In another example of what’s required for a successful multi-affiliate funds management relationship, Grant Samuel Funds Management has agreed to sell its 47.5 per cent of Tribeca Investment Partners to the management, giving them 100 per cent ownership. For both parties, it’s been an interesting evolution.
Here’s the history lesson: Tribeca was started in 1998 by Paul Jenkins, a former head of investments at Suncorp in Brisbane, together with David Aylward, the current chief executive. It was to be a specialist ‘mid-cap manager’, an under-utilised asset class. To convert investors to the benefits of mid-cap investing was, and probably still is, a difficult thing to do.
Jenkins had the shareholder support in the early days of a small Brisbane-based private equity manager, NBC Capital, and St George Bank’s multi-affiliate business, Ascalon. More importantly, the mid-cap strategy morphed into a small-cap fund, run by the firm’s current chief executive David Aylward, an early recruit with Jenkins. The strategy was more suited to the Australian market, and proved to be one of the longest-running successful funds in its class. It is always, it seems, going in and out of capacity, though. (Aylward said last week that there was a little space at the moment if anyone’s interested.) So, the managers were thinking about diversification from those early days, which they subsequently executed to great effect.
The main shareholders, including Jenkins, then sold what was originally known as Jenkins Investment Management Ltd to Brisbane property investor MFS (not to be confused with Boston-based MFS Asset Management) in mid 2007 but, less than a year later, MFS got itself into financial difficulty. It had bought a stake in the former high-flying hedge fund manager HFA Holdings, but had to sell out of this in 2008 to margin lenders.
Around the same time, Andrew McKinnon, a former executive director of the old County NatWest, in London, and then Credit Suisse in Sydney, got the respected boutique investment bank Grant Samuel, to fund what is now Grant Samuel Funds Management (GSFM), in June 2007. GSFM acquired its Tribeca holding in May 2008.
With this acquisition, McKinnon insisted on it being a minority stake rather than MFS’s majority holding. He is a big believer in the importance of funds manager independence. He is magnanimous, too, about the latest move, which was driven by David Aylward, even though it means that GSFM will have only one affiliate left – Aussie-based global manager Munro Partners – in which it has an equity interest alongside its distribution contract.
The investment bank sold its holding in GSFM to Canadian multi-affiliate manager CI Financial in 2016, leaving management with 20 per cent of the reconstructed firm. McKinnon has taken on an executive chair role, with Damien McIntyre now the Melbourne-based managing director.
GSFM itself had a nervous start, being launched just before the global financial crisis, with Epoch Partners as its first distribution client, and doing its deal with Tribeca exactly one year later. The launch of GSFM and what became a business-saving relationship for Tribeca, traversed the global financial crisis. GSFM launched its first Australian-domiciled fund, that for global equities firm Epoch Partners mid 2008. It, too proved successful. End of history lesson.
Aylward said last week that the main reason for wanting to have full ownerships was all to do with growth, allowing room for more of the senior staff to have significant stakes. The global natural resources strategy, run by Ben Cleary in Singapore, in whose firm Tribeca has a 40 per cent stake, is on a strong growth trajectory, helped by an uptick in commodities prices and demand. And Sean Fenton, who runs the ‘alpha plus’ long-short equity fund, which is currently outperforming its benchmark by double-digit numbers, wanted to have a great stake in that particular role. So, Fenton is throwing his Tribeca shares into the restructure in order to allow himself greater ‘ownership’ of the alpha-plus capability. In all, 66 per cent of Tribeca is changing hands, funded by the management.
Alward will “bifurcate” his role, retaining leadership of the small-cap fund, with portfolio manager Simon Brown, and at the same time have a bit more to do at the business management level. He was looking to reduce some of the “stuff in the middle”.
He said: “I want to continue to work at the stock level but I’m still fascinated by different strategies and working with different clients. We will probably be smartening our client service and hiring some new people.” He said the relationship with GSFM remained solid, as GSFM would continue to handle retail distribution for Tribeca.
McKinnon said: “We’ve invested a lot of time and effort in Tribeca and want to continue to service them with respect to their distribution.” He pointed out that throughout its early years, Tribeca was always looking to provide higher alpha for its clients and this proved to be a good strategic decision.
“The big super funds now tend to have their own teams doing long-only equities,” McKinnon said, but still employ specialists in other asset classes and using other investment techniques.
For his part, McKinnon is always on the lookout for new managers and strategies. While the current portfolio covers the investment universe pretty well, there is a bit of a hole in the emerging markets area. Payden & Rygel Investment Management out of Los Angeles, is its big cash and fixed income manager that has an emerging markets debt strategy, but GSFM has no emerging markets equities manager on its roster as yet.
“The world is opening up,” McKinnon said, “and now we have to start to focus on Chinese and Indian companies. That area should provide more opportunities for us to add alpha for our clients.”