Fund Times: Updates for Advance, AMP, AXA, Challenger, Macquarie, MMC, Principal
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In recent news from the funds management industry, Advance investment manager Tradewinds has a new head of research; AXA investment manager AllianceBernstein has replaced its head of fixed interest; two Macquarie global infrastructure securities staff have swapped jobs; AMP Capital, Challenger, and Principal have provided updates about distribution windows; and MMC Asset Management has been sold to Valuestream.
Advance sub-manager Tradewinds hires research director
Tradewinds, the Los Angeles-based investment manager for Advance Tradewinds Global Equities, has had a number of recent changes to its investment team. The firm has appointed Rowe Michels as its new Director of Research, overseeing the research activities of the analysts. Michels replaces Nathaniel Velarde, acting Director of Research for the past year, who has moved to a role as materials analyst with associated firm NWQ. Michels was previously Director of Research with hedge fund manager Wexford Capital, and before that spent 10 years with Bear Stearns in emerging markets analysis.
In other changes, Paul Hechmer – a member of the firm's wider research team and portfolio manager for non-US portfolios, but not directly responsible for working on the Advance mandate – has also left the firm. His replacements are Peter Boardman and Alberto Jimenez Crespo. Our fund research analysts have updated our research report for Advance/Tradewinds, and have confirmed our existing Morningstar Recommendation of 'Investment Grade'. (Because of its quirks, we suggest investors use the strategy as a supporting player in a portfolio, rather than as a core holding.) Tradewinds Portfolio Manager David Iben was a keynote speaker at our Investment Conference earlier this year.
Redemption updates for AMP Capital, Challenger, Principal
A number of fund managers have provided updates about their redemption policies for funds whose illiquid holdings led their managers to restrict redemptions last year (in Challenger's case because of side-effects of the Australian Government's bank deposits guarantee).
AMP Capital Investors has stated that no monies will be available from its Enhanced Yield funds (AMP Capital Enhanced Yield A, AMP Capital Enhanced Yield, AMP Capital Enhanced Yield H, and AMP FLI – AMP Capital Enhanced Yield) to pay for a forthcoming quarterly withdrawal window ending 31 July 2009.
AMP Capital aims for the Enhanced Yield funds to have about half their investments in high-yield corporate bonds and hybrid securities, and the remainder in illiquid private debt instruments (by investing in the in-house AMP Capital Structured High Yield Fund). (The ratio was 59:41 in early July, having increased because of falls in the value of the listed securities component.) The amount of liquidity available to fund redemptions depends on the amount of money the Enhanced Yield Fund receives from the Structured High Yield Fund. The next potential redemption window opens on 1 August and closes on 31 October 2009.
AMP Capital also provided an update on the status of the Enhanced Yield Fund's assets, stating that the high-yield securities component is positioned defensively in investment-grade assets providing attractive yields, and that the fund manager continues to manage the portfolio to attempt to bring the ratio between the liquid and illiquid components back to broadly 50:50.
In February this year, the firm announced that it would no longer accept new or additional applications for investments into the Enhanced Yield funds, and our fund research analysts consequently moved our Morningstar Recommendation from 'Investment Grade' to 'Hold'. (We'd previously downgraded the Enhanced Yield funds from 'Recommended' in October 2008 following AMP Capital's move to restrict paying withdrawals to a quarterly window.)
The next quarterly redemption window for Challenger Howard Mortgage and Challenger Howard Wholesale Mortgage runs from 24 July until 21 August. Investors will be able to withdraw up to five percent of their units, with a minimum payment of A$500. Challenger also said that on the basis of current liquidity and expected future loan discharges that it expected to make withdrawal offers of at least five percent of investments each quarter for the next 12 months.
We moved our Morningstar Recommendation for the Challenger Howard Mortgage funds back from 'Hold' to 'Investment Grade' in April this year. We did this because the quality of the process and the senior investment personnel's experience at navigating difficult periods mean that the funds remain suitable for investors with longer time horizons looking for a regular income stream, who do not need short-term access to principal and who recognise that mortgage funds are not proxies for easily-accessible cash options.
Finally, Principal Global Investors has announced that because of the impact of losses on currency hedging as a result of the significant fluctuations over the past year in the value of the $A, that it would not be able to make any income distributions from Principal Global Strategic Income for the June 2009 quarter, and that this situation is likely to remain the case for some time. Global Strategic Income produced a -21.32 percent return over the year to 30 June 2009, the main recent areas of weakness being asset-backed securities and high-yield. Principal has more recently been increasing its exposure to high-quality liquid government-guaranteed and non-guaranteed bank debt in the 390-security portfolio, and paring back some emerging market bond exposure.
AXA/Alliance Bernstein Fixed Income head departs
Jamie Alexander, formerly Director – Fixed Income at AllianceBernstein, has left the firm to pursue a career outside the funds management industry. Alexander had been in his position since the merger of AllianceBernstein's two Sydney- and Melbourne-based fixed interest teams in March 2003.
AllianceBernstein has appointed Hayden Briscoe as Alexander's replacement, effective from 18 August 2009. He'll head the team which runs funds such as AXA Wholesale – Australian Fixed Income. Briscoe was previously a senior fixed interest investment manager with Schroders, who worked on Schroder Fixed Income and Schroder Fixed Income S. He'll also be responsible for managing the fixed interest component of AXA mortgage funds such as AXA – Wholesale Australian Monthly Income and AXA – Australian Monthly Income, while AllianceBernstein is also responsible for 50.0 percent of the underlying investments of Advance Australian Fixed Interest Multi-Blend and Advance Wholesale Australian Fixed Interest Multi-Blend.
In related news, AllianceBernstein has also appointed Joran Laird as a Portfolio Manager effective 17 August. Laird, with the firm for the past nine years, has spent the past five of these with AllianceBernstein's New York-based global fixed interest team.
Macquarie Infrastructure staff swap roles
Two key staff running Macquarie global listed infrastructure funds are swapping jobs from 1 August. Portfolio Manager Andrew Maple-Brown heads to New York to assume portfolio management responsibilities for North American and European portfolios, while Justin Lannen will relocate back to Sydney after a year in the US to take up Maple-Brown's role. Lannen and Maple-Brown will continue to run Macquarie International Infrastructure Securities with Jon Fitch. Lannen has been with Macquarie since March 2007, before that having spent 10 years with Colonial First State, ultimately as portfolio manager for Colonial First State Wholesale – Industrial Share. Maple-Brown has been with Macquarie Bank since 2001, and transferred to the infrastructure securities team in 2007 from the firm's Debt Markets team, where he worked on unlisted infrastructure transactions.
We currently have a Morningstar Recommendation for Macquarie's global listed infrastructure capability of 'Investment Grade', the third of the five designations on our scale from 'Highly Recommended' to 'Avoid'. We noted that the firm largely targets stocks that own regulated assets like pipelines or water distribution, or user demand assets like ports, tollroads, or airports, but also pointed out the additional financial risks when investments in these assets are leveraged, which eventuated in 2008. Our analysts have assessed the change in roles, have updated references where appropriate, and have elected to leave our existing Morningstar Recommendation where it stands.
MMC Asset Management sold to Valuestream
Listed financial services company MMC Contrarian (MMA) has sold Sydney funds management boutique MMC Asset Management to Valuestream Investment Management, an issuer of managed investment schemes and provider of back office services including fund accounting, unit registry, and custody and compliance services.
In its announcement to the ASX, MMC Contrarian stated that "the market downturn and related fund outflows has [sic] resulted in a further decline in funds under management which no longer makes ownership of the funds management business cost effective", noting that MMC Asset Management will report a loss for the 12 months to 30 June 2009.
Management of the MMC Australian Share, MMC Small Companies, MMC Value Growth, and MMC Concentrated funds will shift to a new boutique, Huon Investments, headed by existing MMC Asset Management Portfolio Manager Michael Birch. MMC Contrarian is taking a 10.0 percent stake in Huon, stating in its market statement that this would be a passive holding, and that it would "not seek to play an active role in the business of Huon".
The MMC funds have been comparatively poor performers: the Australian Share, Small Companies, and Value Growth funds were third- or fourth-quartile performers relative to peers over the three and five years to 30 June 2009, although first quartile over the past year. The funds' assets have fallen substantially in recent years: MMC Australian Share peaked at A$232.37 million at 31 October 2006, for instance, but had only A$50.26 million at 31 May 2009, while Small Companies' A$62.33 million at 31 January 2007 had by a combination of outflows and declining share valuations fallen to A$10.25 million by 31 May 2009. (MMC Asset Management also terminated listed property fund MMC Property Securities in June 2007, another consistently poor performer with only A$3.0 million in assets at its termination date.)
The MMC businesses have also had a varied history. MMC Contrarian listed on the ASX in December 2003 as a vehicle investing in other ASX listed companies. In 2008, the firm changed its business strategy to focus on investing in the wider financial services sector, and in March 2009 purchased Community & Corporate Financial Services from Tolhurst Group (TNL). ComCorp had previously acquired financial planning firms Affiliate and Hillmac, whose businesses are concentrated on the credit union industry, and recently purchased 40.0 percent of Port Macquarie-based financial planning firm Berry Financial Services.
MMC Asset Management was originally the merger of two existing funds management businesses owned by Erik Metanomski and Peter Constable. Metanomski subsequently sold down his stake in the funds management company progressively and resigned in 2007. The business has subsequently employed a succession of investment management staff, most of whom have not stayed for any extended period. We withdrew our Morningstar Recommendations from MMC funds in June 2008 because we were unable to obtain sufficient information from the fund manager to update our qualitative assessments of its funds.