See below for the latest newsletter. As always, if you want daily updates on what I’m looking at, start following the Hall Road LinkedIn page here.
The Sherpa Update
Goldman Sachs Family Office Survey – GS has published their first survey on global family offices here. I posted it to LinkedIn last week and it received the highest amount of clicks I have ever seen on a post. I think GS does a good job of taking dense information and producing a very readable overview of the FO/MFO landscape.
For Families globally, they found ESG/SRI continues to grow in focus, they are becoming more insto like in the way they manage assets, co-investing with managers increases, they are flexible with a "unique" decision making process from a lean organisational structure.
Family offices tend to implement aggressive asset allocation strategies, take a more hands on approach and are highly collaborative with and reliant on trusted networks for sourcing investment opportunities. They are investing in direct operating business as they position for both inflation and low rates, 40% of global respondents are thinking about currency debasement. Among those currently positioning for this catalyst, digital assets (42%) and precious metals (37%) are the most popular implementations, with the former supporting family offices’ interest in cryptocurrencies.
Fairfax - the John Fairfax Family Office (Marinya) announced they have selected Investment Control Systems (ICS) “Athena” to centralise their data.
Agreus – this recruitment firm for family offices produces a lot of interesting content that up until now lacked any data. This piece delves into the concept of “ideal family office leader” and how there is no such thing. For anyone looking at joining a family office, this has some great detail on roles, challenges and opportunities. We see a lot of movement within this area for APAC families as offices become more institutional in the way they manage assets – the question remains, what do you spend your budget on?
Family Office Regulation – The US is forging ahead with legislation to increase regulation for family offices, specifically those that short sell directly. As the article alludes, even if it doesn’t get through – the SEC will be pressured to at least put something in place.
Fraud – building on the idea of increased regulation is this article from Ankura on how to address potential fraud within single and multi-family offices. The need for an outside risk assessment has never been greater.
Performance reporting – I see a lot of good narratives in the fund manager space. Great stories of interesting companies coming to market and stock pickers talking about their successes. Often, a quick check through any of the free or cheap performance reporting will show you that they are only talking their winners. Those detractors are important to talk about. When I was in broking, neither the client nor the firm wanted to talk too much about losses or underweights. This is why it’s imperative that a platform can determine how your managers are performing, independently of their data and preferred benchmarks.
Atchison Consulting – has been acquired by Wattle Partners. Atchison is a boutique asset consultant that’s been around for over 20 years with mix of smaller insto/endowment clients and later branching out into the wealth/fintech area with Spaceship et al.
Wattle states that they will assist the firm in understanding financial planner clients which tells you where they are heading. As firms move away from bank ownership, there is definitely a market of the outsourced investment model and I guess that is where they will be positioning a new Atchison offering.
Total Cost – SSGA’s practice management team has released a US survey that illustrates the continued struggle to delineate fees for advice vs fees for investments. 47% of investors believe the management costs of investments like mutual funds and ETFs are already included in the fee they pay their advisers or investment platform. An Aussie survey would be interesting.
Value Investing - when looking at most Value benchmarks, the price to book ratio is one of the main determinants, along with PE. This article in Bloomberg asks the question – what ever happened to P/B when fundamentally valuing a company?
Buy/Sell/Hold – I’m not a big fan of this vernacular, especially when they direct it at indexing investments. StockSpot founder Chris Byricki seemed to have a fun time on the latest version, putting a sell on all LICs that were mentioned – for the very reason you should. It has not lived up to it stated objective over 1,3- and 5-year period when compared to benchmark. The fact they then bring up yield as the only reason to hold an asset that has such poor total return means that the message is getting a bit lost.
Eton Solutions – have provided this whitepaper on the whether your family office is on the path to the future. They push their book in that they offer a solution that just happens to satisfy that future proofing, but it also provides some very good illustrations of the components of a sophisticated infrastructure.
Factors – factor based risk models are moving from into retail as technology increases. I like the fact that advisers will be able to determine the overall exposure to size, momentum etc – I just hope it doesn’t start a “factor timing” wave which is incredible difficult to do.
Hong Kong - the Hong Kong Securities and Futures Commission (SFC) has published its Asset and Wealth Management Activities Survey (AWMAS) for 2021. An interesting report for those looking at how this unique jurisdiction has fared in a volatile year. A year of growth in assets for all sectors, with one data point of particular note - non-Hong Kong investors remained a major source of funding for the asset and wealth management business, accounting for 64% of the AUM.
iCapital – if you haven’t heard of this firm, this article is worth a read.
Meetings & Presentations – Perpetual (NFP), Mercer, Addepar, ICS (Data), Ardea (RR Update),
ETFs & Indexing
For anyone arguing for Indexing – this interview with the founder of Greenwich Associates gives plenty of solid detail from someone that has been around the active/indexing debate for a long time. I believe in the value of indexing, but it is no panacea – you still have to decide on the asset allocation and if you can find active managers that outperform consistently in specific markets, then they deserve to raise assets. It’s just finding them that takes a lot of skill/luck.
SARK – here’s one straight from the marketing department. How do we take advantage of the flow into Cathie’ Woods funds? Answer - short it, charge 75bps and call it SARK.
Parametric – more global players are getting direct indexing ticket sizes down. Parametric has announced a US$100K minimum for a direct indexing SMA. Its not very customised as it uses sector ETFs and systematic tax-loss harvesting and other tax management strategies to enhance after-tax performance. It’s very much in the tax optimisation bucket but potentially shows newer players in Australia that it can be done with ETFs as a start.
EQT/Eight Bays – have launched a global equities ETMF that invests in offshore ETFs. It will be interesting to see why I would invest in a fund of fund structure when I can choose from a long list of index funds already in the market. They also mention that the fund had been developed specifically with charities and for-purpose organisations in mind – looking through the PDS, the fees are not low, you’re investing via US listed ETFs that can be bought domestically with simpler tax implications and you are relying on their alpha model in a space that us very hard to outperform. I’m unsure as to how this caters specifically to this client type.
I highlight this strategy as it does two things I am always wary of – claim a client cohort without any detail (E&F) and TAA/DAA in a space that even the brightest and best have struggled.
Afterpay – I don’t have an opinion on the stock itself, but I do know that your chances of outperforming the ASX200 index this quarter will be affected by your weighting. As an FYI, before the takeover announcement, the ASX200 ETF from iShares (IOZ) had a 1.15% allocation.
ESG & Philanthropy
Diggers and Dealers Conference – If you haven’t heard of this very famous mining conference held in WA, it’s worth checking out some of the detail. For those looking at commodities, this point from BHP may resonate – “BHP, whose main commodities are iron ore, copper and coal, is seeking to expand its exposure to the minerals that will be increasingly required to power the clean energy age such as nickel and copper”. BHP notes that the inflection point is 2020 for the rapidly approaching electric vehicle revolution and companies that may have been excluded by some ESG metrics are moving business models to fit demand.