The number of managers is being cut from eight to three, with JCP Investment Partners (35%) the only incumbent manager to retain a mandate within the fund. Two new managers have been appointed, Antares Equities (45%) and Bennelong Australian Equity Partners (20%). Effective Aug. 31, 2012, the fund’s benchmark will also change from the S&P/ASX 300 Accumulation Index to the S&P/ASX 200 Accumulation Index. 

MLC has made these changes in an effort to address the fund’s poor performance. The manager believes these changes will improve the reliability of the fund’s alpha generation across various market conditions, while also minimising the volatility of performance outcomes consistent with the fund’s core objectives. 

These changes only affect the MLC Australian Share Fund, with no changes to the Australian shares component of the MLC Horizon funds. In late 2010, MLC separated the Australian shares strategy in the MLC Australian Shares Fund from that used in MLC’s diversified portfolios. As a result, MLC now has greater flexibility to vary the Australian equity manager mix between its single sector and diversified funds, which we believe has been the key driver in enabling it to reduce the number of managers used within this fund. 

We are comfortable with the announced changes for the fund and are pleased that there has been a reduction in the number of underlying managers, which was an area where we’d previously had concerns. The Australian equity capabilities of both new managers are also well regarded by S&P.

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Mr Pohl, who is Hyperions’s managing director and founder, is establishing a separately managed private equity business. 

Tim Samway, who is Hyperion’s existing institutional business director, is succeeding Mr Pohl as managing director. Mr. Samway and other investment team members will either gain or increase their equity stake through the redistribution of Mr Pohl’s current holdings. 

There will be no changes to the manner in which the Hyperion AGC fund and SMA will be managed, which remains fundamentally driven and relatively concentrated in nature. Joel Gray, head of Australian equities, continues as lead portfolio manager with oversight provided by Mark Arnold, chief investment officer. 

Mr Pohl will remain in an advisory capacity, with the investment team able to call on his considerable experience.

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Previously, offshore currency exposures within the fund were unhedged. Effective Feb. 14, 2012, the fund manager (RARE Infrastructure) may elect to adjust the fund’s emerging-markets currency positioning through the use of short-term (i.e. generally less than six months) forward foreign exchange and other derivative contracts. The hedging decisions will be made by the emerging-markets portfolio-management team, comprising Richard Elmslie, Nick Langley, and Charles Hamieh, and executed by trader, Tim Snelgrove.

The change will not result in emerging-market currency exposures being hedged back to A$ or any other developed-market currencies. Rather, it will provide RARE with the flexibility to reduce exposure to single emerging-market currencies without the need to sell underlying securities. We view this as being consistent with the manager’s predominantly bottom-up investment approach.

While this change has the potential to reduce single-currency exposure, as well as the volatility of capital returns, a side effect may be a more volatile dividend/income profile. This will depend on the extent and duration of currency hedging, as well as currency market volatility.

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“We have removed the fund from ‘On Hold’ and downgraded it based on the lack of certainty that Mr Sevior will resume managing the portfolio and our lower level of conviction in Mr Skamvougeras as manager of the fund,” said S&P Fund Services analyst Tom Mills.

Mr Mills added: “While we acknowledge that Mr Sevior may resume management of the fund in January 2012, we note that Perpetual has not ruled out Mr Skamvougeras continuing to manage the fund beyond this date. Although we consider Mr Skamvougeras to be a very capable investor, we note that his portfolio management experience to date has been in long/short strategies with far lower levels of funds under management (FUM).”

Since Mr Skamvougeras began managing the CEF, its size has been significantly reduced as a result of some redemptions, and largely by institutional clients reallocating their investments to other Perpetual strategies. As a result, Mr Skamvougeras will be in charge of a more manageable level of FUM, which provides us with greater comfort in the fund in his hands and over its capacity in general.

“Despite our lowered conviction in the CEF, we remain comfortable with Perpetual’s well-proven process, and the breadth and depth of its large and experienced team, which has significant input into portfolio composition,” concluded Mr Mills.

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