Window of opportunity for reborn boutique
Financial planners have always had their favourite fund manager.
For most of the 90s it wasBTand then when they fell out of favour, planners switched toColonial First Sate.
Today, planners have become disillusioned with the big managers and have made the switch to boutiques.
One that is enjoying favour at present is SG Hiscock, which started two years ago in Melbourne.
It is a boutique fund manager that specialises in listed property trusts (LPTs), small caps and absolute return strategies.
These are segments that managing director Stephen Hiscock and his team have worked in for the past seven years.
The team came together at National Asset Management (NAM), the funds management arm of the National Australia Bank.
In March 2001 the National, in conjunction withMLC— which it had acquired — decided to drop single-manager asset management. By June that year, NAM was being wound down and Hiscock and his team left.
“The bank has been very good to us, allowing us to take the database, excluding client details,” he says.
“We have the exclusive use of the intellectual property that we developed at NAM, so really we are much older experience-wise than the two years since the company was formed.”
This move allowed the company to become operational very quickly.
“We aimed for a seamless continuity from the client perspective,” he says. “It has enabled us to grow to $1.3 billion of funds under management in two years, which is a very rapid and successful start-up.”
Hiscock admits the company is at its 2010 budget, based on a very conservative plan.
“There have been strong inflows into the LPT trust and that money is sticky,” he says.
The investment style of the company, which is value active, has stayed the same since inception and Hiscock says they have no intention to change.
The boutique fund manager is purely wholesale, but retail investors can access the trusts via third parties, particularlyEquity Trustees.
This relationship came about as Hiscock decided to concentrate purely on funds management. All other aspects of running a fund management business, such as custody and marketing to retail investors, is handled by Equity Trustees.
The fund manager also has the property trust on the Skandia platform.
When Equity Trustees decided to form a funds management business it outsourced the operation and Hiscock became one of the trustee company’s managers.
The relationship is blossoming and retail inflows are increasing. Hiscock says there are about $60 million of retail funds under management in the LPT trust which has now closed to new clients.
“The relationship between Equity Trustees and us has been very good. What they do well we don’t do well, such as custody,” he says.
“We also like the fact that Equity Trustees is small enough to treat us as an important client.”
Hiscock says the fund manager will never be a direct retail manager and will always go through intermediaries.
Closing the LPT, which has benefited from strong interest in property-backed funds, is part of Hiscock’s strategy of not growing too big and therefore losing its boutique status.
He sees the problem of growing too big brings with it all the problems the big managers are facing at present.
These include being locked into an investment style and lacking flexibility, especially when trying to acquire assets for funds which have large mandates and ownership issues. This creates instability, especially among staff.
SG Hiscock is completely independent, with a shareholder structure designed to ensure staff longevity and the desire to perform.
“We will be capping funds at low levels to deliver good returns and I expect the small caps fund will close before the end of the year,” he says.
“Early closure also allows continued organic inflows from existing clients.”
The fund manager also puts profits back into the funds, which helps to build the trust’s returns.
Hiscock says the aim is to build a long-term fund management business that is successful and profitable.
He admits to looking at the models created by other independent fund managers such asMaple Brown Abbott, to see how they can stay independent while giving good returns for investors on a long-term basis.
“I saw that 100 per cent ownership is critical as well as capping funds,” Hiscock says.
“It is also important to have the same investment team that will help to build a long-term company.”
So, after two years, has SG Hiscock delivered the promised returns?
The Smaller Companies Trust has delivered a 21.8 per cent one year return compared to theASXSmall Ordinaries Index, which produced a return of 4.1 per cent.
The investment style is absolute, with the aim of adding value through exploiting inefficiencies in the market. Companies are researched and the fund invests in initial public offerings (IPOs) and placements. There is also a strong sell discipline, Hiscock says.
The LPT has a two-year return of 9.3 per cent, compared to the ASX 200 Property Accumulator Index of 6.8 per cent.
It is a valuation-driven investment style, where the focus is on real estate fundamentals.
The trust particularly looks for smaller LPTs that tend to be undervalued and have a lower turnover.
The Absolute Return Trust has a return of 21.29 per cent over one year, which compares to the benchmark of 5.73 per cent.
The trust has a minimum investment in Australian equities of 50 per cent and it can be totally invested in the sector if the portfolio manager wishes.
The investment goals are achieved by going short, both outright and in spreads, and with the aggressive use of the cash component on IPOs and placements.
The final trust is an Australian Equities fund that has a one-year return of 12.66 per cent compared to the ASX Top 300 index of 5.86 per cent.
The investment style of the trust is to buy undervalued stocks with positive earnings, which are outperforming the index.
Hiscock says the growth area for the business will be delivering absolute funds.
“We are determined to stick to what we are good at,” he says.
“There is no point in running funds where we cannot add sustainable value.”
This has ruled out an international equities fund, which Hiscock admits is due to the lack of internal expertise in the sector. However, a fund could be created with the right sort of external expertise.
Currently, SG Hiscock has been rated by seven asset consultants and researchers, such as Lonsec, Investorweb and 5Di, and all have given buy recommendations.
“We have a diversified spread of clients and this is because we told them in the beginning how we would run things, and we have proved that model,” Hiscock says.
“Our clients now know we can stick to that model for many years to come.”
Vital Statistics: SG Hiscock
Date established:August 2001
Ownership:100 per cent owned by staff
Principals:Stephen Hiscock, chief investment officer; Adrian Mattina, small comps portfolio manager; Sam Scollo, portfolio manager; Grant Berry, LPT portfolio manager; Pam Hauser, non-executive director; and John Thomson, small caps dealing.
Products:SGH Smaller Companies Trust; SGH LPT Trust; SGH Australian Equities Trust; and SGH Absolute Return Trust.
Investment style:Active value
FUM:$1.3 billion
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