Go offshore: the future for Aussie funds management


By Greg Bright

Pinnacle Investment Management, the independent Australian-based multi-affiliate manager, has recruited another senior executive to assist its global positioning in the institutional world. Multi-affiliate managers, Australian or otherwise, are a great barometer for the future of our funds management industry.

Pinnacle has hired Duncan Hodnett, the former head of institutional business, and de-facto country head, for Eaton Vance in Australia, as director of institutional distribution, reporting to executive director Andrew Chambers. Chambers leads international sales as well as local institutional business.

Chambers said last week that Hodnett, in addition to domestic sales, would be helping him with international representation, particularly in the US, which is the next growth area for Pinnacle. Hodnett has worked with BT Investment Management (now Pendal), Macquarie and Eaton Vance in both Australia and the UK.

Eaton Vance last week confirmed that he had left and that Louise Bradshaw, another experienced funds management marketer, would be the new main point of contact for the firm in Australia.

Andrew Chambers, thrilled as he is with his recent recruit, observes that the funds management world is changing and that Australian managers, who tend to punch above their weight on a world scale, need to address the likely trends to remain viable.

Pinnacle has 11 affiliates managing a total of about $45 billion, in which it mostly holds minority equity interests. Hodnett has become the firm’s eighth institutional business manager. Two of them are already based in the UK – four in Sydney and two in Melbourne – and Chambers spends a good part of his time marketing in the US. Hodnett will be helping him with the international reach.

This is the point. Chambers says that the number of big super funds may decrease to only 10, possibly, in the next decade. Or even if they decrease to 30-odd, that will still have a big impact on the businesses of fund managers, namely, pricing power, capacity allocation and investor concentration. Australian fund managers need to be exploring new growth opportunities, quickly.

And, Australian super funds are notoriously tight on fees. And, everyone now knows that capacity is an issue for all fund managers. Why not give that precious capacity to investors who are prepared to pay more for it? Pinnacle, like several of its competitors, is a listed company whose first duty is to its shareholders.

Chambers says that the two main areas of growth for Pinnacle’s affiliates are offshore and in retail, alongside local insto business. The firm is expanding in both directions, including the closed-end LIC/LIT market and open-end EQMF market for SMSF and retail-direct investors.

While he believes Pinnacle has the whole market well covered, Chambers says that a possible gap is in the private capital and liquid alternatives space. Private capital (particularly infrastructure, real estate and private debt) and liquid alternatives (such as equity market neutral, global macro and managed futures) remain hot areas of interest for both local and offshore investors.

The multi-affiliate funds management world was invented by Norton Reamer, who founded United Asset Management (UAM) in 1980. It was a brilliant move, making him more money over the subsequent 10 years than anyone could expect. But, his model was flawed and 10 years was his expiry date. UAM did a revenue share arrangement, which had a tax benefit for the owners, with a whole bunch of quality US boutique managers and contracted their owners to 10 years with the firm. The problem was Reamer did not think beyond that point. By 1990, the founders of his affiliate managers, which by then numbered nearly 50, started to retire. And he did not have in place a good succession plan. The company devolved and was acquired by South African-owned Old Mutual, which sold or shut down all-but the biggest of the UAM affiliates.

But other firms, such as Legg Mason, Bank of NY Mellon, internationally, and NAB Asset Management, the old Treasury Group (Pacific Current) and Challenger locally have evolved to provide a good service for the industry.

These days, with the benefit of hindsight, the various Australian and international multi-affiliate firms operating here are much more sensitive to the both the talents of the portfolio managers and their ownership desires. Shadow equity, for example, is not much of a substitute for real equity.