Mountains in Clouds


Asset 1@114x.png

Hall Road Investments #57 (Family Office Sherpa, Index & ESG)

Sent to Subscribers last Friday.

The Sherpa Update

Simple – have published my latest article here, in which I dig into the recent rise family office running costs and our Family Office Diagnostic service.

Alberts – the Vander/Young/Wright (AC/DC etc) rights owners have launched an impact fund, putting in $16M of their own money into the strategy. We see it quite often in discussions with family offices – each member has their own preferences for how they would like to support different causes. For the Alberts, this is the Environment, Mental Health and Equality. It doesn’t look like they are taking outside money but it’s an indication that some families are taking control of this aspect of the portfolio, not outsourcing to external managers.

Findex – KKR is putting up its stake in Findex/Centric. WHK was a good broking client for me back in the day and Findex was an SSGA client for Asset Allocation outsourcing, so I’ve had a bit of a look under the hood.

Tribeca - Tribeca, better known as an equities asset manager has decided to launch a wealth offering called Tribeca Private and have hired Bell Potter’s Fredrik Blenke to lead it.

Wilsons – the new hire of ex footballer and robo advice executive Ted Richards backs up the themes seen in the raft of reports we have shared on global wealth management.

The reason I think this is interesting – Wilsons have realised that their offering is not resonating with those seeking digital excellence and customisation and they recently lost key staff to Shaw & Partners for a reason. It may also provide insight into how tough the direct to client robo advice businesses is. In the announcement, they specifically mention Ted’s technology experience at Six Park and not his broking or wealth management history.

WAR – with the launch of his latest LIC, Wilson AM is targeting LICs with significant recoverable NTA discounts. VGI and Milton are on the list, and he has already taken out Templeton Global Growth which is a good result for investors as they can now exit at NTA.

Take a look at the ASX NTA discount list found here. The trick is to know why there is a discount and if that will ever be recovered. Buying an LIC means you are buying a company and the quoted NTA discount necessarily doesn’t mean that it’s “undervalued”.

There just seems so many on the market trading at a discount and I can see why someone like Wilson, with his deep knowledge in the space is looking to exploit this. I’m interested to see how successful they are in unlocking that value for WAR investors, but at the very least it shines a light on the sector as a whole.

Cap Gemini – has released their global wealth report. I know it seems that there is a new one every week, but this is worth going through if you are looking at how the tech infrastructure piece is being rolled out by the big global wealth management firms. With JP Morgan’s recent purchases, it should be pretty clear that some of the big end of town are embracing the best of breed bolt on model and if you aren’t providing something a bit different then you will be replaced by a commoditised fintech.

Louise Walsh – the ex-Future Generations CEO has launched a new consultancy which looks like a third-party asset manager distribution business. The advisory board in includes UBS’ head of family office for APAC and David Paradice.

Marsh Private Clients – released their Family Office Benchmarking Report 2021 which looks at the trends in insurance coverage. Although US focussed, it provides insight into some of the main issues single and multi-family offices face and how they manage those risks.

Agreus – released a nice short note that served as a reminder that the need for vigilance when it comes to secure transactions and internal fraud.

Ardea – I had a call with Ardea this week and it was interesting to note that just like VC or PE or anything that is not exchange traded, being the first call when it comes to issuance or deal flow is a big benefit of scale.

Fund Manager Value - The UK regulatory authority published this research on the processes used by fund managers to assess their own value, a requirement in that jurisdiction. It provides a view of how fund managers view their value in terms of client service and how they are falling short in most areas. There is no such requirement in Oz, but the global managers are included.

Packer & Co – Willy Packer’s update note was published in the AFR this week for those following Perth managers thoughts on this current market (and WA’s economy). Regardless of whether he is right or wrong in calling this market top, his move to cash whilst markets rallied is well within the mandate of the fund. Those that invest with managers such P&C and Will Vicar’s Caledonia (selling 15% of Challenger if you don’t mind) do so with the understanding that they won’t look like the index.

Kim Ivey – has launched a new Global Macro Fund along with Sunsuper’s ex head of TAA Alastair Sloan. This was a good interview on the ups and downs of launching a fund in this environment and how to select the right seed partners.

Meetings & Presentations – Ardea (Real Outcome Fund),

ETFs & Indexing

MSCI EM – MSCI has removed Argentina and Pakistan from its EM Index. If you are investing in Emerging Markets, you must keep track of the constituents. Argentina has been moved to “standalone” status due to its continued capital controls and Pakistan is now “frontier” due to an inability to meet size and liquidity requirements.

Direct Indexing – I was very interested to see that JP Morgan is taking over OpenInvest, a US based direct indexing business that focusses on customising ESG benchmarks. They missed out on Parametric to Morgan Stanley and this adds to their Nutmeg purchase which gives them an awesome UK based beachhead and 55Ip which provides a best of breed tax optimisation platform for the RIA space.

All of these firms have raised capital from big VC names, have built great platforms and just couldn’t quite get over the client acquisition costs and get to scale (OpenInvest had raised around $35m in VC money yet held only $100M in assets). In comes JP Morgan and hoovers them up and plugs them together for what BCG et al have illustrated in recent report – wealth management will be digital and customisable; the race has started.

JP Morgan, a laggard in both ETFs and fintech, watched Parametric and Aperio, the two biggest names in direct indexing, go to rivals at bargain prices. It seems they are going into the customisable ESG product issuance as this is where the revenue fat still lies.

Derivatives A lesson in understanding the sometimes-unwanted effect of derivatives within a seemingly simple structure such as an ETF. Ignore the Reddit clickbait title and dig into the actual detail as it's very important to understanding how FX forwards and other derivatives sit on a revenue account and may have to be distributed. This shows the importance of good funds management and all the technical components that have to be dealt with. When we set up the hedged ETFs at SSGA, the tax (TOFA) implications of including FX forwards to hedge out the currency exposure was a major component. Hopefully all the ETF issuers received similar calls, not just Blackrock and Vanguard.

ESG & Philanthropy

Indexing for ESG – one big gripe amongst those using indexing for implementation is the often-benign ESG activism from the larger managers. With this is in mind, US based Engine No 1 has launched its Transform 1 ETF. The aim is to use its voting rights to change the businesses they invest in. It’s the opposite of firms such as BlackRock and State Street who take more of a stewardship approach.

The issuer makes a good point and one that resonates for those that feel that ESG investing should be about affecting change, not capital allocation – “A climate fund might limit your carbon emissions in your portfolio, but not actually change the amount of carbon emitted into the environment”.

As always, if you want daily updates on what I’m looking at, start following the Hall Road LinkedIn page here.



Recent Posts

See All