Mountains in Clouds

Insights

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Hall Road Investments #48 (Family Office Sherpa, Index & ESG)

First sent to subscribers last week.


The Sherpa Update


Superhero – raised $25M through a convertible note which valued the company at a tick over $80M. Not bad for a business that launched in September last year. I haven’t seen the pitch book from Shaw’s but I’m assuming the growth trajectory was high. They have 35K subscribers, the client acquisition costs must be small. I’m not sure where this leaves the likes of Acorn/Raize but the appetite for exposure in this market isn’t dying down and fair play to Superhero riding the interest generated by Robinhood and Stake.


Chad Slater – has found a new gig post Morphic/Ellerston. The founder of Morphic has joined ex Pont72 trader Lindsay Taylor’s new hedge fund.


MrBeast – for those not on YouTube, Mr Beast has a very popular channel and recently opened a burger chain, starting with 300 locations. Why is this relevant? The model he used was something I’ve been thinking about for financial services – he didn’t set up physical stores, he used existing infrastructure, in this case kitchens that are already set up but not at full capacity due to COVID.

We see that more and more – why build the platform when there are plenty of great, debugged and well-funded offerings with available, cost effective capacity. Same goes for just about every element of building a great advice business (broking, tax, planning, investments) and as wealthtech grows, the ability to differentiate your firm increases and the need for building bricks and mortar firms, just like Mr Beasts’ hamburger joints, will become less and less.


Snowflake – has teamed up with BlackRock’s Aladdin to launch a data cloud solution for asset managers. It’s a great step for Blackrock as it will allow greater integration of external data for clients building solutions through Aladdin Studio. Blackrock is making a big statement in terms of how important the data arms race is to future proofing their business.


Brazilian Family Office case study – a write up in Bloomberg on the Brazilian family office BWGI was of interest. It provided a dive into the investment, intergenerational challenges and also the staffing issues that can arise in the family office space. Especially for those more institutional like structures.

Platinum – the ups and downs of funds management. Platinum, compared to Magellan, increased their performance fee revenue for the year from $35K to $3.7M. The international, Asia and healthcare strategies beat their benchmarks.


Fund Launches – LGT is launching a new fund in Australia, I was on the webinar call, it was an interesting hour and leans heavily into their endowment style of investing. They have an early bird fee for those interested and launches in May.


Sayers – for those following this new firm, some interesting ownership details were published in the AFR. According to ASIC filings 14.5% of Sayers Capital, which owns 67% of Sayers Group Holdings, is owned by Andrew Burnes, CEO of travel company Helloworld. Other notable shareholders in Sayers Capital are Lindsay and David Fox (7.25% each), Gerry Ryan from Jayco (3%) and Andrew Bassat from Seek (4.4%).


Yarra Capital – Dion Hershan and team are buying Nikko AM’s Australian unit and bringing back the Tyndall name after 8 years. Nikko will retain 20%, they are looking for a new group CEO. Nikko has the distribution agreement with Ark, I wonder who retains that.


Commsec – just when CBA’s online trading unit was starting to deliver it gets hit by ASIC for overcharging brokerage through its third-party wholesale (ie. Platforms and Planners) business AIEX.

RF Capital/Future Fund – FF has picked up Tammi Fisher for its private equity team.


REST – Speaking of ASIC, REST has been notified by the regulator for misleading and deceptive conduct stemming from advice given to members looking to shift funds to another manager. Some of the alleged conduct centres on their ability to impose conditions on transfers out of the fund.


Asia Principal Capital – I met with this group to go through the HEAL offering, the strategy is a high growth (and IRR) follow-on fund that focuses on Healthcare, Education and Lifestyle. They are supported by a few known family offices and the advisory panel is interesting. If you want more information, let me know.


Indexing and ETFs


PIMCO – one of the first fixed income ETF providers in the US with BOND has decided that it’s time to enter the Australian market.


Market Volatility – According to BIS, the mismatch between the tradable, liquid bond ETF actually stabilises the illiquid underlying bond market. This would come as a surprise to a lot of indexing doomsayers who rely on anecdotal and “surely” evidence.


From Bloomberg: “The latest quarterly report from the Basel-based central bank for central banks explores the mechanism that regulates the price differences between fixed income exchange-traded funds and the bonds they own.


The surprising conclusion: Yes, the two values can be wildly different, but that disconnect is a key shock absorber for the market.”


Bond ETF “baskets” ie, the constituents required to produce a unit of the ETF, can be very different from AP to AP, and it’s this flexibility during market stress that can improve the quality of holdings in the fund. I won’t get too deep in the weeds on this, read the article from BB here.


ESG & Philanthropy


Vanguard – errors happen and as an ex-employee of one the largest ETF providers, managing to a benchmark isn’t as easy as everyone thinks. True for Vanguard’s Ethically Conscious Bond Fund after announcing it has found constituents that didn’t actually fit its own criteria and that they have changed the PDS to reflect this. Now, I’m not in the habit of checking 4500 holdings in an index fund to make sure they all match the criteria but surely the index provider should be? MSCI is not inexpensive.


Cheers


Shaun

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