Funds Talent Scout

While most of us despair at the task of wading through the forest of international funds managers to find the ones we think might be best, Richard Darke believes there is a desperate need for more good managers in the Australian market '” which is why he’s been scouring the world to find them.

“Many local funds are being capped out; they’re reaching capacity and can’t take on new assets,” says Darke, a veteran of Fidelity Investments and Credit Suisse Asset Management.

With partners Peter Tiffin and Andrew Vrech, Darke started Ambassador Financial Management Services in late 2004 to find and represent suitable international funds managers in Australia. In the accompanying video, he explains their methodology and reasoning in searching for new foreign blood to offer local institutions.

Ambassador now markets three international players on a wholesale basis here: global listed property fund manager Cohen & Steers, global equities manager Altrinsic Global Advisers and senior secured loans specialist Highland Capital. Their talents are not available to retail investors, but their thinking is. What drives the Ambassador’s partners and wholesale investors still applies to astute individual investors.

Michael Pascoe: Does Australia miss out on a lot of international funds management talent that’s just not available here?

Richard Darke: Well I think [inevitably] living as far away as we are from the big cities of London, New York, Hong Kong, Boston '¦ there are managers based there that have such big businesses in their own right and their own markets, why would they need to think about Australia? So maybe they need somebody to help them think about Australia and to realise that there is in fact a big pool of capital just dying to be managed out here.

So Ambassador looks at funds managers who aren’t represented here, that you like and would like to represent them?

Correct.

Is it a tough field?

It’s a tough field in that there’s a universe of fund managers out there and sorting out the wheat from the chaff is quite a challenge, particularly with the distance. So we spent probably six months just trawling through databases, talking to people, getting referrals, asking managers who they fear most in their sector. It’s amazing what a response that can produce sometimes. People just seem to have to share the information with you and we then spent six weeks mainly in America, and in some other centres as well, interviewing a short lists of managers. First of all, we had to persuade them that there was an opportunity set in Australia and, second, if they were going to tackle this opportunity set why would they trust a small firm like us.

Ambassador’s representing three foreign managers (Cohen & Steers, Altrinsic Global and Highland Capital). The one that you take particular personal responsibility for is a property trust manager, Cohen & Steers. Does Australia need another property trust fund?

Well I’d say yes. The listed property trust sector is so small, with only 30-odd stocks in the index, and many of the funds here '” because there’s so much money being thrown in the sector '” are having to go overseas to find investments. Why not find investment professionals that are doing it on a global scale?

So you’ve got Cohen & Steers. What do they have to offer that local property trust managers don’t?

First of all sheer size and [tenure]. They’re the world’s longest-established REIT [real estate investment trust] manager, or listed property manager, based in New York. They actually launched the first US REIT fund, back in the mid-1980s before the sector really took off.

So they’ve got lots and lots of experience and the people that started the business are still running the firm. Second, Cohen realised about five years ago that there was an opportunity set in global listed property ahead of most of the market; they started to establish their own footprint with their own staff in the regions of investment so that they could [pitch themselves] throughout the world, not just in the United States, and that’s exactly what we were looking for. There are lots of good US REIT managers, but there are aren’t very many managers that are structured to pick REITs in their own right and without going to external parties to help them with it.

You’re obviously pitching to wholesale funds, not retail investors. Does that message get across when this country seems to be so thick with property trust managers?

Absolutely. A typical Australian superannuation fund would have 10% allocated to property and be worried about the concentrations they’re getting in Australian property. We say, 'Why invest in 30 companies when there 400 you can invest in worldwide?’ So I think the logic is very clearly understood and many of the asset consultants that advise these funds are recommending allocations to international property as well, so we just want to make sure that we are there with a first-class manager that’s available to compete in the space. And although there do seem to be a lot of funds being offered at the moment, actually it’s still relatively small. There are perhaps 16 global listed property funds at the outside. You compare that with many more '” 50, 60, maybe 80 '” domestic fund managers alone and thousands in the global equity space.

In general terms, how do Australian fund managers stack up against the internationals you’re looking to bring in?

Oh I think there are some first-class fund managers in Australia, there’s no doubt about that. But again they’re managing just one market rather than the global market, and we also represent global equities managers '” Altrinsic Global Advisers '” and they’re a high-conviction manager based in Stanford Connecticut, just outside New York. They are one of thousands that you could pick, but again it comes back to finding excellence '” finding managers whose interests are aligned with those of their clients who own their own business '¦ who are specialists.

What do the wholesale investors you deal with look for when you turn up with a new funds manager as an offering?

They look for a manager that’s got resources, that’s well established, has a very clear delineated investment process, that has a track record that supports the skill set and has a clearly differentiated way of doing the investment. I mean there are lots of ways you can invest. Obviously, there are index funds, there are enhanced passive funds, there are core funds. We’ve tended to look for high-conviction managers that are specialists, if you like, in a satellite configuration with a range of other core managers that they might be well matched against.

Are there gaps in this market that you’re still looking to fill?

When we set out we thought, 'Well, there’s no point in just going out and replicating exactly what’s in the market already, so what are the trends that we need to really think about’. One of those trends is demographics. Clearly with the ageing (Australian) population there is a need for yield, and that’s why of course all this money is being thrown at property at the moment because it’s a classic setup that combines both growth and income. So that was an obvious sector for us to look at.

Another sector we looked at was senior secured loans or leveraged loans, and we found a first-class manager in that space called Highland Capital Management; again, a very specialised sector that’s not well represented in Australia but in the US is bigger than the high-yield market and the sector as a whole is three times the size of the Australian Stock Exchange. So there’s an asset class in point where there is not much competition, which is very diversified and lends itself to complement other configurations that superannuation funds may have and other managers in the marketplace.

Separately, you can’t overlook global equities because it’s such an important asset class and that’s why our third manager, Altrinsic Capital, is in that space. We have thought about expanding into other asset classes, but we've only been in business for 17 months. We’ve got to make absolutely sure we bed those down properly '” make them work, make sure that the fund managers are happy, make sure that the investors are happy '” before we start diluting the effort and expanding.