02/04/2013 - 23:11

Cottesloe cohort managing to make big financial plays in lifestyle locale

02/04/2013 - 23:11

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The seaside suburb of Cottesloe is attracting boutique fund managers who don’t feel they need to be in the city.

Cottesloe cohort managing to make big financial plays in lifestyle locale
SEA CHANGE: Anthony Shields (left) and Dean Stockwell have established their business in Cottesloe. Photo: Bohdan Warchomij

The seaside suburb of Cottesloe is attracting boutique fund managers who don’t feel they need to be in the city.

CURRENCY trader Michael Prendiville is a little bit weary at 9.30am on a recent Monday morning.

The former banker has put in an all-night shift at his Cottesloe office after being alerted to news that Cyprus was planning to tax private bank accounts as part of a bailout deal with the European Union.

There are probably plenty of people in the exclusive beachside suburb who need coffee at this time, but few would have been up all night keeping tabs on global movements of money with a suite of sophisticated software across an array of computer screens.

The rest of the world has had weeks to digest this news now, but when WA Business News met him Mr Prendiville had spent the night making some snap decisions on the consequences of Cyprus’s move.

It might be a small country, but as we now know, the deal has had huge ramifications for other, bigger and equally-as-troubled economies in the eurozone.

It is just the kind of situation where he can exploit his knowledge of a craft gleaned over nearly two decades.

“When (news about) Cyprus comes out it is my job to hit that euro first, to react seconds after it,” Mr Prendiville said.

“I can be in and out of a position in a minute and make my money for the day.”

The currency trader is not the only person who’s had eyes on the small Mediterranean island that day.

Sharing digs with Mr Prendiville and his ABE Currency Fund, Dean Stockwell is another fund manager who harks from the

proprietary side of the global banking world.

Mr Stockwell is also contemplating what the damage wrought from the bailout deal means for his business, but he has not been up all night and is far more relaxed about how to play things because his strategy is very different from that of his currency-trading colleague.

Mr Stockwell, and his fellow Asymmetric Investment Management co-founder Anthony Shields, along with a US-based partner have established the Asymmetric Arbitrage Fund, an alternative investment vehicle that uses derivatives and other financial instruments to harness arbitrage opportunities and other inefficiencies in the market to both make money and reduce risk.

Mr Stockwell said Asymmetric was not betting on a particular move in the market, simply looking for positions where there was significant opportunity for reward when the market moved, no matter which way it went.

It uses instruments like derivatives to exploit those situations and protect its investors from the downside.

In their words, they invest in deep-value volatility - something traditional equity investors generally do not appreciate.

“Volatility is good,” Mr Stockwell said, noting that the market in recent times has not exhibited enough of it and something like the events unfolding in Cyprus offered a window of opportunity for an investor like himself.

“We will have a massive day today.”

Cottesloe cluster

The ABE Currency Fund and the Asymmetric Arbitrage Fund are two of at least four new funds identified by WA Business News as startups based in the Cottesloe area.

Mr Stockwell identifies this growth cluster as being a bit like Connecticut, the state north of New York where many money managers choose to base themselves.

Two other new Cottesloe players are John Garland’s 888 Fund and Robert Towner’s Cornerstone Oil and Gas Fund.

The four are loosely linked because of business and professional associations, mainly through another Cottesloe financial player, Treasury Services Group, which provides services as agency, licensing, administration and advisory.

But they are by no means the pioneers of fund management in the area.

The major player is Packer & Co, which has been in operation since 1993 and operated the widely held public unit trust Investigator Trust since 1996. Packer & Co, headed by Willy Packer, has about $640 million in funds under management.

Viewed as both an early mover in this shift to suburban funds management and an extremely successful performer, Mr Packer declined to comment for this article.

Another fund manager in the area is the Roberts-family linked Warburton Group and its associate, DR Capital. Those are believed to be private fund managers for the wealth of the Roberts family, the descendants of John Roberts, the late founder of the Multiplex construction empire.

WA Business News recently reported the appointment of Hugh Currie as chief investment officer to those fund management vehicles. It is not known what funds under management the groups may have but publisher BRW estimated the family to have a fortune of about $1.75 billion.

There are also a number of venture capital and corporate advisory groups in the area not in the fund management business.

Also not generally in the mould of fund manager is Treasury Services Group, established in 2007 by former banker Phil Delmenico.

While it does manage the Treasury Yield Trust, the group is very much a service provider to fund managers and, increasingly, a product manufacturer.

For instance, one of its best-known areas of expertise is valuing performance rights for listed companies based on a vast range of performance methodologies. It also offers treasury and banking advisory services to private companies.

Mr Delmenico confirmed that TSG was involved with several new funds but it was not a seed capitalist, preferring to provide backup and support as well as acting as an agent and licensor when appropriate.

The Cottesloe connection is very strong. TSG has an office in the same building as Asymmetric and ABE, while Mr Stockwell is TSG’s chief risk and trading adviser.

Mr Delmenico also names the 888 Fund and Cornerstone Oil and Gas Fund as products in which his group is involved. Another fund, the Nero Resource Fund linked to the Delroy family, is also backed by TSG but is not based in Cottesloe.

He said being behind the creation of funds management products was part of TSG’s growth strategy.

“We are developing transparent financial products,” Mr Delmenico said.

“We think we can bring down the cost of financial services and reduce the cost of product. We are not wearing expensive suits.”

Cost control

Clearly operating out of the CBD reduces the cost of business, especially when it comes to rent and the commuting time applied to personnel who live in the area.

Generally, however, the funds spoken to by WA Business News did not highlight this as an attraction for establishing outside the major commercial centres.

For instance, the ABE Currency Fund and the Asymmetric Arbitrage Fund both plan to have relatively standard hedge fund offerings when it comes to the price paid by investors - 2 per cent of funds under management and 20 per cent of profits, usually above the performance of an agreed benchmark such as a specific index.

Asymmetric is offering a discount of one percentage point, or 50 per cent, for investors that participate early and are part of the first $20 million the fund brings in.

By way of comparison, Packer & Co’s Investigator Trust, which has a 10-year performance average of more than 10 per cent per year, charges a 1 per cent annual management fee and a performance fee of 15 per cent of the amount by which the trust exceeds the return of the All Ordinaries Accumulation Index.

Mr Prendiville said he had achieved at least that kind of return on an annualised basis in his first two months, but he didn’t plan to maintain such a level of performance.

“I am not in it for those kind of returns, I have not started leveraging it yet,” he said.

“I am after large returns.

“It is a lean operating environment. It is easy for me to get costs down as an Australian management team.

“I am willing to keep assets smaller and look for excess returns; that comes from leveraging.

“Coming back here was an untested concept, there are not many hedge funds.”

“There is not really that currency expertise in Perth, I had to think about whether I should do something else or give this a shot.”

“I would not want to do it unless a fair proportion of that came back to me.”

Mr Prendiville said many established players in the business had dropped their annual management fee to 1 per cent, but his assets were too small to be competing with the big-volume players.

For that price his clients, who are mainly offshore wholesale investors, get a trader with 16 years of foreign exchange experience, including stints as head of foreign exchange for ANZ Singapore, head of proprietary trading at ANZ London, and director of Standard Chartered in Hong Kong and Singapore.

Mr Stockwell’s background was mainly in Sydney and Tokyo with Merrill Lynch, where he managed very complicated structured books that were up to $4 billion in face value. More recently, operating out of Western Australia, he managed up to $20 million for a Canadian fund of funds.

The latter performance track record is what Asymmetric highlights in its promotional material.

His local business partner in Asymmetric, Mr Shields, also worked for big investment banks before returning to Perth five years ago to be an investment director for the Roberts family office.

Against this international and national experience, Mr Garland offers almost the opposite. He has focused on investing in the WA property sector, having spent much of his career at family real estate group Garland International, which has long specialised in foreign investment into high-end Australian properties and business.

Mr Garland said he had spent many years developing connections into Asia, especially China, and believes the 888 Fund provides a unique offering to foreigners who take advantage of a new visa arrangement, numbered 888. The Significant Investor Visa holder has at least four years of entry for a $5 million investment in the state they choose to reside in, so long as they spend a little under six weeks per year in the country.

“I have been working with business migration (consultants) and government over the years, particularly in China, and have seen this whole thing evolve,” he said.

Mr Garland hopes to have somewhere between 20 and 40 investors over the next 12 months participating in a technical process of becoming citizens, and not looking for speculative risk.

As a result, his fund will predominantly be investing in state Treasury bonds and charging an administrative fee for handling all the compliance processes required of such a visa holder.

He sees a bigger opportunity in the future for both for himself, and the state, as his investors, usually substantial business people overseas, transition to citizenship.

“The greater benefit is when we get these people on board and they are making their private investments,” Mr Garland said.

“They are $50 million to $100 million type of people. When they start moving their families out here that is when they start investing in areas they know about.

“That is the benefit for the state.

“They have got four years on this temporary residency basis to get kids in schools and find their feet here.

“They are running massive businesses in China. Our experience and market research is saying that the option they are looking for is very secure and capital protected investments.”

Lifestyle options

Mr Towner has decided the time is ripe to move into oil and gas investment, targeting stakes in producing oil fields held by nonoperating companies.

After a protracted involvement in the medical technology field with bioMD, and recent hands-on efforts with the family business Flametree Wines, he has decided to return to resources where he and his family have had considerable involvement in listed companies such as Sydney Gas and Triangle Energy.

Mr Towner spent much of his career as a stockbroker based in Sydney and believes his past clientele will be his first source of investors, a fact that means being based in Cottesloe has little impact.

“I have old clients in Sydney and Melbourne so I would be on the road for that,” he said.

As for WA, he does not think he is missing too much by being out of the CBD so long as he ventures in for an appointment every couple of weeks.

“It is very much a function of the traffic in the mornings,” Mr Towner said.

“If you leave after 7.30am it is a nightmare to go (commuting) into the city.

“You do miss the opportunity of bumping into people along the terrace.”

Does Cottesloe offer benefits beyond saving on commuting and reduced rents?

“It is hard to know,” said Mr Towner who owns his own office accommodation.

“I often go at 11am and have a swim at the pool; occasionally I am picking up the kids.”

Of course, the suburbs are not for everyone. Notably, Jonathan Horton moved his fund of hedge funds, NWQ, from Nedlands to West Perth.

Another West Perth-based funds manager, DV01 has offered investment company DV01 Mechelle to mainly sophisticated investors since 2006 and would be an established rival to the new Cottesloe players in the alternative investment field.

Even from West Perth, DV01 managing director Greg Madden said it was difficult to be taken seriously by institutional investors, which are largely domiciled in places like Sydney.

“It is not as simple as people would think,” Mr Madden said.

“It definitely requires some strong performance numbers to pull it off.

“A lot of companies set up in Cottesloe, close to where they live, because it is a lifestyle choice. But, at the end of the day, you have to treat it like a real business.”

Mr Delmenico admits there are swings and roundabouts.

“I realised that with modern technology we didn’t need to be in the CDB,” he said.

“It is not really cost, it is a bit of everything; it is a bit of lifestyle. While you are setting up you want to be under the radar. (But) you lose a bit because you don’t have the CBD address.

“I don’t want to emphasis lifestyle because it is a serious business.

“It does show that you don’t need infrastructure.”

Perhaps thinking a little wishfully, Mr Prendiville said he would like to see the NBN rolled out in his area to help him better employ his skills and state-of-the-art software.

He believes that, under the right conditions, more Australian expatriates could be attracted to Australia to manage funds out of places like Cottesloe, but the rules and regulations made it very difficult.

“If they made it just a little bit easier and if they made it clearer; all this is grey,” Mr Prendiville said.

“What they are trying to do is nail people and companies that are dodging tax.

“But if you are a legitimate business, and a trading business, there are so many Australians who would set up here.

“I don’t mind paying tax on the management company but I have issues with offshore investors paying Australian tax.”

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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