Mountains in Clouds


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Hall Road Investments #39 (Family Office Sherpa, Index & ESG)

Originally sent to subscribers on the 16th of October.

The Sherpa Update

PWN Slides – following positive feedback on the slides from the second presentation, I have put up the first session after requests. This was a standalone event between PWN and Hall Road for families looking to better understand investment reporting and data analytics technology. I would say this is about half our business at the moment with most asking:

1) Where do we start with a review?

2) What service providers are out there, how are they different to our current set up?

3) What are our needs – how do we match the family with the tech and how do we future proof any changes.

Nearly all our engagements are starting with an initial review of the reporting and operations, relatively top level and provides an insight into where they are, where they can be and how to get there. From there we can move on to a list of priority projects. As always, let me know if you would like any more information.

ASX – if you want to know why I’m always a but cynical when it comes to the ASX launching anything, note their launch this week of the new website. Data and announcements not available, reports missing. A shemozzle and a reason why any expected DLT coming out of that business to be looked at closely.

Sales – Distribution is hard. For all those on this list that look after product. Calls not returned, email not replied. I have been there and am still are there. It’s not easy and the walls you build to protect your ego and to keep going is sometimes very difficult. I’m on both sides now, trying to build a business as well as engaging service providers which provides better insights into both.

Bronte Capital – At the other end of that spectrum, John Hempton’s funds are now closed to new money. Good for them, not chasing size but actually trying to protect their alpha.

Morgan Stanley – has agreed to acquire Eaton Vance for around $7bn. Not interesting to most in Oz until you look at the firm’s assets that include Parametric, one of the leading “direct indexing” firms.

BT Panorama – has provided their pricing for super. Admin fees paid as bps is still the money maker for these platforms. Remember, not everything has to be custodial.

Third Bridge – I had my first consulting call as a specialist with this firm which was cool. If you’ve never heard about them, they connect consultants (usually big, global) with niche specialists. In this case, it was for Aussie ETF market overview.

Evans Dixon – has decided to rebrand which is probably a good idea. It does show that its worth digging into the history of your service providers as apart of the due diligence. In ten years, if you are looking at a firm called E&P Financial Group, just remember the past.

Praemium – has taken control of Powerwrap. If you’re a platform that uses Praemium and compete directly with Powerwrap, how would you feel about that?

Family Office Software – the number of tech providers out there continues to astound me; I try to keep up and then another provider pops up. This article sent me down a rabbit hole of global providers, some looking to service Australian clients and some that have decided its too hard.

Indexing and ETFs

Blackrock – news that BR has been benefitting from the Vanguard exit out of insto mandates which is not surprising. Some may be surprised that around $590M went into their ASX 200 ETF (IOZ). I would bet that this was equitization (from Jackett-Simpson over at Citi Transitions) as the mandate moves from one manager to another whilst maintaining exposure to the market and usually stays for a long as it takes to find another home for it. We had some big inflows into STW from insto clients which looked good on the way in but was brutal on the way out.

Distributions – this big inflow raises one of the negatives of an open-ended fund and that is the dilution of distributions when a big client enters after all the stock dividends are paid and dilutes the rest of the unit holders. The BR fund is big at around $2.89bn but $590M of that came in at some point, and the total inflow for September was a whopping $833M. Looking at the distribution calendar, that client has entered before the ex-date (12th October) and the accumulated divs over that quarter will have to be paid out over more units. They’ll hold the fund for 45 days and probably be moved into a mandate/unlisted trust for less than the 9bps they are paying on the ETF (if indexing).

I always look at the ASX ETP flow report as it shows size and flow – then look at the distribution calendar.

Dividend Stripping – which brings me to my third point on dividends within an ETF. When I started in insto sales, I got a lot of sales trader questions on being able to buy the ETF (STW), short the SPI Futures and take the half year distributions and franking credits with reduced market risk.

There is a fund from Betashares (HVST) that buys ETFs when it can’t find stock that it likes, then sells the ETF (these days they buy and sell their own ASX 200 ETF but they used to buy STW and VAS) and buys stock. At one point that fund was on its way to $500M but is now at $150M – if you look at its performance, you’ll probably understand why this method is not ideal.

Holdings as at October 2nd – 72% in A200 ETF from Betashares, 5% in NAB, ANZ, MQG and 3% in WBC. You also have a 50% short futures exposure. They charge 90bps MER.

ETF Securities – Founder Graham Tuckwell is back in Oz and running the show again. He’s effectively taken back the reins at ETFS, the last business under that name following the sale of his US and European businesses. It will be interesting to see what changes they make to the line-up – I remember their first foray outside of GOLD was a tie up with ANZ which didn’t pan out too well. He has investments in some business that package up ETF portfolios, I’m guessing they will start to become more into play regarding distribution.

ESG & Philanthropy



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