Mountains in Clouds


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Hall Road Investments #32 (O-COO/OCIO Index & ESG)

The Outsourced COO/CIO

IM vs Constitution – with the recent market volatility I’m getting feedback from clients that some fund managers are delaying redemption requests. When confronted with the “generally within 5 days” mentioned in the IM, the rebuttal is “yeah, but the constitution says we can have up to 90 days so we’re going to delay until then.” Always good to check that the IM and constitution match up when it comes to redemptions and the arse covering language is not signed off by your wealth manager. As we’ve found, it’s not about ease of getting into these funds, it’s how easy it is to get out when it all goes pear shaped.

Custody vs Direct Ownership – on the same theme, for all the “benefits” of custodial holdings I’d rather be a smaller issue for these managers as a direct unit holder and not under the larger nominees account. Maybe it would be easier to manage my exit if I weren’t lumped with a massive mandate and I can use my direct rather than “beneficial” ownership status.

Paulson – one of the Big Short heroes has decided to shutter his underperforming hedge fund and going private. I wonder if Dalio is next.

Viburnum – the Perth based activist manager has picked up Jason Korman from BGH.

SPACs – I was scrolling through LinkedIn the other day and saw that my old head of SPDR ETFs, Jim Ross, had joined something called a SPAC in the US. I had a look as to what that is. It stands for Special Purpose Acquisition Company, also known as a ‘blank check company”. They list on the exchange and use the IPO proceeds to buy other companies. Often, they are set up as vehicles for retail investors to access private market transactions. So, like an LIC with no particular assets. Sounds like it might be a fun thing to set up here.

Performance fees – are coming under scrutiny during this volatility with some firms maintaining valuations on some key holdings that are not pricing. Now, I’m not a cynical person by nature but if you keep a last traded valuation on a company in your portfolio that has been suspended with a big write down and your performance fee is calculated quarterly and its almost the end of the quarter…Let’s make a note of those who have good form and those that write them down after the performance fee calculation.

ASX – has postponed its move from the 26-year-old CHESS system to a Distributed Ledger Technology to April 2022 which is disappointing but not a surprise.

Platforms – Praemium is taking out PowerWrap for $55M which should shock no-one. Praemium is the investment overlay for PowerWrap (and Mutual Trust and IPS) so makes a lot of sense.

PandaConnect – We met with this Danish platform yesterday, a very insto like solution being made available to Single and Multi-Family Offices in Europe.

Benchmarking – if someone can point me to a reporting platform that allows for both asset class and aggregate benchmarking that would be awesome.

Zenith/Chant West – despite a “delay” Zenith has taken over Chant West. So, Zenith is technically a listed company now? Having paid them research fees in the past I will be interested to go through the books.

Perpetual – completed its acquisition of ESG specialist firm Trillium. Look out for a wave of Aussie product.

FirstLinks – I’m becoming a bit frustrated with this newsletter. I know that it’s sponsored but I just read an article on ESG ETFs and I reckon half was a sales pitch from Betashares.

Indexing and ETFs

Chi-X – Nine Mile Financial has been admitted as a participant as a market maker to support its Tracr products. Nine Mile senior staff seem to be sourced from Macquarie/Liquidnet ETF market making business, has been around since 2016 and sees itself as more of a tech business than a traditional liquidity provider.

WireCard – Lots of talk around the failure of ESG ETFs that included this stock, despite some historic governance issues and exposure to clients that provided gambling services and “adult businesses”. One thing that you have to always remember with Indexing – you are buying a set of rules and you can also dig into every stock, sector or country. Unlike active funds. It’s why you look at the index methodology, not the name of the fund.


Performance – I’m not usually one for short term performance data but during times of heightened volatility and dispersion, it’s interesting to see the data.

MSCI released some numbers on the performance of ESG indices compared to the parent. Looking at performance from 1 January -30 March, 2020, the index provider compared select MSCI ESG indices to the MSCI All Country World index (ACWI) and found all four outperformed.

It said a large part of their outperformance was due to a “systemic tilt” towards higher ESG-rated stocks. Now, ESG scores are specific to the index provider and MSCI is one of the biggest in the space. It’s always a good idea to get some clarity on how they score and therefore add and delete companies.

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