Connie McKeage

OneVue Holdings Limited (OneVue) last week agreed to acquire Select Asset Management Limited, trading as Select Fund Services and Select Investment Partners Limited.

Select Fund Services (SAML) is a specialist provider of responsible entity (RE) services and one of Australia’s leading REs for multi-asset trusts. The business also provides services to leading single strategy managers and access to Australia via unit trust fiduciary services for global offshore groups.

Select Fund Services acts as RE for groups such as Neuberger Berman and Smarter Money Investments (50% owned by Yellow Brick Road) who are also clients of OneVue. It has a 12 year track record in fiduciary and RE services with a stable and experienced operations, technology and compliance team.

Select Investment Partners (SIPL) is a specialist multi-asset investment manager and implemented portfolio consultant with a track record of over 12 years managing diversified multi-asset portfolios. The business is based in Sydney with 15 people. SIPL works with financial planners to enable them to offer Customised Portfolios to their clients.

“The acquisition follows OneVue’s stated objective to grow the company organically and acquisitively and is strategically important in delivering value added services to both OneVue’s Fund Services and Platform Services’ clients“, said Connie Mckeage, CEO of OneVue.

The consideration for the Select businesses will be paid $2.7m in cash and $4.3m in OneVue scrip.There is also an incentive component, payable in scrip, for total revenue growth above an agreed threshold in Select Investment Partners during FY2015. Shares issued will have an escrow period of up to 12 months. The cash component will be funded from existing cash holdings.

Brendan Foley, Chairman and CEO of Select, said, “Having worked successfully with OneVue over the last year on a range of projects from unit registry and mFund services to the development of a managed account solution for our customised portfolio solutions, we have seen the complementary nature of our respective client lists and service offerings. By merging the businesses, the current value propositions for our respective clients will be enhanced.”

Select and OneVue are complementary businesses. SIPL strengthens OneVue’s superannuation trustee business, MAP Funds Management. SAML’s services enhance OneVue’s existing Fund Services offering by creating a broader suite of unit registry, RE services and mFund distribution.One of the cornerstones of the transaction is the strong cultural fit of the businesses, and that OneVue’s management capabilities are broadened and deepened.

The acquisition is expected to deliver a number of key financial benefits for OneVue:

• Retail Funds Under Management and Administration (FUMA) will increase from $1,940m to $2,609m (Excludes one asset consulting contract prior to the acquisition advised as winding up in Nov 2014)
• Total Funds under Supervision (FUS) from RE and trustee services will increase from $711m to $1,614m as at June 2014
• Select’s consolidated revenue was $7.1m in FY 2014. Revenue included incentive fees earned in the Investment Partners business of $1.6m and paid on returns in excess of a bank bill benchmark
• OneVue expects that the transaction will be accretive on an EBITDA per share basis in FY2015
• Revenue impact by offering RE services as part of a broader offering to domestic and international custodians and investment managers
• Cost and capital synergies identified

Select employees will join OneVue at their Sydney office. Brendan Foley, Chairman and Chief Executive Officer of Select, will be appointed Deputy CEO of OneVue and two other Select directors will be appointed to the executive team.

“This acquisition will enable us to more effectively deliver a broader range of client solutions. I welcome our new shareholders and I am delighted to be working with a team of people who are aligned with the OneVue team in their thinking and equally committed to making a difference” Connie Mckeage, CEO of OneVue, concluded.

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Alex Wise

Select Fund Services (Select) has made Neuberger Berman’s Absolute Return Multi Strategy (ARMS) investment capability available to Australian investors, including the retail and self-managed superannuation fund market (SMSF), with the launch of the Neuberger Berman ARMS Trust.

“ARMS is a liquid alternatives, multi strategy option that seeks absolute returns through an active allocation to a select group of established hedge fund managers, diversified across strategy types and geographies,” says Neuberger Berman Australia managing director Lucas Rooney.

“The Neuberger Berman ARMS Trust accesses the investment expertise of Neuberger Berman’s existing ARMS investment strategy which has proved popular in the US and Europe, raising over $1.6 billion in funds under management in the past two years. We believe that these hedge fund strategies can play an important diversification role in investment portfolios.”

Head of Fund Services at Select, Alex Wise, commented: “As responsible entity for the ARMS Trust, we are proud to be working with Neuberger Berman on the launch of this exciting new investment solution into the Australian market. We have been working with Neuberger Berman for over a year and have absolute confidence in them as market leaders in liquid alternative investments.

“The recent period of low volatility has reinforced a foreboding for many investors familiar with the inherent cyclicality of investment markets. Investors are increasingly searching for lower volatility investments that offer portfolio diversification with low correlations to equities and bonds, and ARMS has delivered on these objectives,” Mr Rooney says.

The ARMS investment strategy was first launched by Neuberger Berman in the United States in May 2012 and then in Europe in October 2013. ARMS is managed by Neuberger Berman’s experienced Hedge Fund Solutions team, comprising 40 individuals based in New York and London and which has been managing hedge fund solutions since 2002.

“Unlike traditional hedge fund investments, the Neuberger Berman ARMS Trust offers daily liquidity, with daily pricing, along with improved portfolio transparency, right down to the stock level. It also offers lower investment minimums than typical hedge funds,” Mr Rooney says.

“Because we invest ARMS’ assets in each underlying investment strategy via managed accounts, we have visibility on all underlying positions, which helps us to manage and control the risk as well as allowing us to share this high level of transparency with our clients.

“Importantly, our ARMS investment capability provides investors with access to ‘real’ hedge fund strategies, which we believe are run by quality active hedge fund managers, and not the ‘hedge-fund-lite’ replication versions, used by some liquid alternatives funds.

“With historically lower levels of volatility than equity markets, and a low beta to equities and bonds, the ARMS investment strategy provides investors with access to high quality hedge fund managers at lower fees than typical hedge fund investments (and with no performance fees at any level), by virtue of our almost unique combination of extensive hedge funds research and large mutual funds presence,” Mr Rooney says.

“We expect the Neuberger Berman ARMS Trust to be sought after as a differentiated source of risk management and return for Australian investors’ portfolios,” Mr Wise concludes.

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Neuberger Berman has experience working with clients who manage significant funds in-house. These clients benefit from the knowledge transfer and customized investment solutions of a multi-asset class strategic partnership. Current clients of this type range from sovereign wealth funds to several leading U.S. public and corporate pension plans.

In this new role, Mr. Knutzen will drive the asset allocation process on a firm-wide level and create related client content for strategic partnerships and multi-asset class solutions while joining in portfolio management on a number of mandates. “Erik’s skills and experience complement our existing client partnership capabilities,” said Joseph Amato, President and Chief Investment Officer, Neuberger Berman. “Adding a seasoned, senior multi-asset class investor to an already deep capability at the firm helps Neuberger Berman deliver more insight, ideas and peer-to-peer investment experience to these important relationships.”

Mr. Knutzen joins from NEPC, LLC where he has served as chief investment officer since 2008. As CIO, Erik oversaw a group of more than 45 investment professionals, including dedicated research teams focusing on Alternative Investments, Traditional Strategies and Asset Allocation.

In this role, Erik led investment strategy development including market assessment and outlook, and communication of key themes and best ideas for NEPC’s client base with, collectively, more than $800 billion in assets under advisement. He has over 25 years of experience in the financial services industry, including nine years at Putnam Investments. During his time there, he was a member of the global asset allocation group, led the institutional portfolio management team with 15 portfolio managers, and served as a senior leader of the firm’s international business.

Erik has been awarded the Chartered Financial Analyst and Chartered Alternative Investment Analyst designations.

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The fund is a U.S. mutual fund and offers U.S. investors access to top hedge fund managers at substantially lower fees and account minimums than typical hedge fund investments. Non-U.S. investors, including Australian institutional investors, are able to access the strategy via Neuberger Berman’s Irish UCITS version of this fund (the “Fund”).

The Fund is managed by members of the Neuberger Berman Alternative Investment Management team, which has significant experience managing fund-of-hedge fund strategies. The team allocates fund assets to multiple hedge fund advisers that employ distinct alternative investment strategies. The Fund does not charge performance-based management fees, offers daily liquidity, and has lower investment minimums than typical hedge funds along with full transparency of portfolio holdings.

Paul O’Halloran, Managing Director of Neuberger Berman Australia says: “The alternatives sector has undergone significant change since the global financial crisis, and the industry has seen marked improvement in the areas of cost, liquidity, transparency and corporate governance.”

“Australian investors, like those in the U.S., are seeking diversification in their alternative investment allocation, while targeting a reasonable degree of liquidity and competitive pricing. Increasingly, investors are seeing the new breed of alternative investments as a key source of alpha,” Mr. O’Halloran says.

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Neuberger Berman’s release its latest views on equities, fixed income and alternatives.

Managers and strategists at global investment manager Neuberger Berman envision positive momentum across many asset classes in 2014, as the global economy stabilises and generates moderate growth, according to Solving for 2014, the firm’s third annual outlook across global equities, fixed income and alternative investments.

As the investable universe has grown—across borders and asset categories—Neuberger Berman’s focus has broadened as well. This year’s edition is deeper, covering more ground than previous issues, reflecting the market’s increased diversity and the firm’s broad perspective.

The outlook provides Neuberger Berman’s views on equities, fixed income and alternatives, all on a global basis, and capitalises on the fundamental research of its portfolio managers and analysts.

“From an economic perspective, things are improving across a number of major economies,” said Joseph Amato, President and Chief Investment Officer of Neuberger Berman.

“As the Fed and other central banks adjust their approaches, investors should remain alert. Inflation trends remain moderate and we do not expect a significant uptick in rates this year. These shifts in policy merits close attention as investors adjust portfolios to capitalise on the improved growth and somewhat tighter monetary conditions.”

In equities, Mr Amato anticipates continued earnings growth this year tied to modest operating leverage as developed economies pick up.

In fixed income, investors can likely expect slow and steady growth and the potential for rising rates, said Brad Tank, Chief Investment Officer, Fixed Income.

“In my view, we’re probably in the middle innings of this growth phase in the US,” Mr Tank said.

“Things are getting better, but not rapidly. For the coming year, we anticipate a relatively benign growth environment, with continued momentum in the US, a modest acceleration in Europe and an ‘Abenomics’-driven recovery in Japan, offsetting China’s slower growth trajectory.”

An improving economy should lead to more private equity buyout activity, according to Anthony Tutrone, Neuberger Berman’s Global Head of Alternatives.

“At this point, we haven’t gotten to a major acceleration in buyouts, but we believe deals will begin to pick up,” he said.

Alan Dorsey, the firm’s Head of Investment Strategy and Risk, said a key issue for 2014 is achieving incremental return—whether through capital appreciation or additional yield—mindful that return outlooks have gradually shifted downward while interest rates remain extremely low. Alternatives are one key area that has gained traction, but another particularly important one from a portfolio allocation standpoint is emerging markets, he said.

“As investors enter 2014, improving global growth combined with shifting monetary policy are creating a nuanced environment, with obstacles but also opportunities,” said Paul O’Halloran, Managing Director, NB Australia.

Download Solving for 2014 here.

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Emerging markets looking goo for fixed income investors.

Despite having faced significant headwinds over the last six months, the outlook for emerging markets is positive, and particularly for investors in emerging market debt (EMD), says Gorky Urquieta, co-head of Neuberger Berman’s emerging markets debt team.

“In the near term, our outlook for EMD is cautious – we believe the asset class has hit an inflection point of market adjustments to the potential ‘beginning of the end’ of ultra-easy global monetary conditions.

“However, despite recent ‘noise’ to the contrary, emerging market economies are generally expected to improve and remain stronger than developing market counterparts. The financing needs of sovereign and corporate issuers are relatively moderate, potentially limiting supply and supporting credit fundamentals and spreads.

“In general, we believe that, recently, investors have made too much of slowing growth in emerging markets and we expect some economic resurgence, supported by global recovery which should partially offset China’s slowdown, even as EM policymakers gradually scale back monetary support.

“We believe that slow, steady economic improvement could provide a modestly positive backdrop for EMD, particularly in comparison to other sectors within fixed income.”

Mr Urquieta said that EMD should also continue to benefit from the long-term trend of inflows, as investors within fixed income add exposure to emerging markets, which are structurally underrepresented in their portfolios.

“With the global fixed income universe continuing to see near-historic low yields, the appeal of taking an opportunistic, global approach to bond investing in order to broaden potential sources of yield and total return is being reinforced.

“Within this context, we believe the structural case for EMD remains strong, as investors increasingly recognise the economic significance, improved credit quality, and depth of emerging market economies, and accordingly make up for prevailing low allocations to EMD,” he said.

Looking at individual markets within the sector, Mr Urquieta said that China is obviously a key factor in EM economic health and opportunities for investors.

“Recent softening has contributed to weaker commodity prices, which has broadly impacted producing countries. Even with current challenges, however, we believe that China could grow by 7.6 per cent this year, with the new government settling in, social financing growth filtering into investments, and increased real estate investment on rising property sales.

“We also believe that Japan’s monetary shift is a positive for EM Asia. Japan’s recently introduced program to reflate the economy will likely impact the region in two ways – first, the country in now more competitive with EM Asian markets, particularly Korea; and second, a rise in Japan’s domestic demand could increase from other Asian countries such as Indonesia and Malaysia.

“Overall, growth in EM Asia should pick up this year, potentially to 6.5 per cent this financial year and to 6.7 per cent in 2014. The more advanced Asian economies of Korea, Taiwan, Hong Kong and Singapore should move to catch up with the ASEAN-4 – Indonesia, Malaysia, Philippines and Thailand – thanks to a continued recovery in exports to the US.

“We have also increased our GDP growth forecasts in India and, looking past the current tightening there, expect growth of 7.2 per cent in 2014.

“Even in European emerging markets, we are seeing positive signs. We believe that the expansion should remain on track at 2.2 per cent in 2013 and rise to 3.1 per cent next year. We expect the unwinding of last year’s stresses in the Eurozone, as well as the lowering of interest rates by several central banks, to support growth.

“As for Latin America, we believe the slight uptick in expansion there should be driven by the recovery in Brazil, while Mexico is likely to slow. However, fiscal challenges are increasing rapidly in Venezuela and Argentina, where authorities elevated public spending ahead of elections in April and October this year, respectively.

“Emerging markets in the Middle East and Africa remain a concern. Growth in the Middle East is likely to soften due to flattening crude oil production by the Gulf Cooperation Council member states.

“Similarly, in Africa, growth should remain flat at 4.1 per cent this financial year as post-Arab spring challenges and weak commodity prices hold back many economies. However, in the longer term growth should then accelerate to 4.9 per cent.

“Overall, EMD’s recent underperformance relative to US spread products and European peripheral sovereigns has improved the relative value of EMD, and we anticipate over the course of the year, inflows will be positive,” he said.

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The appointment of Neuberger Berman will enable Select to significantly enhance its investment and research resources, extending the depth and reach for the Select Alternatives Portfolio. Improved liquidity for the portfolio will be considered as part of the investment advisory mandate in order to better meet the needs of retail investors. 
 
Neuberger Berman, with a heritage dating back to 1939, has over 1,700 employees across 29 cities in 16 countries and manages over US$205 billion in equities, fixed income and alternative investments, with over US$17 billion in the latter.  It is a majority employee-controlled company, with more than 400 investment professionals, including over 60 in alternative investments, and currently manages assets for some of Australia’s major institutional investors. 
 
“Select and Neuberger Berman are committed to deliver an exceptional diversified alternatives portfolio for retail investors in Australia through the Select Alternatives Portfolio” said Select Chief Executive Officer, Brendan Foley.

“This relationship complements our recently announced distribution alliance with Winston Capital Partners which provides focused distribution resources for the Select Alternatives Portfolio, as well as other leading international asset managers wishing to access the Australian market, and separates this function from investment,” he said. 

“Our vision continues to be to leverage Select’s core principles of investor focus, investment rigour and original thinking in building an end-to-end, integrated investment management business.” 
 
Lucas Rooney, Managing Director of Neuberger Berman Australia, said, “We see this advisory partnership with Select as a great opportunity to broaden the accessibility of Neuberger Berman’s investment management and advisory capabilities beyond the institutional market in Australia.

“In partnering with Select, we will aim to help deliver a diversified alternatives portfolio that appeals to Select’s retail investors who are seeking diversification in their alternative investment allocation, while targeting a reasonable degree of liquidity and competitive pricing, often a challenge in alternative investments.”
 
Select Chief Investment Officer, Dominic McCormick, said: “In addition to the future contribution of Neuberger Berman Alternatives’ investment advisory services, the Select Alternatives Portfolio’s investment committee has been significantly boosted by the appointment to it of David Bell. David is well known in the industry, having been conferred a Lifetime Achievement Award by the Australian Hedge Funds Awards for his contribution to the hedge funds industry.”  
  
The Select Alternatives Portfolio was launched on 1 April 2004 in its current form as a convenient “all-in-one” solution which provides access to a diversified range of alternative investments.

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“As we start 2013, it is becoming possible that the historical pattern for emerging markets is entering a new phase. 

“Historically emerging markets have been highly vulnerable to cyclical issues that tend to create economic highs and lows not necessarily correlated to structural stability or financial realities, but this is now starting to change. 

“There are a number of reasons for this but the result is that there are now more grounds to think this time is different and that emerging markets are migrating to become more traditional, core asset classes. 

“This represents a one-time transformation of emerging market equities and debt that could provide a unique opportunity for investors, who generally speaking are underweight emerging market asset classes. 

“The basic strength of many countries in Asia, Latin America and Eastern Europe has rarely been so secularly robust as it is now, particularly in comparison to many developed countries. 

“In my view, the final ‘hurdle’ to becoming a permanent part of investor portfolios would be for emerging market economies to put in place more consistent governance practices and, in those countries where it is still a problem, reduce fraud and corruption,” he said. 

Mr Dorsey said that there are several key factors driving the shift from cyclical to structural macroeconomics in emerging markets, including: GDP growth; foreign exchange reserve accumulation; current account surpluses; a growing middle class; robust fiscal and monetary policies; and the stability of local institutions such as sovereign wealth funds and pension funds that are investing in projects in their home regions such as infrastructure. 

“The main implication of these drivers is that there is a structural reduction of risk in emerging market economies, not least through emerging market debt being upgraded to investment grade. 

“While risk hasn’t been eliminated entirely, we are seeing a situation where the risk levels of emerging markets are, in many cases, lower than they have been in the past, and potentially lower than those of many developed markets. 

“For example, the growth in exports in emerging economies has allowed them to substantially increase their currency reserves at a much faster rate than developed countries. 

“This gives emerging economies more scope to support domestic currencies and avoid currency dislocation in the event of crisis, an issue that emerging markets have been vulnerable to in the past,” Mr Dorsey said. 

The growing middle class is another key factor in supporting stability in emerging markets. 

“Historically, $5,000 in annual disposable household income is the point of critical mass, when domestic consumption starts to grow strongly. 

“In China, India and Indonesia in particular, the number of households with an annual income between $5,000 and $15,000 has grown rapidly over the last decade, and is predicted to increase further over the next ten years. 

“In China, for example, less than 20 million households had an income in this range in 2000 but in 2010 there were almost 125 million households and by 2020 it is expected that almost 200 million households will earn between $5,000 and $15,000 a year. 

“As the purchasing power of the middle classes grows, the local economy tends to transition from being primarily dependent on exports to developed countries, to having more balanced growth driven by domestic consumption and investment in local infrastructure. 

“Such investment is critical as it helps to improve efficiency, increase capacity and potentially mitigate inflationary pressures. 

“Furthermore, trade between emerging economies has grown and diversified, reducing their reliance on the Western world and potential exposure to the economic malaise affecting Europe and the US. 

“On top of these trends, we can see reduced inflation in emerging economies that has helped contribute to economic and financial health and stability.

 “All these factors are creating a situation where emerging markets are economically more robust and healthy, and less vulnerable to the kinds of downturns or problems that plagued many in the past. 

“Investors still need to weigh the risk and return carefully but, particularly when compared to the developed world, emerging markets are an increasingly attractive investment option and investors who take advantage of this now are well-placed to benefit from the ongoing growth and strength of the market,” Mr Dorsey said.

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