Northern Trust has teamed up with BlackRock’s Aladdin to extend its “whole office” solution for insto clients. Aladdin has moved to the cloud too which gives it mobility. I’m hopeful that this move by Northern Trust will help in the Family Office/Smaller Mandate clients that need custody arrangements but are not seen as valued customers due to size.

Fund Launch – Opal Capital Management are launching founders class units for a market neutral fund, looking to raise $50M minimum.

Fund Structure – the “game changer” Airlie Fund with dual unlisted and listed implementation has launched. I’m not sold on this structure and speaking to people that know this much better than I, can’t see a big wave of similar listings. Especially as a dual share class system works better for both incumbent and new investors. I’m still no closer to understanding the mechanism available to investors on determining the better bid/ask spread and how a liquidity provider would engage either. Where is the ASX’s much marketed mFunds in all this?

Damien Sherman (Ex Head of Vanguard Capital Markets) published this article which I think provides a very good overview on the new structure and should be seen by anyone looking for informed opinion.

RealIndex – David Walsh is getting the RF Capital/Blackrock/SSGA band back together with Rob Guido moving to the firm in a newly created position of senior qualitative portfolio manager. New management has also meant a cut in fees for their class A Funds.

Private Markets - Paul Tudor Jones backed Clearlist Holdings is partnering with ShareNett Holdings to develop a platform for family offices to transact in private markets securities. The service is available to non US clients for anyone interested. The term being used is “super distribution hub”.

Indexing and ETFs

Fee Cuts – iShares has cut the fees on three Fixed Income ETFs and added two more to the asset class.

Fund Launch - I nearly fell off my chair, State Street is launching a new ETF. My old boss Amanda Skelly was the last to launch a fund as head of SPDR. Good to see they’ve decided to pull the trigger on something.

Oil ETFs – The SEC is investigating an oil ETF in the US that looks familiar to domestic investors. This investigation concerns whether its risks were properly disclosed to investors, scrutiny that was triggered by crude’s recent historic slump. The investigation will include whether shareholders were adequately informed that the ETF’s value wouldn’t necessarily move in tandem with the spot price of oil, as well as about the fund’s recent decision to purchase crude contracts that expire further out in the future. Wonder if this expectation of education etc will be pursued here in OZ for funds that carry complexity. Probably not.


KPMG/Crestone – I was on a sustainable investing webinar organised by KPMG. I heard the term “black elephant” for the first time. Hopefully they will stop torturing the animal metaphors soon. It was an interesting session that backs up the data from BlackRock mentioned in the last newsletter. ESG strategies were tested, they performed as expected and the flow of client money continues. There was a good point on the difference in ESG and Impact investing and the increase in SDGs as guidance for long term investing.

Rio Tinto – a big test for investors will be the tracking error hit from the exclusion of Rio from portfolios on ESG score. We saw similar issues with BHP, caveats aplenty for building portfolios in markets that are dominated by a few companies. Fortescue is facing similar scrutiny so I’ll me waiting for any new ESG scorecard movements.

Perth Mint – AFR has reported on some questionable gold source auditing which should cause any ethical investor to look at supply chains

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