Mountains in Clouds


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Hall Road Investments #49 (Family Office Sherpa, Index & ESG)

The Sherpa Update

Mainstream – custodian and fund admin firm has received a $180M takeover offer. The firm has been the go-to for domestic fund managers looking to launch listed, open ended funds through unique (and sometimes complex) mechanisms. Magellan being their biggest client.

Like Apex in the US, this shows the difference between firms that can be open to new structures and flexible with technology and innovation.

Interestingly, they have invoked the “go shop” mechanism for takeovers which allows them to try and find a better offer. This was last seen with MYOB and KKR.

John Hempton – it’s always a tricky thing, announcing short positions. If you can argue that Reddit traders are manipulating the market through announcing a long position, then how should fund managers that specialise in shorting communicate that to clients? Hempton announced shorts on IAG, the stock went into a trading halt and got nailed by 10%. Profit most likely achieved, but that’s his value add as a manger, right? Or is this the same mechanism that the US regulators are trying to curb.

Costa Asset Management - great to see the Costa family office investing in 11-year-old regtech firm LabGroup. If you have ever worked in middle/back office, the amount of time it would take to onboard a client could be extreme. Managing client’s expectations on account opening as you go through the AML/KYC detail can be excruciating. Seems that Labgroup has streamlined this process.

I see a lot of technology that deals directly with the investments with an office and now the regtech space is improving processes that are often major sources of frustration, and therefore blocks transferring from one adviser to another. Whatever makes this process easier, improves the chances of good firms gaining traction.

Future Fund – this is some long bow stuff, AFR reports that the Future Fund has $97M exposure to Softbank and is therefore a “backer”. It’s through an index fund that includes the firm as a weight.

Adviser Tech Stack – fingers crossed that the new wave of technology from RiskAlyze that allows US advisers to build their own tech stack, makes its way to Oz. Imagine that – as an independent adviser sitting in Wagga, having the agency to decide on platform, custodian, broker etc from just your perspective. I imagine it would have its drawbacks though, there is an argument that too much choice breeds churn and switching costs.

Digital Infrastructure – during my meeting with GAF, the term “Digital Infrastructure” was used. It’s not a term I’ve heard a lot, but it made sense. Clients are often looking to access the poles and wires, toll roads, airports etc but not a lot are looking at the software that required services are built on. Software that is ingrained and part of the process, that has high earnings and a large moat/barrier to entry. This new asset class will only get more important as we move to new aspects such as DLT/Blockchain and SaaS so I’m continuing to dig and discover.

Meetings – Natasha Nankivell & Peter Lyneham (GAF), Ophir, Terra Capital, Masttro, IQ:EQ, Sentinel Group, illio.

Indexing and ETFs

ETF Market Makers – news that Deutsche Bank’s delta one/market making traders have moved to rival Nine Mile should be interesting for anyone that trades or advises on ETFs in Australia. One of the unspoken issues with the domestic market is the lack of liquidity providers and market makers. With DB basically pulling out of equities, the second biggest AP/Market Makers in the country after Susquehanna (SIG), is no longer available. One difference between DB and SIG is that DB is a market maker and also a broker. Clients can access liquidity via primary market and also have a settling function within the same relationship. SIG/Nine Mile and Jane Street are market makers only.

Future Super/Betashares – the inquiry continues into its relationship between Future Super and Betashares. A question was asked why FS didn’t use the Vanguard ETF instead of Betashares with the main thrust being that they both sounded the same whilst the Vanguard offering was lower fees.

This question illustrates perfectly as to why you need to look past the name of the fund when investing (and don’t get financial advice from politicians). In this case, the two funds sound the same yet the rules for inclusion are very different.

ESG & Philanthropy

Tamasek – has invested US$500M into Aussie impact fund LeapFrog. There is just something about this firm that attracts funding. They are 13 years old now, the profile has never been bigger and when you have the likes of Gonski et al shouting about you, you feel they must be doing something right.

CFA – finally going global (except Oz) with its certification on ESG investing after huge take up in the UK. I’m very happy to see an independent and well-regarded institute providing education outside its core CFA cert. Every wealth firm that allocates to these strategies should have someone with a specific knowledge – the amount of greenwashed crap that’s out there demands it.

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