Mountains in Clouds

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Hall Road Investments #41 (Family Office Sherpa, Index & ESG)


The Sherpa Update


Crestone – who says there is no revenue in advice. Crestone Wealth Management reported revenue of $120.5 million for FY20, as it added $1 billion in net new client money and nine new advisers during the year. They had an EBIT of $10.8 million, down from $11.5 million the previous year, which it attributed to growth and technology investments that weighed down on short-term profitability.


Ord Minnett - has “won” the race for E&C Baillieu stockbroking business. It will keep the branding which makes sense as it’s still a name in Melbourne.


Fund Launch – Hastings founder Mike Fitzpatrick is launching a new wholesale strategy called True Infrastructure Fund. They’re aiming to raise $200M, it’s a fund of funds structure and will invest in Atlas Infrastructure and Infrastructure Capital Group (ICG) where he is a major shareholder.


Clime Capital – Rod Bristow is no longer CEO. Press has been vague as to why he has left, noting that he seems to have done a good job. John Abernathy has returned to provide guidance to the investment team and Mercer has been appointed to oversee the managed account portfolios. I wonder how the integration of recently acquired dealer group Madison is going.


Cash – In a sign of the times, Deutsche has actually added to its local operations, hiring 14 people to run a new cash management business in Australia.


Start Ups – Family Office favoured NAB Ventures has joined with US based Lighter Capital to provide start-up funding and link debt repayments to revenue and not relinquish equity. It looks like an interesting model – it’s non-dilutive, revenue-based financing model that allows borrowers to pay back a loan with a pre-agreed percentage of revenue, typically 3 per cent to 5 per cent. It does not seek warranties, personal guarantees, board seats, or equity.


Performance Data – the need for accurate performance data increases, I’m receiving feedback that as some large distributions are being paid out of some funds (eg. Packer & Co, Arrowstreet EM), the platforms tracking managed funds are not all keeping up. Reach out for more information.


Indexing and ETFs


GSFM/Munro – Have launched an ETMF on the ASX for their Global Growth long/short strategy. It’s a first go for Grant Samuel and I’m sure will test their ability to manage a listed structure. They aren’t using other’s infrastructure so will have to manage the market making, iNAV (provided by Solactive), application and redemption (Macquarie AP) and keep firms that would pick off mispricing at bay. Mainstream is the unit registry (same as Magellan), Macquarie is the lead market maker.


It’s a feeder fund and the only invests in the underlying strategy and cash which can mean double spread costs – the cost buy/sell in the underlying strategy plus the buy/sell you pay for the listed transaction. It’s not an ETF, they don’t disclose the underlying constituents daily.


This line deep in the PDS solidifies my issue with self-made markets – “The responsible entity and the investment Manager will waive any performance fee that is attributable to profits from market making activities.” The fact they acknowledge they may profit from these activities means the potential conflict is real. Sure, they may not take the performance fee, but are they taking the full MER (135bps) that may include MM profits?


For anyone looking to build a similar product, go to page 16 of the PDS – it’s a great overview of the different elements that go into manufacturing a listed version of an unlisted trust.

AMP – has ended a rather uninspired foray into ETMFs with the closure of their four funds sub managed by BetaShares.


Betashares – has given up competing with Vanguard on their diversified multi asset class ETFs and is changing to ESG targeting strategies.


Loftus Peak – has joined the throng of active managers launching a listed version of their global equity funds.


ESG & Philanthropy


Climate Risk and Investment Risk – Larry Fink from BlackRock is getting around at the moment, lots of press covering his thoughts on the current investment environment. One thing that sticks out, every time he presents, he pushes heavily into the ESG credentials of the firm. The most recent McKinsey/FCLT Global discussion on Sustainable Transition noted how BR was investing in t tools that provide proof that climate risk is investment risk.


“BlackRock has partnered with Rhodium Group, an independent research firm which uses climate science, economics, big data and cloud computing to provide evidence-based insights into climate scenarios.” It’s likely that they will also add new climate risk metrics to their Aladdin platform.

There’s a cool youtube video here.


Cheers,

Shaun

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