News

22 Sep 2023

September 2023 Investor Info Session

Hear from our MD Michael Skinner and the Investment team on the latest firm and fund updates as well as insights from the August reporting season.

Blackwattle is now live with 3 funds established, a 4th to be launched in September.

In this investor information session, hear directly from our CIO and our Lead Portfolio Managers on financial markets and our current portfolio positioning.

News

31 Aug 2023

Blackwattle’s Ray David is raising red flags about market darling CSL

Hear directly from Ray David our Lead Portfolio Manager and Blackwattle Partner.

Ray, Portfolio Manager of our Long-Short 130/30 Quality fund talks about red flags with market darling CSL and key stocks in the portfolio that are primed to do well over the next decade.

From Livewire:

“Ray David, Portfolio Manager and Partner at Blackwattle Investment Partners. Along with Schroders alumni Joseph Koh, Ray runs Blackwattle’s brand new Long-Short Quality Fund.

Ray has a red flag system for identifying his short and underweight positions. He put CSL through the ringer and, as you’ll learn today, it spat out a sea of red flags.

He also discusses the Ponzi scheme that sparked his interest in investment finance, why he’s bullish BHP irrespective of the commodity cycle, the new era in short selling, his overweight positions in industrials, and the media company with the best suite of assets on the ASX.”

Click here to listen-in.

News

11 Jul 2023

Embracing Change: The Need to Evolve Australia’s Funds Management Industry

Australia’s asset management industry is undergoing a wave of generational change. Veterans such as Anton Tagliaferro, Hamish Douglass, John Sevior, and Kate Howitt are stepping back, making way for the next generation of talent.

Generational change provides an opportunity for the industry to evolve, if not reform. Australia’s asset managers can better practices to improve returns, increase alignment, and ultimately garner greater trust with clients. This article highlights 8 key factors that can elevate the Australian funds management industry to a position of global best practice.

1. Alignment and Personal Trading

Fund management companies should align their interests with those of their clients.


However, personal trading by fund managers is all too common. This practice a distraction that costs time and mental energy, often resulting in diminished returns for investors. It creates misalignment.


It is simple, personal trading should be eliminated. This is the only way to ensure that the practice does not negatively impact investor returns.

While some firms do ban personal trading, unfortunately, there are just as many that don’t.

2. Ownership Structures

The ownership structure of a funds management company impacts accountability and performance.


Quality ownership structures, such as employee ownership or partnerships, should be commonplace as they align the interests of personnel with the long-term success of the company.


Conversely, concentrated ownership structures or those lacking the diversity of thought that a board provides, should be treated with caution by investors.

3. Governance Quality

Strong governance is essential for maintaining integrity within funds management. Managers should install governance frameworks to oversee decision-making processes, risk management, and compliance with regulatory requirements.


Yet unfortunately, the breadth and quality of governance in Australia is sporadic at best.


Fund managers must do better by establishing independent boards, investment and compliance officers, and regular third-party reviews.


These practices should be common, but today unfortunately they are not.

4. Risk Controls

Effective risk controls are vital to the management of investment portfolios.


Fund managers should implement comprehensive frameworks that identify, analyse, and mitigate potential downside risks. These controls should encompass financial, market, liquidity, client, operational, safety, regulatory, corporate, personal, IT, legal, compliance, and ESG risks.


While this list is long and extensive, the elements are critical to ensure that appropriate practices are in place to manage people’s wealth or often life savings.


These controls are costly, and thus they are sadly often overlooked.

5. Fund Size and Capacity

Performance is directly correlated to the amount of capital invested. As more capital is invested into a strategy or fund, diminished returns occur.


Conflict arises as fund managers become wedded to management fees derived from investing ever greater amounts of capital. For example, ASX Small Cap managers trying to invest over $2 billion in smaller companies (Ex-100) benefit from large management fees but often harm underlying returns.


Fund managers should proactively monitor capacity levels and implement closed-end structures or capacity caps to preserve investment performance.


Portfolio capacity constraints should be closely assessed by all investors.

6. Information Flow

There is a misconception in Australia that large investment teams deliver improved performance.


However, when teams expand negative outcomes often occur as information flow degrades, decision-making slows, conflicts arise, and inefficiency augments.


Smaller investment teams should outperform their counterparts due to clearer communication, faster decision-making, enhanced accountability, and the ability to adapt to market changes rapidly.


If small, highly experienced teams are coupled with quality governance and appropriate risk controls, performance should greatly improve.

7. Transparency

Transparency is key to building long-term trust with investors. It allows informed decision making and fosters stronger relationships between fund managers and their clients.


Fund managers should provide clear and comprehensive disclosure of investment strategies, fees, processes, and risks to their clients. Information flow should be continuous, and two-way.


Australia’s investment managers need to move away from limited disclosure of errors, and pullback the curtain of process and performance that is often held tightly shut.

8. Key Person Risk

‘Star stock pickers’, dominant portfolio managers, and controlling chief investment officers, each represent meaningful risk to investment companies and investors. Negative performance often occurs when key individuals misstep, become distracted, or leave an organisation.


To mitigate risk, fund management companies must remove single point decision making and implement shared responsibility, succession planning, and staff development programs.


The reigns of control must be put aside to preference performance over ego.

Conclusion

Australia’s funds management industry must evolve to elevate current practices, improve investor trust, and deliver quality risk adjusted returns.


A focus on alignment, ownership structures, governance quality, risk controls, fund size and capacity, information flow, transparency, and key person risk, would each be a great place to start.


Australian investment managers to prioritize investor interests.


It is time for change.

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