Liquidity concerns for funds using investment bankers
The rise of mega managers has some appointing investment bankers as opposed to investment managers, raising concerns surrounding liquidity issues, SG Hiscock and Company believes.
Speaking at a media briefing on Tuesday, SG Hiscock managing director, Stephen Hiscock said it was mathematically impossible for funds that had $20 to $30 billion in Australian equities to deliver enormous alpha.
“We do worry about these funds, in fact we know of a fund that has started to appoint investment bankers, as opposed to investment analysts because it is of a size now that realistically the most efficient way to add value is to take over entities rather than invest in part of the equity,” he said.
“I’m specifically referring to the ones that are looking to buy whole businesses essentially turning liquid equity into private equity. If you’ve got $130 billion in funds under management just buying 5% or 10% of a company just isn’t going to give you much exposure. So, they end up becoming company owners.”
Hiscock noted that this had never really happened before is it was hard to say how it would impact the funds and investors.
“In a listed sense if you don’t like a business you just sell out and liquidity is important that’s why we’re capacity constrained. So, if we don’t like the business in a valuation sense we can just sell it but that’s not an option if you own it.
“The difference between due diligence on a listed company and an unlisted company is enormous because of the liquidity factor – you simply just can’t get out.
“So, you wouldn’t want too much of that in an investment portfolio. But the thing is they’ve got very stable flows, very stable asset base and it’s growing. That’s the one thing they’ve got in their favour.”
Hiscock also said that capacity did not seem to be a topic that was talked about when it came to “staggeringly large funds”.
“There’s the obvious issue of what happens if an active element of these funds under perform? It’s very easy to respond to if you appoint an active manager, obviously, but it’s not particularly easy if you’ve got an internal team running the money,” he said.
“Some of the funds have done very very well over time so if you’ve got the right people it definitely shows you can do it even with a large amount of money.”
Recommended for you
BlackRock has announced its plan to acquire real estate investment firm ElmTree Funds which will be integrated into its new private financing solutions business.
With share price growth of 45 per cent for FY25, Australian Ethical has shared why it believes the firm has done so well compared to its active peers.
ETF investors would be wise to consider global or European exposure for their equity ETF allocations, according to AXA IM, with US government action expected to hit both its equity and bond performance.
A specialist ETF provider is seeking to become “the new Betashares” with its active ETFs, thanks to its use of algorithms to achieve outperformance.
