Hunter Hall comes of age

Nine years after Peter Hall launchedHunter Hall International, the manager has come close to cracking $600 million in funds under management (FUM).

In recent months, Hunter Hall has recruited a new chief investment officer, Kim Tracey, as well as two analysts, a move designed to make the investment process more thorough and rigorous.

The manager has also brought its back-office administration in-house, launched the new Hunter Hall Ethical Superannuation Fund, moved offices and pushed itself further down the international path.

Hunter Hall chief executive officer David Buckland says the changes are part of the life cycle of the fund manager’s business and that they set it up for increased focus on productivity.

Buckland says in the beginning, Peter Hall’s modus operandi was to build a unique, high quality boutique institution that not only managed money, but was also able to “do good in the world”.

After setting up the Hunter Hall Value Growth Trust (VGT), Buckland says there were certain planners who started following Hall and “helped him to get the ball rolling”.

He says Hall was able to achieve remarkable returns in Australian microcaps early on, and then relocated to London to try his hand using similar stocks in Britain.

However, the VGT was criticised on the grounds that it was a split trust incorporating both international and local stocks.

“Because of the fee structure, it also wasn’t available to be put on master trusts, which were becoming an important part of the retail space in terms of distribution,” he says.

Buckland says listing on theAustralian Stock Exchangewas the first step in broadening the manager’s operation.

“I guess we did it because the VGT had good returns but the underlying business was still modest, and what would happen if the key man (Hall) gets run over by the proverbial bus?” Buckland says.

The listing was followed by the appointment of Buckland as chief executive officer, the recruitment of more investment staff and a boosted marketing budget. In late 2001 the manager followed the listing with the launch of two new funds, the Australian Value Trust (AVT) and the Global Ethical Trust (GET).

Buckland says the two funds have been good add-ons for the business, with the AVT attracting $115 million in funds under management (FUM) and the GET reaching $50 million over the past 20 months.

The manager has also recently launched its superannuation fund, which, though in the wings for years, had to overcome regulatory and administration issues, as well as undergo a redesign before it could be launched.

Buckland says that with the growth in FUM, the recent initiatives to make the business more professional were necessary.

“You can be a one-man band at $150 million FUM but at $600 million you cannot possibly do it.”

Buckland says when Hall was on his own a lot of the investment process was “in the back of his head”, but with more FUM, it was time to appoint an investment ‘policeman’ on the ground in Sydney, who could apply more rigour to the investment process. Hall could then concentrate on his great love — stock picking.

Enter Kim Tracey, who joined Hunter Hall to head the investment team in April.

“My main mandate was to get some depth and discipline of process in place where we can get all the analysts talking from the same sheet to make sure it is the best ideas in a portfolio,” Tracey says.

Now with a more robust process, Hunter Hall aims to be a counter-cyclical non-index tracker focusing on stocks with deep value, particularly in the industrial sector, often ending up purchasing “unloved” stocks.

Tracey says the aim is to buy at a discount of about 30 per cent, as well as doing thorough research on other features of businesses, such as management and long-term growth potential.

The manager’s ethical overlay is an important part of the investment process and an inherent part of the business, as Hunter Hall is Australia’s leading ethical fund manager by FUM, holding approximately 30 per cent of the $1.8 billion Australian ethical space.

The manager applies a negative screen on investments in areas like armaments, gambling, tobacco, nuclear energy, uranium mining, animal husbandry and logging non-plantation timber, and the company donates 5 per cent of its profits to charity, with shareholders deciding the causes the business supports.

Buckland says this investment style has given the manager very good long-term performance, although the AVT has had a disappointing year.

Hunter Hall’s coming of age has also involved bringing its back-office functions in-house. ThoughGlebe Asset Managementwas providing the manager with this service, Buckland says it became important as the business grew that the investor relations and administration teams were able to sit next to each other to talk.

The manager is now going through an upgrade of its administration software, and expects a full solution to be implemented within the next couple of months.

Having implemented the necessary changes, Hunter Hall is focusing on the future.

Buckland says Hunter Hall is marketing all three of its funds to financial planners, and while they appear on 20 platforms and there are 5,000 planners who can recommend them, he hopes penetration will increase and the figure will stretch out to 8,000 planners.

Hunter Hall is also looking at becoming more international, as shown by the recent launch of the Hunter Hall International Ethical Fund, a Dublin-based fund for high-net-worth foreign-based individuals.

Buckland says that over the next three to five years, he can see the business becoming 75 or 80 per cent international, as opposed to 50 per cent of assets now not invested in cash.

He says though it is early in the transition, the launch of the international fund might be a stepping stone to other things, such as rolling Hunter Hall out in Britain over time.

The manager’s goal is to reach over $3 billion in FUM by 2010, and Buckland says one of the key challenges will be maintaining the business’ performance as its FUM grows.

Research houseMorningstarhas criticised Hunter Hall in areas such as key man risk, risk management and stretched resources, but Buckland argues this was because the business was small.

“When you are a modest organisation you have to get your ducks in a row in order to expand your team,” he says. “You can’t really bring people on when you are still a little baby and can’t really afford them — you have to make sure that the business is on a sustainable footing.”

He argues that the criticisms will become less as the business focuses on its weaknesses and slowly fixes them. And this, of course, is all part of growing up and maturing as a business.