by Greg Bright
A new wave of investment vehicles is upon us, reflecting the final convergence of listed and unlisted funds. Once again, Magellan Financial Group and its long-time administrator, Mainstream Fund Services, appear to have stolen the march on the rest of the industry. The Airlie Australian Share Fund is about to transform itself into the first unlisted fund to be quoted on ASX in what looks like a seamless fashion.
Airlie Funds Management is a subsidiary of Magellan, having been purchased from founder John Sevior, a well-regarded portfolio manager, in early 2018. Magellan, primarily known for its international equities strategies, was one of the pioneers of actively managed listed ETFs. Many others have since followed that route.
Magellan was not actually the first manager to get approval from the ASX for an active ETF. That distinction goes to Aurora Funds Management for a couple of bond funds. But it was certainly the most prominent of the early adopters and led the way for a mini-boom in new investment vehicles. The latest move, though, means fund managers won’t have to set up separate vehicles to give their investors all the advantages of a listing. They will just need a prospectus version of their standard documents.
At a breakfast of financial advisors and other industry folks last Thursday (February 20) in Sydney, Martin Smith, the group chief executive of Mainstream, said that for managers running both unlisted and funds there is now the opportunity to collapse them into single vehicles.
The Airlie initiative is a bit like a trial for having an unlisted fund listed on ASX. Smith believes there will be a lot of interest across the funds management industry in this latest evolution. “It will be very appealing for managers to only run a single register for their off-market, or unlisted fund investors, and on- market investors. Running one fund structure is clearly much more efficient than running two,” he said. The first Airlie fund to transition from unlisted to the listed space, under the ticker code AASF, will happen within the next four weeks.
He said the initiative was like an “Uber moment” for the industry, eliminating what has been expensive duplication for managers and investors. The three key principles for managers were: the necessity to revisit the fund constitution and offer document, probably through a supplementary prospectus; the necessity to give the market “real information”; and to address the question as to how this administration play would help investors.
Brett Cairns, the group chief executive of Magellan, told the gathering that there was now “no barrier between the listed and the unlisted space.” Why did we need two of these things? he asked. “We have been using two different methods to buy into the same trust.” The real difference between the two has been whether or not they are open-ended, like the traditional managed fund, or closed-ended, like the traditional listed investment company or trust.
According to Alva Devoy, the managing director of Fidelity International in Australia, who also addressed the breakfast function, her firm was looking to be a part of the next stage of development following on from active ETFs and ‘mFunds’, the earlier ASX initiative to allow better access to managed funds through a quasi-listing system. The two main detractors of mFunds, of which there are 232, is that they are expensive for the manager and don’t allow for intra-day transacting. With ETFs, which number 211, the disadvantage for active managers is also to don with costs and duplication of effort.
Martin Smith said after the meeting that being able to offer a single registry solution for both on-market and off-market investors in a fund was an industry first. “Existing off-market investors in a fund can be issued with a shareholder reference number, or SRN, so they effectively hold issuer sponsored units in the fund. The investor can then transfer these units to a holder identification number, or HIN, with any broker for trading on exchange – just like BHP shares.” he said. “Investors will be able to access an investment manager’s pool of assets through different entry points and then have the flexibility of moving their units between their brokerage account and the issuer sponsored sub-register.”