Why bfinance may be Uber for super funds… or not

Frithjof van Zyp
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(pictured: Frithjof van Zyp)

by Greg Bright

Fund manager RFPs are coming thick and fast from controversial investment consultant bfinance, having set up an office in Sydney after three years of trying to crack the Australian super fund search market from London.

It is understood that at least four RFPs, including a large domestic fixed income mandate, have been issued in recent weeks on behalf of super funds including Non-Government Schools and Catholic Super.

Bfinance – controversial because of its alternative business model which involves the search being paid for by the successful manager, rather than the client as per traditional asset consulting – last month appointed Frithjof van Zyp as Australian director, having previously recruited the advisory services of Melda Donnelly. Both are well known and well-connected in the super fund world.

The firm has capped this off this month by recruiting Frontier Advisors senior consultant Joey Alcock to work in London (see separate report).

Van Zyp has experience taking on established providers with an alternative offering, having set up in 2009 an Australian operation for eVestment, the performance measurement and analytics company which competes against the more established Mercer GIMD (global investment manager database). He also helped open a Hong Kong office for eVestment in 2011 and relocated to the US in 2014 to focus on new asset classes for the firm. He resigned last year and decided to move back to Sydney with his family.

eVestment is also disruptive of the establishment, in an Uber-sort of way, by getting the fund managers to do more of the work themselves and also providing greater adaptability in what can be provided and how it can be used. Its services are also typically cheaper than Mercer’s.

Melda Donnelly was recruited as a business advisor in February and van Zyp as the full-time director in mid-March, although he had been talking to recruiter Meredith Jordan of Sydney-based Platinum Pacific Partners since last November.

Donnelly is best known as the founder and former owner of the Centre for Investor Education, although she is also a former chief executive of QIC and former director of a number of big companies and funds, such as VFMC and UniSuper.

Bfinance had several unsuccessful attempts to recruit someone in Australia prior to this. Most candidates were concerned about opposition to the business model. Pal Saraj, the London-based bfinance director in charge of client consulting for EMEA, Australia and Asia, persisted and was able to slowly gain some traction with super funds following his first batch of presentations in Sydney and Melbourne in December 2013. After Investor Strategy News published a report about the presentations, Saraj wrote to explain the firm’s precise offering.

Bfinance charges the winning manager a fee expressed in bps. Participating managers that are not successful do not pay anything. Nor does the super fund.

The fee is a sliding scale varying according to size of mandate and asset class and the management fee which is expected to be paid by the fund after the search. It is expressed as a one-off payment.

Saraj said that the actual fee was “frequently observed” as being lower than the market. Rival consultants dispute this. They say that one-third of the median fund management fee in the search process – the typical figure – would usually be significantly more than what they would charge for a similar one-off engagement.

They also claim the searches are not comparable because of the quantitative nature of the bfinance research. They suggest bfinance cannot understand the nuances about and details of operations of individual managers.

From the managers’ point of view, there is clearly a reluctance to change the existing system. They are a bit like the taxi drivers who are reluctant to become Uber drivers because of the upfront cost of buying their own car.

Bfinance, on the other hand, would argue that the cost to managers is a relatively cheap way to gain new clients. For starters, it’s probably not much use trying duchess bfinance people like van Zyp for potential new business through hospitality, as agreeable as that may be.

An interesting question has been raised by US-owned managers in Australia, especially those based in New York, which has anti-pay-to-play laws for its pension funds, whether the model fits within the SEC’s regulatory influence.

In an interview last week, however, van Zyp said bfinance already had five engagements in Australia and, given his experience in Australia, “a lot of people have reached out to me”.

He said that bfinance’s research process for a search usually took longer than that of the traditional consultants, partly because in every search the firm looked at the entire universe of suitable managers before contacting them to see whether they were willing to participate.

“The calibre of our research team is important to me,” he said. “bfinance has a true and tested process. We do the lion’s share of the assessment in the UK but I provide input from here when I can.”

An indisputable fact is that the bfinance process is transparent. It is not a bidding process, unlike Uber, where a lesser manager might be able to offer more for a mandate. “Our fee is set in stone and independent of who we recommend,” van Zyp said. “We usually recommend a number… Ultimately, we are working for the investors.”

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