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Hall Road Investments #50 (Family Office Sherpa, Index & ESG)

The Sherpa Update


Number 50! Two big milestones this month – our 50th newsletter and the two-year anniversary of Hall Road Investments. Time flies.


iPartners – This platform allows wholesale clients to access hard to reach investments usually not available to them. Firms use the platform to access offshore or esoteric structures (40 Act, Cayman etc) via an MIS and is valued at $25M following Kelly & Partners recent investment through its $15M special opportunities fund. I’m going to go out on a limb and guess that Kelly & Partners used iPartners as the platform to raise asset for that fund.


I think this is very interesting and two managers I have spoken to recently are using this infrastructure to allow local investors access to offshore strategies whilst remaining within the MIS structure. This allows for better tax outcomes and also APIR coding which massively improves portfolio tracking and analytics. In my time at SSGA, the amount of cost and effort it took to get a local wrapper for an offshore fund was extreme – iPartners seems to be solving a major issue here.


Fund Launch – Ex Perpetual global stock picker Garry Laurance is doing a founder class round for what looks to be a 130/30 fund. He has named his firm Profeta Investments which means Prophet in Spanish. Just a bit confident then.


ASX – bungled the listing of Airtasker due to human error which as far I can determine is someone forgot to add them to a list. Anyway, the national exchange that is hoping to launch the first DLT solution and replace its creaking infrastructure can’t seem to get the little things right - like actually listing companies.


The thing that concerns me is the quote “there is a high manual component to this”. I know I sound like a broken record but if you wait until things break before investing in new technology you will face serios risks. For the ASX, the risk is that their pipeline of IPOs will shrink.


Add this to the list of recent snafus and you can see why some are cynical that this will be the exchange of the future.


Chi-X – all these issues for the ASX bring to light the fact that we have a second exchange. Now, we have one that is owned by one of the largest and most tech forward exchanges in the world – Cboe out of Chicago.


If I were at the ASX, my concern would be that the main competitor is no longer owned by PE and is now in the hands of a firm that has one of the greatest derivatives exchanges in the world, owns European/US/Asian exchange BATS and will bring in the block trading technology BIDS.


Multi Family Offices – KKR backed and substantial shareholder for Melbourne based Escala Partners, Focus Financial, has launched a new MFO that will cover EMEA and APAC. Called Beryllus Capital, it’s a JV with Indian conglomerate Hinduja Group and will target “the 1% of the 1% in London, Middle East and Singapore.”


Emerging Technology – I met with Gresham Partners as they are launching a feeder fund (through iPartners) for Teckne Capital. It’s an area of interest as it targets Emerging Markets technology firms and leans into the theme of digital infrastructure and the continued nationalisation of these components.


FitzWalter – I met with Ben Brazil and Andrew Gray (through GAF) from this firm. It’s a team most recently at Macquarie. I’m at the shallower end of the knowledge pool when it comes to this asset class, but it was very educational and gave me some real insights into how ostensibly simple the proposition is, if you have the right skills. Any interest let me know.


PIP – along with Sayers, Partners In Performance is on the hiring trail with three new pickups.


Oracle Netsuite – I have been digging into this firm as an alternative to Xero as it seems to be a bit more sophisticated and very aligned to the family office that also includes an operating business. They are a multi-tenant SaaS and position themselves as the next step up from Xero. Funnily enough I think Xero as a company uses them for accounting software. If you’re interested or are looking at Xero but not sure if it can do what needs doing, I have notes and have a meeting with them later next month.


Pengana – Has lost the CIO and 2IC for the International and International Ethical Funds, the firm says the pair left as they “had different ideas to us on how they wanted to run the business.” The firm also announced it will be launching a private credit fund soon to add to its private equity strategy. Maybe the move away from their knitting (public equities) is a reason for the defection.


Stockbrokers Association – interesting move by the lobby group to make it seem that their members had a high failure rate for the new ethics exams. I know you don’t want to be answering insurance ethics questions if all you’ve done is advise on Australian equities, but you’ve had a long time to brush up. Not a good look either, did they not think that the press would jump on the fact that you’re saying a significant amount of your members can’t pass an ethics exam when planners have been publishing their positive results on LinkedIn for a long time now?


I would be ropable if I studied, passed and then my clients read in the AFR that my firm had a 100% failure rate.


I remember back in early 2000s when they brought in a standardised certification for your proper authority, PS146 (later changed to RG 146). Plenty of grumbling then too from older brokers that didn’t want to take an exam on things they should know back to front.


Family Office – Archegos Capital, the family office of Tiger Cub Bill Hwang has been called out as the big block seller from last Friday. Leverage long and short coming a cropper as the biggest margin call of all time plays itself out. I’d like to say that Archegos is alone in its positioning but as we’ve seen in the past, there tends to be a crowd. Maybe Goldman Sachs et al should’ve listened to their compliance department and not opened the account. I’m going guess that the risk team cops it in the neck for this, not the prime broker account managers that were pushing for access to this high-volume trader.

One thing to note, Hwang was pretty successful until he wasn’t – estimates are that he turned his $200M family office into $10bn since returning outside money.


Document Storage – we have a lot of requests from clients on a suitable document storage solution and have looked at the bigger platforms that have this as a point of difference such as Masttro and Addepar and we recently met with Altoo out of Switzerland.


There are so many options out there for single and multi-family offices when looking at portfolio tracking and data analytics that it’s hard to determine best fit. Document storage is a great illustration of how important it is to determine what you are solving for first – we see a lot of clients switch into a platform then realise that it doesn’t meet its priorities and was chosen due to cost or referral.

Run a diagnostic, write down a priority list, determine the issues you need the tech stack to solve for.


BTR – US based Sentinel Real Estate is touting its Build to Rent strategy with a second project approved for Perth and another for Melbourne. I have the pitch deck if interested.


Meetings – Oracle Netsuite, Gresham, FitzWalter, InvestSuit, Altoo.


Indexing and ETFs


ETF splits – just like stocks, high priced ETFs can be split. In the US, both Vanguard and iShares have announced 2:1 split on their index funds. Splits often mean two things – higher secondary volume and less need for fractional trading.


If you have $500 and the ETF costs $300 per unit, what are you going to do with the balance? This is also a good tool for those that don’t understand that high price doesn’t means overvalued. When I was a broker, I often ran up against the psychology of some clients that wouldn’t buy stocks that were over $20 per share.


Hopefully, this is on the cards for some Australian ETFs – off the top of my head iShares IHVV ($453), and its huge S&P 500 ETF ($488). These were priced off the US versions when launched or they were cross listed and so they had no local pricing power. Unlike State Street, where we picked fund’s initial NAV on the basis of what would look attractive.


It’s like the old LIC adage from Wilson Asset Management – price the LIC IPO at $1.10 every time.


ESG & Philanthropy


Deadly Distraction – A very cool article published here where the CIO of BlackRock’s sustainable investing unit talks in real terms on the distraction caused by corporate narratives on climate change vs the actual need for government action. It must be a frustrating role working for the world’s largest asset manager and through the lens of profit while trying to keep the line of impact etc.


One of the more telling quotes that everyone working within this sector must feel at some point: “If society was indeed a cancer patient and climate change was the cancer, the financial industry’s response was like prescribing wheatgrass: a nice and well-marketed idea that would have no effect on the cancer.”


Cheers,

Shaun

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