Mountains in Clouds


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Hall Road Investments #61 (Family Office Sherpa, Index & ESG)

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.

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Happy reading.

The Sherpa Update

Morgan Stanley/Oliver Wyman – Have published their 2021 blue paper on the wealth and asset management industry – slightly different in bringing them both together in one report. As with the recent CS/BCG/Capgemini etc, they have found the key opportunities for growth in the wealth management sector to be ESG, Private Markets, Crypto/Digital Assets and customisation. If you are in wealth/asset management and haven’t had a conversation on delivering these to clients, it may be a hard ship to turn around and chase those making these changes now.

I hope MS Australia has a copy of this report.

Goldman Sachs AMhas purchased Dutch ESG asset manager NN AM. Like Perpetual here in Oz buying Trillian, the big asset managers can see the flow and the client needs for ESG/SRI as part of their menu.

Aged Care – not the usual article for this newsletter but I think it’s worth covering. Even if you’re not in the age or income bracket of the case study, it’s worth reading this article on the current costs of assisted living – it will, and should, scare people and provide an idea of how underprepared the baby boomer generation and their children (me include) are for this. My wife is a social worker in a Transitional Care hospital and has been in aged care for nearly her whole allied health career. Thankfully I have an in-house expert.

VC – I love a good benchmarking report. If you want to know the trends and narratives in VC, here is a great one from Giant Leap. According to the firm, the report “is our first step in tracking how we're doing, pulling together data from our own deal flow, trawling public databases, and hearing perspectives from many of our very good friends in the impact start-up space.”

It also has an interview with Small Giants, the family office of Danny Almagor and Berry Liberman on why they started looking at investments through the impact lens back in 2007.

Altive – I met with Chris Brookman from Altive this week, a firm started by some ex- Macquarie staffers and backed by some heavyweight Hong Kong investors. One of their strategies is in the similar vein to GAF/iPartners in that aggregate and wrap hard to reach/offshore exposures in a local trust that allows for improved tracking and smaller ticket sizes.

Hedge Funds – are hot again as investors seek alternatives and some of the fee numbers are very old school with 2 & 20 again being thrown around. High fees haven’t curtailed inflow for certain types of funds, even those that until recently couldn’t stop the bleeding. And why? According to Bloomberg, COVID uncertainty and the belief that the very sharpest minds can better traverse these uncertain times means that the best performers are dictating terms again. As the great Yogi Berra said - it’s like deja vue all over again.

Magellan – my issue with fund manager benchmarks. The fact that they can, with a straight face, say they beat the gross benchmark and therefore were successful is quite extraordinary considering this completely disregards their 135bps in fees. This article from Joe Aston in the AFR is harsh but he makes a very good point – don’t accept fund manager benchmarks, judge them through your index choice. Magellan Global Equities? I’ll put that up against the iShares Global Titans ETF (IOO) as an investable alternative (net of fees) and see what we get.

On that same theme, L1 has pulled in a huge performance fee number after one great year.

Indicators – a good whitepaper from iPartners on indicators. I love indictors that are slightly different, especially ones that are a little more “real time”. Some, such as Open Table activity vs Uber Eats etc may seem obvious but as the paper points out, it’s about benchmarking these changes compared to 2020 that is more predictive.

Crypto – We are seeing continued interest from clients and contacts when it comes to digital assets. Those with a background in the space will obviously be investors, but it’s the new wave that isn’t being serviced by wealth and asset managers.

This article from Bloomberg names those adding this asset class and why.

VC – New early stage VC firm Jelix has launched – backed by some big names. They are aiming to fill the “off the ground” gap for new companies that are not at the Series A level. Like Antler, they are aiming to provide smaller cheques which at the time can mean the difference between starting atnd failing.

As someone that is still in the bootstrap phase of company growth, these cash flow buffers are hugely impactful and can mean the difference between sticking with your idea that just needs a bit more time or having to throw it in so you can fix the sink.

Meetings: Eton Solutions (US Platform), Acorn (EV Funds), illio (Update), Mercer (Family Office), A significant amount of Single and Multi Family offices as part of a research project, Masttro (FO Admin), Addepar (FO Admin), Altive (PE), Bloomberg (Wealth Management), LIM Advisers (HF),

ETFs & Indexing

Dumb Money - We often hear how the rise of ETFs will reduce activity in the equity markets as dumb cash blindly chased stocks on the way up and down. Turns out that this is just idle thoughts from vested interests as the latest research from Cornell University and University of Technology Sydney found for all the trillions poured into low-cost index-tracking funds, the U.S. equity market overall is just as active as it was 20 years ago. Who would've thought. The reason? Because ETF/Indexing investing is not passive. "investors are still betting on the outperformance of segments of the market, factors, or individual stocks,” wrote David Easley and Maureen O’Hara of Cornell and David Michayluk and Talis J. Putnins of UTS. “Even ETFs in which the holdings are passively linked to an underlying index can contribute to informational efficiency through the active trading by investors." And it gets better, in another study from the University of Toronto, called "Closet Active Management of Passive Funds,” the academics showed that a third of supposedly passive index funds and ETFs exhibited more activeness than the median actively managed fund. We see the rise of ETFs as a positive because it allows Single and Multi-Family office clients to pull levers when they see opportunities arise. The sheer number of ways you can slice and dice asset classes using these instruments means investors can make decisions on factors, sectors, countries, thematics etc and implement them easily and without the need to engage a fund manager's admin and with anonymity. But they are not perfect, as this article points out there is a need for actual research on their impact rather than opinion.

EM – it’s often argued that Emerging Markets are no place for indexing. I’m a bit in both camps and see benefits dependent on the timing and client. I can see a certain investor gaining a lot of diversification from an allocation across a large area and also that EM is not a homogeneous blob that you should blanket as one investment.

The recent China issues have meant that those ETF that exclude some countries are gaining inflow – this article notes the record monthly investment into iShares EM ETF that excludes China. And that’s why indexing is sometimes the preferred implementation – opportunistic allocations, just looking for market exposures.

ESG & Philanthropy

Philip Morris – Have green bonds gone full greenwashing?

Impact – the Giant Leap report mentioned above, contains an interview Danny Almagor from Small Giants. Some of the points made were reflective of our recent conversations with families how far the sector has come since 2007.

PWC A great “how to” guide on impact investing for family offices from PWC. I like the questions asked and the fact they are educating investors on the often-confusing jargon in this space. If you’re looking at introducing the idea of Impact into yours, or your clients, next meeting this is a great piece for arming those with questions and answers.

SustainalyticsA report from ESG data specialist and Morningstar subsidiary, on the hidden ESG risks in equity index funds. I have to say, I was very surprised at some of the data points and if you are building an “ESG” portfolio, you need to understand what you are actually getting.

One that should be noted: “Renewable energy investing is not the same as low-carbon or low ESG risk. Companies are involved with both clean energy and fossil fuels, can have carbon-intensive operations, or carry other ESG risks.”

Beer – my local Dan Murphy’s has been chosen to run the state pilot program for zero alcohol beer, wine and spirits and so has a vast array of options. I have tried some of the wine (terrible), spirits (strangely expensive) but some of the beer is ok. My favourite? Sports Beer, with electrolytes.



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