Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
The road to commercialise Mine Super’s Recreo
Mine Super has taken a big step towards commercialising its majority interest in Recreo Financial, the administration systems provider it partnered with in 2015. It has been a rocky road for many of the participants.
Recreo is to merge with two complementary businesses acquired by Certane, a new market player that bought the remnants of a trust company roll-up by Sargon, which was placed into administration last year, and the formerly listed Diversa superannuation business. Both Sargon’s trust companies and Diversa had their own difficult journeys to what seems to be a workable destination.
The new business boasts a strong line-up of fintech management talent. The group chief executive and managing director of Certane is Marcus Price, the former chief executive of PEXA (Property Exchange Australia), which is in the limelight because of a takeover tussle involving one of its cornerstone shareholders, Link Group.
Price (pictured, left, with Harry Mitchell last week) left PEXA in 2019, after nine years with the business, after it was sold to the Link consortium for $1.6 billion. PEXA is likely to be floated sooner rather than later at a rumoured valuation of at least $2.5 billion.
On the Recreo side, co-founder David Johnston, who is now retired, was the tech brain behind Oasis, a successful advisers’ investment platform acquired at first by ING and then ANZ through a bigger wealth business takeover. The initial purchase was $54 million for about 75 per cent. Johnston went on to build Recreo with current director and co-founder Matthew Crooks, initially focusing on the SMSF market, using the latest cloud-based technology.
Johnston had also played a key part in the development of the ‘Composer’ system used by the listed global admin systems company GBST.
The structure of the combined businesses is subject to due diligence, but the minority shareholders in Recreo, including the founders Crooks and Johnston would be hoping for an IPO or trade sale. As would Mine Super, which became the majority shareholder in Recreo as a consequence of funding rising development costs caused by unforeseen delays in the system’s refinement.
When the merger was announced last week (March 23), it was also announced that Mine’s chief executive, Harry Mitchell, would be leaving the fund to take up the role as managing director of Recreo under the Certane umbrella. Andrew Bain remains chief executive of Recreo while Mitchell’s deputy at Mine, Vasyl Nair, will be acting chief executive of the $12 billion super fund until a permanent replacement is confirmed.
Nair also remains on the Recreo board, which continues as a separate entity until the new company’s structure is finalised. There is a separate chief executive for Diversa, Andrew Peterson, who is the former general manager of Sargon and a tax lawyer by background.
The two directors behind the establishment of Certane are Teddy Wasserman and Matthew Kibble. Wasserman is a former investment banker at Goldman Sachs and Kibble is a private equity manager and investor. Both live in New York. Kibble, an Australian, has diverse interests. He is the founder of Kibble Pet grooming products company in Dallas and Kaptyn Inc technology company in Las Vegas.
Harry Mitchell succeeded Bruce Watson at the-then ‘Mine Wealth + Wellbeing’ (formerly Auscoal) in May 2016, after the die had been cast over the development of Recreo as a specialist administrator for big super funds. He believes that, now, with the proposed new structure and ownership, it will be able to realise its goal of attracting clients among other big funds. The main players there are Link and Mercer-owned Pillar.
While the SMSF/adviser roots for the business have been left idle for the past few years, Mitchell says that, longer term, that market will also be explored.
“The strategy for Mine was always to commercialise Recreo,” he says. “Now we have the trustee side and the technical administration side together.” Recreo will have its independence from the big players as a selling point and also what all those involved in the company’s journey still believe is the best technology currently in the market.
While he won’t comment on the deal with Certane, it is understood that there is no cash consideration in the transaction and Recreo shareholders are accepting a discount on their investments to date.
A story to warm the hearts of Mine members and the remaining minority shareholders in Recreo is that of another industry fund, which is currently going through a merger process with a like-minded fund.
LGIAA, in the process of merging with fellow Queensland-based Energy Super, used to do its own administration using a system designed by Bravura, another global listed systems company. LGIAA bought into the second IPO for Bravura, in 2017 (it had been previously listed and then re-privatised) but sold the stake about a year later for an $18 million profit. LGIAA then chose Tech Mahindra as its admin outsourcing partner. Energy uses Link.
