Australia’s sovereign wealth fund’s prediction of a tough year for investors didn’t come to pass, but they’re not the only well-resourced manager that missed the mark. For investors, this period is a reminder that investment patterns may exist, but markets certainly aren’t beholden to them.
It’s essential that we learn from the Dixons Advisory scandal, the FAAA chief said, so we can avoid future harm. The association has asked the government to consider a full inquiry into the case, while advisers contemplate the financial toll ahead of them.
Ironbark’s Royal London fiasco puts advisers in uncomfortable portfolio position
Ironbark Asset Management’s decision to switch investment management of two funds after a botched transition involving Royal London Asset Management’s hotshot portfolio management team puts advisers and investors in an awkward position, and raises serious questions about the role of Responsible Entities.
Switching investment management teams and styles on existing funds means that carefully constructed portfolios are suddenly jolted out of position and asset allocation may need to be recalibrated. Funds can fall into the hands of completely different investment teams with disparate philosophies.
Ironbark was forced to find alternative managers for the $3 billion Royal London Concentrated Global Share Fund and and the $700 million Royal London Core Global Share Fund after RLAM’s star portfolio manager, Peter Rutter (pictured), announced he was leaving the London firm to start up Sydney operations under a new banner, Lifecycle Investment Partners, but failed to get his ducks in a row. With Rutter tangled in HR issues, Ironbark sent a note to advisers and investors on August 22 informing them that it had chosen Brown Advisory to manage the Concentrated Fund and Robeco for the Core Fund.
For financial advisers and investment committees, their acuity is put in doubt when they have to go to clients and explain that the funds they carefully selected have now morphed into something completely different.
For advisers, especially, events like this are at best unpalatable and at worst embarrassing – especially in the case of a redemption that triggers a capital gains tax.
Portfolio predicament
The implications of these switches are yet to play out, but on first blush they seem more egregious for the Core Fund because the delta between management styles of the old and new managers is greater.
Brown Advisory has a similar philosophy to the existing team RLAM had on the fund, in that they’re a high-conviction, long-only equities manager with few holdings and few trades. According to Ironbark, the fund will “continue to be a low-turnover, concentrated portfolio of typically 30-40 stocks that have have core-style characteristics and are diversified across sectors and countries”.
Apart from RLAM’s claim that it likes to hold “approximately 20-45 companies”, there should be no fundamental differences between the way these investment managers handle the assets.
Robeco’s quantitative investment style, however, is poles apart from RLAM’s more qualitative method, so the treatment of the Core Fund could be widely different.
While the fund will “continue to be a core-style portfolio solution” under Robeco, Ironbark admits the change “may result in some changes to the features” of the fund.
Potatoes for pumpkins
Advisers and investment consultants are concerned that the Core Fund will operate differently to the one they’ve allocated to. The Robeco team is well-regarded, but Ironbark’s decision to employ them as managers in this case is a curious one because their style is incongruous next to RLAM’s.
Clouding the picture is the fact that Ironbark is the distribution partner for Robeco in Australia.
“You’ve been sold a pumpkin and now you’re getting a potato,” one investment consultant told The Inside Adviser. “The Brown Advisory team is pretty analogous with RLAM in terms of functionality and philosophy, so the Concentrated Fund isn’t a huge concern. But the Core Fund now switches from a fundamental manager picking stocks to a systematic strategy involving algorithms.”
“The Brown Advisory situation makes sense,” said one adviser who also wished to remain anonymous, but has client funds allocated in both funds. “But Robeco has a totally different strategy, so I’m not sure how they get blended with a good outcome.
