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Hall Road Sherpa Newsletter #38

Originally sent to subscribers on October 2nd.

The Sherpa Update

Private Wealth Network – I was part of two sessions for PWN in the past two weeks which was awesome. The first was on Family Office platform and data technology and the second was part of a three-day Academy Course on Family Office Fundamentals in conjunction with KPMG and Mirador. Hall Road was invited to participate in the final module which focussed on making the investment office work.

The conversations within each of the sessions was great, hopefully helpful for those participating and I learnt a lot about the current challenges and successes felt by families in this environment.

You can find the presentation slides for the second session HERE.

Cash – the costs for wealth managers is getting to the point where most have plans to increase the fees for holding the asset high enough to push them out and into something that has revenue. In Oz, the cash holdings are dragging heavily on portfolio returns and it’s no surprise that ASIC has recently targeted so called “cash” solutions that are not actually cash or cash like. As always, look under the hood and any time someone says it’s the same as a Term Deposit, call shenanigans.

Cruelty Free – Admin costs are the pocket in which a lot of fees are hidden. Take vegan targeting super fund Cruelty Free Super. They boldly announced a decreased management fee from 125bps to 93bps per annum. On the face of it, sounds ok – they have dropped from being very expensive to just expensive. Until you look at the admin costs – they’ve increased them from $52 per year plus 64bps to $52 per year and 94bps. So, all in, your animal welfare conscious investor will be better off by a whopping $5 per year. Disingenuous marketing at its best and they are certainly not alone, be mindful of admin, it’s where they get you.

I had a look at their website, I could only find a stock list from May 2019 so who know what’s in it now. The performance numbers are pre admin costs so expect that to decline. Looking at the multiple levels of promoters, sub promoters, sub investment managers etc that looks after this fund hurt my head.

Family information packs – Some client information packs are wonderful; informative, engaging, relevant and curated specifically for the recipient. And some are complicated, cobbled together and require a lot of effort to find the relevant information, if it’s in them at all. If you are a good service provider, you take the time to listen, understand and put together a monthly/quarterly information pack that is tailored to your audience. I have seen some recently that should embarrass.

Private Wealth Systems – I met with this US based data and portfolio analytics firm that was started by ex-Rockefeller Family Office staff 25 years ago. It’s a platform that competes with Addepar and Eton Solutions and has some very specific differences around how they manage data and calculate performance. Let me know if you would like any more information.

Data Analytics and Performance - a comment from one of the providers really stuck in my head. You need to look at the data analytics and performance tracking and ask – is this seen through the lens of finance or a tech because they don’t see it the same way.

UBS Global Family Office Report 2020 – Can be found here. This report comes out every year and this one is very focussed on investments and succession planning which is good but I would like to see the costs focus they have had in recent years make a comeback.

There is a lot of information on how family office investments have performed over COVID and the importance of a well-defined investment policy and rebalancing. The effectiveness of PE and Hedge Funds was also very interesting and relevant for those looking at allocations.

Next Gen – the report had a section dedicated to the challenges of the next in line generations. 54% of next in line are just as interested in investments as their parents. A number that will look either very low or very high to some and shows the difficulty in sustaining a single-family office across generations. 67% of families said that developing the talents of the next generation is a high priority. 95% of family offices where the third generation is involved are looking at investing in digital technology.

Vanguard – giving up all insto SMA accounts as they maintain the goal of becoming the industry fund alternative for superannuation. Imagining potentially sacking $100bn in client money.

Indexing and ETFs

S&P 500 – well, hasn’t the Tesla exclusion from the index caused some angst. One reason I don’t call this section passive and prefer to call it Indexing is because every decision is active, and indexing is a vehicle for implementing that decision. Investing in the S&P 500? You are actively deciding to weigh heavily to a small number of stocks, same as the ASX 200.

It’s one of the main reasons you need to understand the index rules and the index provider. In this case its S&P, in others it will be MSCI or FTSE Russell etc. They all come with their own calculations, data interpretations etc.

It also raises the question of smart beta indexing. Factor based indices have been around for a long time and are now heavily used by ETFs – Value, Quality, Low Volatility etc as clients look to actively manage a portfolio of index investments that tilt towards their preferred exposure. Not interested in cap weighted index? Well, some investors use equal weighted which will reduce some of the concentration but also add weights to the small cap end. There’s a lot to choose from.

ESG & Philanthropy

Global Family Office Report – as mentioned, the 2020 report from UBS was released recently. It has some very interesting data on how Family Office viewed impact and ESG.

· 39% of family offices intend to allocate most of their portfolio sustainably of the next five years. Mainly targeting exclusion-based strategies. Compared to pension funds etc that are taking a more nuanced/qualitative view.

· 43% still prioritise investment performance when evaluating impact investments. Maybe the difference between impact and ESG is not being delineated enough?

· 62% of families regard sustainable investing as important for their legacies. Where is the tipping point between intent and puling the trigger?



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