A new investment advisory firm with impeccable connections won’t even try to play the stock market. Mark Beyer reports.
A new investment advisory firm with impeccable connections won’t even try to play the stock market. Mark Beyer reports.
TAIT Farrow Azure Investment Partners is a new firm that gives most investors, and their advisers, plenty to think about.
It challenges the view that individual investors who properly account for risk can consistently outperform an efficient stock market.
And it rejects the commissions that provide a regular income for thousands of financial advisers across Australia.
Tait Farrow Azure can afford to be different. It is a boutique investment advisory firm offering a premium service to wealthy individuals, families, charities and endowments.
It was founded this year by Edward Tait, the former State chairman of Macquarie Bank, Jason Farrow, the former head of private banking at Macquarie, and Azure Capital, the merchant bank recently set up by John Poynton and Mark Barnaba.
Its business plan aims for total funds under advice of between $300 million and $500 million, spread across about 70 clients, so it’s clearly not a firm for the average investor.
Nevertheless, it offers all investors food for thought.
For a start, Tait Farrow Azure does not accept any commissions or rebates as incentives to use products or services.
Instead it negotiates a fee with its clients based on the amount of money under management.
While Tait Farrow Azure isn’t unique in this regard, there aren’t many investment advisory firms that reject the commissions paid by the major fund managers.
Mr Tait, who spent most his career with Macquarie’s funds management team in Sydney, says the firm is bringing to individuals the kind of sophisticated service that is normally the preserve of institutions.
“We are taking institutional disciplines into the private client market,” he said.
The firm focuses on absolute returns and aims to avoid unpleasant surprises for its clients.
Therefore it is prepared to forego some of the upside when markets are running hot.
“If you can avoid the big negative moves, then even if you give up some of the gains, you will be so far ahead of the others it doesn’t matter,” Mr Tait said.
In the present circumstances, Tait Farrow Azure believes the US stock market offers little value relative to other investments.
Mr Tait said the negatives for the US market included the twin deficits (i.e. large budget and trade deficits), a weak currency, high stock valuations, and the threat of terrorism.
Therefore it has a low allocation to international shares and its currency exposure is fully hedged.
On the Australian market, the firm has a neutral view, saying it’s fair to fully valued after an extended period of good returns.
“The last year and a half have been phenomenal, we have had a great run,” Mr Farrow said.
Tait Farrow Azure has a clear focus on performance, and it also seeks to be very clear about how performance is measured.
“If people have a lot of money they expect performance, and that means on an after-tax risk-adjusted basis,” Mr Tait said.
The firm strongly believes that the key to successful investment is asset allocation – how much money goes into Australian shares, how much into cash, how much into property, and so on.
“Eighty to 90 per cent of the value-add comes from good asset allocation,” Mr Tait said.
“The choice of individual assets is so marginal.”
The firm also shies away from ‘tactical’ switching, which it believes is a distraction from the main game.
When it comes to selecting individual assets, the team at Tait Farrow Azure doesn’t even try.
Instead, the firm focuses on finding the ‘best of breed’ fund managers in each asset class.
Tait Farrow Azure carefully guards the names of its chosen fund managers, most of which are boutique managers with small amounts of money under management.
“In the past 10 years, and especially the past five, there have been some very good fund managers who have left the big funds and established their own boutique fund,” Mr Tait told WA Business News.
Mr Farrow said an attribute of many of the new boutique funds was that the owners and managers had their own money invested in the fund.
Therefore their interests are aligned with the interests of their clients.
An exception to the rule is alternative asset classes such as private equity, and in property syndication, where the firm works with the team at Azure Capital to assess individual opportunities.
Tait Farrow Azure believes another point of difference in its approach is the in-depth reporting it provides to clients, which includes measuring performance against a range of benchmarks.
At a Glance
- Tait Farrow Azure Investment Partners opened for business in September.
- It is aiming to have up to $500 million under advice.
- The firm does not accept commissions or rebates.
- It says the key to investment returns is asset allocation.
- Money is invested through specialist asset managers.
