Neil Margolis, Merlon’s co-founder and Chief Executive Officer, said the new hires will underpin the growth of the fund manager as it starts a new chapter, as it takes over distribution of its investment products direct to investors effective from 28 February 2025, from Fidante, which is part of the Challenger Limited Group.

“Since becoming fully owned by its investment team in July 2024, Merlon has appointed several highly experienced experts to its investment team. The latest appointments are Julian McCormack, who has joined as Portfolio Manager, Engagement, and Kirit Hira, who will hold the position of Portfolio Manager and Investment Analyst.

“These additions bring Merlon’s seven-person investment team’s total relevant experience to an average of 20 years each,” Mr Margolis said.The company’s funds under management (FUM) stands at approximately $800 million as at January 2025, with Merlon attracting net retail flows over the past 12 months of approximately $30 million.

“Merlon’s long-term outperformance has helped to attract inflows from retail investors in recent times, when many other active equities managers are struggling to attract flows into Australian equities funds,” Mr Margolis said.

“Since becoming fully owned by its investment team in July 2024, Merlon Capital Partners has been focused on reinforcing our investment philosophy through a culture that emphasises our long-term perspective, independent thinking and alignment of interests between Merlon’s owners,” he said.

The firm’s flagship Concentrated Australian Share Strategy has a strong track record of outperformance. Over three years, the fund’s returns of 14.5% p.a. net have exceeded the S&P/ASX 200 Accumulation Index by 3.1 percentage points with outperformance of 1.7 percentage points over five years after fees.

In other changes, Merlon has established an Advisory Board and has appointed Vicky Binns, Andrew Mohl and Brad Soller as high-profile members. They will sit alongside Neil Margolis and Merlon co-founder Hamish Carlisle to ensure alignment between the investment team and the investors’ interests over the long-term.

“The Advisory Board structure will support our engagement agenda, challenge us, lift the quality of our research, improve our corporate access and drive better decision making. This oversight will help to position Merlon as a leader in active ownership through constructive engagement,” said Merlon co-founder, Hamish Carlisle.

Julian McCormack has over 20 years’ experience in funds management, equity research and investment banking. Most recently, Julian held roles as an investment specialist and investment analyst at Platinum Asset Management. Before that, he held roles in investment banking and equity research at Credit Suisse. Julian will support Merlon’s engagement efforts with portfolio companies, communication with external stakeholders and contribute to broader portfolio decision making.

Kirit Hira has close to 20 years investment experience. Mr Hira will be responsible for coverage of a range of sectors including energy, resources and basic industries as well and will contribute to broader portfolio decision making. Most recently, Mr Hira worked at Platinum Asset Management for eight years as an investment analyst within the industrials and resources sector team and a portfolio manager in the Asia team. Prior to this, he worked at Macquarie Equities as a senior equity research analyst.

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Rebecca El-Khoury

Boutique Australian equity fund manager Merlon Capital Partners has boosted its Environmental, Social and Governance (ESG) research capabilities with the appointment of Rebecca El-Khoury as Sustainability Manager.

Rebecca has joined Merlon from TransGrid where she was a Sustainability Manager within the Corporate Strategy and Sustainability team and prior to this held roles at Deloitte Access Economics, the Australian Tax Office and the Reserve Bank of Australia. She holds a B. Applied Finance / B. Economics from Macquarie University and was a Macquarie University Merit Scholar.

Lead portfolio manager Neil Margolis said Rebecca’s appointment is aligned with Merlon’s culture of thinking and acting as long-term owners of businesses. Rebecca will support efforts to more deeply integrate ESG-related matters across its Australian equity funds, including the Merlon Australian Share Income Fund which is rated Highly Recommended by Zenith^.

“ESG related matters are becoming increasingly important in assessing potential and monitoring existing investments. Further, the skills required to develop a deep understanding of ESG related issues and coordinate engagement activities is becoming increasingly specialised and resource intensive. We are excited to work with Rebecca to further develop and implement our ESG philosophy and processes.”

Sustainability of cash flow and assessment of downside risk scenarios remain at the core of the Merlon investment approach. The result is a portfolio of relatively high yielding stocks with limited risk of permanent capital loss. As at 30 June 2021 Merlon was managing approximately $1.0 billion on behalf of institutional investors, charities and endowments and retail investors.

Merlon Capital Partners is supported by Challenger Limited subsidiary Fidante Partners, which forms long term alliances with talented investment teams to support and grow specialist investment management businesses.

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The paper looks at the house prices in Australia within a long-term context and within the context of the Australian tax system that favours owner occupied housing over all other asset classes.

Main insights from the paper include:

• The housing marketing is 5 – 15% overvalued relative to “mid-cycle” levels. However, this is unsurprising giving historically low interest rates.
• Regulations that have forced banks to ration lending are probably unnecessary and will achieve little other than improving short term bank profitability through higher interest rates for borrowers. In the long term, the RBA will take bank pricing decisions into account when setting official rates and unregulated lenders will emerge if market fundamentals remain sound.
• Given the sustained upward trend in price-to-income ratios since the 1960s and associated structural changes to the market, we don’t think it’s appropriate to compare current ratios to very long term averages. However, it is interesting to note that price-to-income ratios have fluctuated within a tighter band over the last 10-15 years.
• Dwelling rents are notably resilient to the economic cycle and have shown a remarkable tendency to grow above inflation over a long period of time.
• Although Sydney has experienced more rapid price inflation recently, this is arguably catch up following a period of underperformance between 2004 and 2010. The “Sydney premium” is currently broadly in line with historic averages.
• In fact, the tax and welfare system in Australia is enormously favourably to owner occupiers when compared to investors.
• As with all our investing, we work on the basis that, over time, interest rates will revert back to long term levels as will aggregate housing valuation metrics. Against this, we think aggregate rents and household incomes will continue to grow which will cushion the overall impact on dwelling prices and that the exposure of the household sector to higher interest rates means that the time frame over which interest rates will rise could be quite protracted.

Read the full Merlon Capital Partners’ paper.

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The paper discusses differences between pre- and post-retirement asset allocation and explores the priorities of retirees and their risk appetiteMain insights from the paper include:

Main insights from the paper include:

• Many investors overlook the benefit of allocating to shares which can provide in the way of growing tax-effective income in the post-retirement phase.
• Many investors overlook the benefit of allocating to shares which can provide in the way of growing tax-effective income in the post-retirement phase.
• Traditional retirement allocations are heavy on fixed income. However fixed income may not be able to deliver the same absolute returns going forward.
• Dividends and franking credits from Australian shares have provided very consistent returns over multiple time periods that can keep pace with minimum drawdown requirements and inflation risk that pension-phase investors face.
• Two key investment risks for retirees are sequencing risk, which is the risk of large market falls early in retirement when both wealth and spending is often high, and longevity risk, which is the risk of outliving one’s savings once inflation is taken into account. Normally, retirement asset allocation is perceived as a trade-off between these two risk factors.
• A meaningful reduction in both of these risks can be achieved when a transparent downside protection strategy that reduces capital risk but leaves full exposure to these dividends and franking credits is implemented.
• Merlon’s investment approach of avoiding index hugging and only investing in sustainable free cash-flow producing companies has enhanced these factors. This results in both much better risk adjusted returns and higher income, and gives retirees the potential to safely increase their allocation to equities and thus their returns in retirement.

Download the whitepaper.

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