Funds grow as dynamic shifts

05/11/2018 - 09:25

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SPECIAL REPORT: A diverse group of successful wealth management businesses in Perth have good stories to tell in a market likely to face increasing uncertainty.

Funds grow as dynamic shifts
Andrew Chapman was previously a senior investment adviser with Entrust. Photo: Gabriel Oliveira

SPECIAL REPORT: A diverse group of successful wealth management businesses in Perth have good stories to tell in a market likely to face increasing uncertainty.

The top 10 fund managers in Perth have grown assets under management by 32.8 per cent to $41.3 billion in the past three years, the latest BNiQ Search Engine data shows, after a major merger and strong growth among high-end operators.

While that figure may seem to be pocket change compared with the trillions controlled out of the east coast, Perth has a big breadth of providers including superannuation funds, private equity, listed investment companies and hedge specialists.

Probably the biggest move in recent times was by WA Super, which completed a merger with former Perth-based fund Concept One in February.

(CLICK TO READ A PDF VERSION OF THIS THREE-ARTICLE SPECIAL REPORT)

Funds under management at WA Super lifted nearly 70 per cent in the past three years, driven largely by that merger.

WA Super chief executive Fabian Ross told Business News the fund had planned well ahead to keep the new member pool through the transition.

“The merger with Concept One added about $500 million to the portfolio and roughly 20,000 members,” Mr Ross said.

WA Super now has 60,000 members.

“We’ve managed to retain the majority of the membership base, the transition went really well,” Mr Ross said.

He said the logic behind the deal for the fund, which operates on a profit-for-members structure, was in greater product variety and lower costs

“The advantage of the merger really was … to increase scale,” Mr Ross said.

“It allows us to let the market know that we are serious and we want to remain in WA.

“It’s all about trying to keep our cost base at the right level, make sure our fees are extremely competitive, but more importantly provide more products and services.”

Fabian Ross says WA Super’s merger with Concept One was successful. Photo: Attila Csaszar

The other main driver of growth had come through focusing on regional areas and marketing the local aspect of the fund.

Mr Ross said the ongoing Financial Services Royal Commission, which is due to report next year, was likely to lead to further consolidation in the superannuation space.

The inquiry also meant more scrutiny from members, who were becoming more attentitive to how their money was being used, he said.

At third on the BNiQ Search Engine fund managers list, WA Super is the biggest non-government entity.

The biggest overall is public sector fund GESB, a state government statutory authority, which has $27.3 billion under management, an increase of 30 per cent on the level in 2015.

About a third of that was invested in international equities, about $3.9 billion in Australian shares, $4.9 billion on fixed interest bonds and a further $4.7 billion held in cash, GESB reported in its most recent annual review.

The second biggest controller of funds was another state government authority, the Insurance Commission of Western Australia, with $5.3 billion.

That was up 17.8 per cent on the 2015 level.

Other major super funds operating out of Perth include CBH Super and FES Superannuation Fund, with the Clough Super fund having been closed.

 Leaders

Andrew Chapman’s Merchant Group launched a new Leaders Fund, earlier this year, with a focus on the top 100 ASX stocks.

Mr Chapman told Business News that fund, which will be Merchant’s second, will hold both long and short positions, a flexibility that has come in handy as markets fall.

Merchant has run its Opportunities Fund, focused on smaller companies, since 2011.

He said that fund was differentiated from many others in the market because it was more actively involved in its investments.

One recent case was technology company 1-Page, which Mr Chapman described as probably the toughest deal he had worked on.

“(With) the Opportunities Fund, if needs be we’ll go and restructure a board and replace people, we’re really active managers in that sense,” Mr Chapman said.

“(1-Page) was a shareholder activist fight with the management.

“We obtained control of that company, removed the management, sold off the existing business and turned that around into a medical cannabis business that’s going to be listed offshore in the near future.”

There were a number of factors in the market that meant more activist managers who could add value would have an advantage, he said.

Trends included the emergence of robo advice and rise of exchange traded funds, Mr Chapman said.

“What I’ve seen over a period of time, people have been looking for a little bit more active management,” he said.

Listed investments

Listed investment companies, which trade on exchanges such as the ASX, are among the market segments most accessible to the public in the funds management space.

Among those in Perth is Katana Capital, one of two funds controlled by Katana Asset Management.

The second fund, the Katana Australian Equity fund, is unlisted, although both generally contain similar stocks.

Katana co-founder Romano Sala Tenna, who is also a broker at Bell Potter Stockbrokers, told Business News the business managed $55 million across the two funds.

A few hundred million dollars more was run on private mandates, Mr Sala Tenna said.

He said the Katana funds had ranked ninth out of 95 long-only equity funds in Australia analysed by Mercer in the 2018 financial year.

But the growth focus for Katana had been in the unlisted fund, Mr Sala Tenna said, with a business development manager appointed in Sydney to support marketing.

Listed investment companies had been popular when Katana launched (in 2005), he said, while more cash was now flowing into unlisted funds on wealth management platforms.

Katana founder Romano Sala Tenna (right) and partner Brad Shallard. Photo: Gabriel Oliveira

Mr Sala Tenna said the changing environment driven by the royal commission would have some positive outcomes for smaller managers, with vertically integrated businesses to come under pressure.

“For groups such as ourselves who are independent and have genuine outperformance, we’ll become more attractive,” he said.

“In the past, we wouldn’t get a look in for approved product lists because we weren’t an AMP or Macquarie product.”

Funds under management at West Perth-based listed investment company Bentley Capital dropped 21 per cent in the 12 months to June 30, to about $9.4 million.

That was largely because of a revaluation of the company’s investment in NSW business Keybridge Capital, caused in turn by a revalued investment in Molopo Energy.

The impact on Bentley was around $1.4 million.

Assets under management at Orion Equities, which has a large holding in Bentley, consequently fell $1.3 million to be $3.9 million.

Two other major listed investment companies are operated as subsidiaries of Euroz Securities – Ozgrowth and Westoz Investment Company.

Both are controlled by Euroz’s Westoz Funds Management, with total holdings of $252 million.

Overall, Euroz managed $1.5 billion at June 30, up 21 per cent from June 2017.

The biggest portion is through Entrust Private Wealth Management, ranked fifth on the BNiQ Search Engine fund managers list.

In the Euroz annual report, executive chairman Andrew Mckenzie said funds under management at Entrust had grown 42 per cent since it had been acquired about three years ago.

Euroz also signed a deal in August for its Prodigy Investment Partners arm to open a new fund with NSW-based Equus Point Capital, targeting capacity of $500 million.



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