Grant Samuel Funds Management: Looking for gaps
Damien McIntyre is the Chief Executive Officer of Grant Samuel Funds Management, a company with a mandate to create alliances with high-calibre investment managers in Australia and overseas.
In conjunction with his executive team, McIntyre spends considerable time looking for investment gaps in the Australian market, travelling overseas, and finding solutions for retail and institutional investors.
We spoke with McIntyre to find out more about GSAM's strategy, particularly in terms of the investment areas where he believes there are opportunities for Australian investors, and where he sees markets currently.
- Two opportunities he highlights are global infrastructure and real estate.
- McIntyre also discusses the realities of rising interest rates and why investors should remain vigilant at all times.
Listen to our postcast, or read the full interview below.
Tony Kaye: I'm talking with Damien McIntyre, who's CEO of Grant Samuel Funds Management. Hi Damien, how are you?
Damien McIntyre: Well Tony. Thanks for coming in.
Tony Kaye: Damien, I just wanted to find out a bit more about what Grant Samuel's strategy is, and what you're focusing on at the moment?
Damien McIntyre: Well, the strategy is to identify gaps in the marketplace and then identify fund managers with the requisite product to fill the gap. Going back to the start of the business, a bit over 10 years ago now, we identified dividends from global equities as a gap in the marketplace. Australians are very comfortable and have a long association with Australian equities as a dividend source.
Global equities was brand new at the time. We brought a manager which we believed to be the best dividend manager in the world to the marketplace here in Epoch Investment Partners, and we've been able to successfully raise good money from the retail and institutional market in that space.
That's the broad brush. What we're looking at now, I think the easiest way to conceptualise how we look at the market at least, is the market tends to cluster. Capital and indeed managers follow broad and general themes. But they all seem to cluster together, so one observation I would make is that there are value managers in the Australian marketplace for as far as the eye can see, and a large cluster of value managers. Less so in the growth space.
So, in recent years, we were fortunate enough to identify and partner with Munro Partners, a Melbourne-based growth boutique, led by a fellow by the name of Nick Griffin. Munro have a track record now just through 18 months, and they've raised some reasonable assets quite quickly. That's certainly an area that we're conscious of and looking at. The other area that's not far away for us is global small and mid caps.
Again, if you think about the market in terms of clusters, there are many, many Australian small cap managers, and a dearth of global small cap managers. Whilst again, Australians are comfortable investing in global small caps, I think you can very easily mount a case on a diversification basis for investing in larger small companies that are outside of the Australian jurisdiction. So, in most recent times, growth and indeed global small caps have been areas of focus for us.
Tony Kaye: You've got quite a diversity of partners. Is it a case of looking for gaps in the market that aren't really well covered from here?
Damien McIntyre: Yes. All of those partners have different disciplines. From Epoch with dividends to Tribeca with long short through to Man Group and Triple 3, who are in the alternative space, through to Munro and growth, Cambridge Investment Partners are coming. Cambridge are global small caps, so yeah, so we're trying not to bring out more of the same. We're trying to bring out managers that have something unique, and indeed are unique from each other.
Tony Kaye: Have you identified any gaps that you're yet to fill, or is it a case of just continuing to look for different investment options?
Damien McIntyre: Yes. There's always a hole somewhere or a gap somewhere. I think in our collection of managers and funds, I'm thinking about global infrastructure as again, as an income vehicle. The reason I'm thinking about infrastructure is Australia really has become a global hub for infrastructure investment.
If you look at the success of RARE, if you look at Maple-Brown Abbott, if you look at CFSGAM who are an Australian owned entity, we are serious players in the infrastructure marketplace, and one observation I'd also make is there is reasonable capacity constraints within that asset class.
It's probably fair to say that as managers approach $10 billion, they're maxed out from a capacity standpoint. As we all know, as one manager fills, closes, the next manager opens. So yeah, I'm definitely looking at global infrastructure as something that we'd like to do in the future.
I also think there's room for real estate, again, as an income generating vehicle, but I think in terms of where they are exactly in our product evolution, I think those asset classes will be challenged whilst interest rates are rising. So I think we'll just let the interest rate cycle play out, and we'll look to line up our ducks and make our investments towards the end of that cycle.
We're certainly very interested in the space, we're looking at it hard, but there's still a year or two to play out before we're willing to commit.
Tony Kaye: Just continuing along the line of interest rates, what's your high-level view on what's happening with markets at the moment? There's been this increase in volatility that we've seen over recent times, but there seems to clearly be a change in pace in markets in terms of what's happening and where they're likely to be heading to.
Damien McIntyre: Well, I think that the quantitative easing process, which began in the United States six or seven years ago now, well clearly that's, QE in the States has come to an end, and QE in Europe, and I won't comment on Japan, is beginning to come to an end.
I think in a general sense, it was a bold and brave move at the time, but it got the requisite outcome. It allowed economies to, or the banking system to heal, and economies to again, grow. Clearly the United States' economy and indeed the world economy, the United States is probably the strongest in the world, and is following shortly thereafter, or quickly thereafter, so the need for interest rates to be zero or below zero no longer exists. That's why interest rates are drifting up.
And so they should. Money has to have a price. Money can't be for free, forever. I think that's a completely false economy. I think the trajectory of interest rates presently is a fair indication of where we are, and we've still got some way to go. As I said, as interest rates rise, it'll be good for some asset classes, less so for others. It'll be interesting to observe.
Tony Kaye: A lot of people are calling the market is at or near the top. We've had this long bull run from, we were saying before, whenever you picked the line in the sand is when it started, but how are you viewing that?
Damien McIntyre: Well, I think that again, like interest rates play an integral role in the evaluation of any asset. At its most basic level, it comes by virtue of a discounted cash flow. So, the lower the discount rate, you can make any asset look wonderful.
So, the higher the discount rate, clearly the harder it is to make the assets or less sound assets, let's say, look attractive. I think interest rates will challenge all investors as a result of the discount rate, rising interest rates, because the discount rate's higher.
I think that's a shot over the bow for investors to remain vigilant and aware of what they're owning and why they're owning it. Look, I think in the long run, good businesses with solid cash flows always succeed and survive. It's those that are more fragile that create problems for investors at the end of a cycle.
Tony Kaye: Just lastly on the investment front really, do you see that there's more opportunities outside of Australia than inside at the present point?
Damien McIntyre: Well, I think yes, I do. The reason being is that Australia is very much a concentrated market. I think that one of the exciting things about our market where it is today is that for the first time really in its history, Australians are looking confidently outside of Australia for opportunities.
I'll preface that by making two observations. Firstly, if you look at the institutional market, led by our larger, whether it's our sovereign wealth fund, the Future Fund, or the industry funds and super funds themselves, today they are far greater holders of global assets, whether it's equities or fixed income, than they ever were in the past.
The same is true in the retail market. The other really pleasing aspect, if you look at this market from a health perspective, or a maturity perspective, is that Australians have become comfortable managing global assets from Australia. So, it all started you could say with Kerr Neilson and Platinum back in the ‘90s when he left BT and started his own business.
That then led to Hamish Douglass and the great success of Magellan. We have Antipodes, we have Munro Partners, we're getting a stronger and stronger cohort of Australian managers who are managing global assets in conjunction with the super funds themselves, who are now starting to pick the eyes out of global opportunities that they too can manage themselves.
I'm very excited that Australia has ceased to be so focused on our own market or, if you like, our home bias is now starting to dissipate somewhat, and we're more comfortable about investing overseas.
Tony Kaye: Well, thanks very much, Damien.
Damien McIntyre: Thank you very much, Tony. I appreciate your time.
Tony Kaye: Pleasure.