Finance minister Katy Gallagher has confirmed that she held informal talks with the sovereign wealth fund’s Board of Guardians amidst speculation its mandate could be changed to align it with the transition to net zero.
New Zealand’s sovereign wealth has set its future 20-year rolling returns forecast well above the risk-free rate but below the annualised 10 per cent it achieved in its first two decades of operation.
‘Undiscovered’ $60 billion manager
The Rajiv Jain-led global equity manager, GQG Partners, was this year named ‘Undiscovered Manager of the Year’ by independent research house Morningstar. It’s surely a rare occurrence when a manager that has grown from $0 to $60 billion in just four years could be deemed ‘undiscovered’; yet here we are. Despite attracting the likes of the AustralianSuper to its exceptional global equity capabilities, the ‘wholesale’ version of the fund has so far attracted just $280 million from financial advisers.
Jain offers a unique insight into the prototypical modern-day global equity manager, seeking ‘quality growth’ and seemingly delivering throughout his now 26-year career. In a 2019 interview with Barry Ritholz he refers to his early days in India, getting “hooked” on stocks at high school while delivering share certificates for his father. After a stint at UBS, Jain moved to Vontobel Asset Management, part of a major Swiss Bank, spending eight years learning the ropes before taking on the CIO role in 2002. According to Jain, some 70% of clients quit nearly immediately after his promotion; a daunting vote of “confidence.”
After an extended period at Vontobel delivering solid returns, Jain made the leap to independence, starting GQG Partners in 2016, headquartered in Fort Lauderdale, Florida. The driving factor behind this decision was the need to have ‘skin in the game’ and more closely align his success with that of his investors; something simply impossible in a large institution or pension fund. The fund was seeded by ASX-listed Pacific Current Group Ltd (ASX:PAC), with its then-CEO Tim Carver crossing over to join Jain to lead the start-up business. Among the group’s earliest supporters are a who’s who of Australia’s industry fund sector, including the aforementioned AustralianSuper and REST Super, among others.
In four short years, the performance of the core Global Equity Fund has been nothing short of exceptional. In the 12 months to 31 July, the AUD Global Equity Fund delivered a return of 15.8% net of fees, outperforming the benchmark MSCI All Country Index by more than 12%. In comparison, the $8 billion Platinum International Fund delivered -6.9% and the $11 billion Magellan Global Fund 5.8% over the same period. By no means is this a flash in the pan, with the three-year returns similarly above benchmark, 19.9% compared to 2.7% and 16.4% for Platinum and Magellan.
GQG Partners has regularly been called ‘ruthless sellers,’ with the CIO explaining its outperformance more eloquently in his 2019 interview, stating the “reason I’ve survived over the longer run, is because you just avoid blowing up”. That is, by avoiding the worst companies each year, says Jain, you greatly improve the probability of out-performing automated benchmark indices. This is a mistake so-called ‘value’ investors are all too prone to make, comparing it to asking a real estate agent to find you the suburbs that have fallen the most, and buying those. For this reason, GQG expects most active managers to remain under pressure, particularly when it comes to fees, a key reason behind its industry-low 0.75% a year management fee; close to 50% lower than Magellan and Platinum’s charge of 1.35%.
By far the biggest differentiating feature of GQG Partners, though, is its “devil’s advocate” approach to investment research. The group employs multiple analysts with former investigative journalism experience solely to challenge the theses put forward by its sixteen investment analysts. As he puts it, they are tasked with answering the question “are there any sort of grass-roots issues that you’re missing?” These multi-disciplinary analysts are there to look beyond financial statements, speak with customers, suppliers and employees, to find the too-regularly-overlooked skeletons. That’s something all too familiar in Australia today.
Having successfully navigated the fastest bear market in history, delivering market-leading returns in 2020 despite being a long-only equity strategy, GQG is quite outspoken on the many under-performing managers calling for patience. The group has been quoted as saying those who have told their clients to sit still and watch great companies become even cheaper represent a “toxic” mentality in this market.
The fund remains well-supported by the institutional investment sector, but is yet to make a splash in the wholesale world. With current returns tracking well above the most widely held global equity funds in Australia, it’s surely only a matter of time.
