Pendal Global Emerging Markets Opportunities Fund
(APIR: BTA0419AU ARSN: 159 605 811) – Important information
Reduction in management costs from 6 February 2020
With effect from 6 February 2020, the Fund’s management costs will reduce from an issuer fee of 1.40% pa to 1.18% pa.
The Australian bushfire crisis has prompted an unprecedented response from everyday Australians offering help to those affected.
Pendal is supporting these efforts with a program to match employee donations for bushfire relief and recovery.
We are matching 1:1 staff donations to registered charities assisting with bushfire relief and recovery up to a total of $200,000.
As a global initiative this includes staff at our UK-based subsidiary J O Hambro Capital Management.
Pendal is providing additional paid leave for Australian employees directly affected by the bushfires or involved in recognised voluntary emergency services.
We are also providing Australian employees with five days of paid volunteer leave for the purpose of helping with bushfire related volunteer work.
Counselling services for employees are also available.
Pendal offers our thanks and acknowledgement to volunteers helping to fight fires and support recovery efforts across Australia.
Pendal International Share Fund (APIR: BTA0056AU, ARSN 087 593 299)
Investment Manager
As stated in our notice of 22 November 2019, we have decided to replace AQR Capital Management, LLC (AQR) as the investment manager of the Pendal International Share Fund (Fund) and appoint the Pendal Global Equities team. The change will take place on or around 21 February 2020.
We wish to provide further details regarding the change of manager and the potential impact to investors. This update should be read in conjunction with the notice of 22 November 2019.
Transaction costs
The change in investment manager will require the sale and purchase of securities within the Fund as we transition to the new portfolio. As is currently the case there will be costs such as brokerage and taxes involved in these transactions which will be borne by the Fund.
Pendal estimates that the total cost of changing the investment manager will be in the order of 0.35% to 0.45%. This will be a one off cost that covers: the sale of current securities; the purchase of securities selected by the Pendal Global Equities team; and the increase of the buy-sell spread detailed in our notice of 22 November 2019. This amount represents transaction costs incurred by the Fund and is not a fee paid to Pendal.
These costs were taken into account in assessing whether the proposed changes to the portfolio was in the best interests of investors.
Tax impact
Pendal does not provide advance notice of the tax impact of transactions within the portfolio to investors. This was, however, a factor in our consideration of whether the proposal is in the best interests of investors.
At 30 June 2019, the Fund had sufficient net realised capital losses to cover any unrealised capital gains. We expect these losses to be available to offset any realised capital gains in the current financial year.
Pendal Core Global Share Fund (APIR: RFA0821AU, ARSN 089 938 492)
Investment Manager
As stated in our notice of 22 November 2019, we have decided to replace AQR Capital Management, LLC (AQR) as the investment manager of the Pendal Core Global Share Fund (Fund) and appoint the Pendal Global Equities team. The change will take place on or around 21 February 2020.
We wish to provide further details regarding the change of manager and the potential impact to investors. This update should be read in conjunction with the notice of 22 November 2019.
Transaction costs
The change in investment manager will require the sale and purchase of securities within the Fund as we transition to the new portfolio. As is currently the case there will be costs such as brokerage and taxes involved in these transactions which will be borne by the Fund.
Pendal estimates that the total cost of changing the investment manager will be in the order of 0.35% to 0.45%. This will be a one off cost that covers: the sale of current securities; the purchase of securities selected by the Pendal Global Equities team; and the increase of the buy-sell spread detailed in our notice of 22 November 2019. This amount represents transaction costs incurred by the Fund and is not a fee paid to Pendal.
These costs were taken into account in assessing whether the proposed changes to the portfolio was in the best interests of investors.
Tax impact
Pendal does not provide advance notice of the tax impact of transactions within the portfolio to investors.
This was, however, a factor in our consideration of whether the proposal is in the best interests of investors. At 30 June 2019, the Fund had net assets of $181.7M of which $0.8M were net unrealised capital gains.
Pendal Core Hedged Global Share Fund (APIR: RFA0031AU, ARSN 098 376 151)
Investment Manager
As stated in our notice of 22 November 2019, we have decided to replace AQR Capital Management, LLC (AQR) as the investment manager of the Pendal Core Hedged Global Share Fund (Fund) and appoint the Pendal Global Equities team. The change will take place on or around 21 February 2020.
We wish to provide further details regarding the change of manager and the potential impact to investors. This update should be read in conjunction with the notice of 22 November 2019.
Transaction costs
The change in investment manager will require the sale and purchase of securities within the Fund as we transition to the new portfolio. As is currently the case there will be costs such as brokerage and taxes involved in these transactions which will be borne by the Fund.
Pendal estimates that the total cost of changing the investment manager will be in the order of 0.35% to 0.45%. This will be a one off cost that covers: the sale of current securities; the purchase of securities selected by the Pendal Global Equities team; and the increase of the buy-sell spread detailed in our notice of 22 November 2019. This amount represents transaction costs incurred by the Fund and is not a fee paid to Pendal.
These costs were taken into account in assessing whether the proposed changes to the portfolio was in the best interests of investors.
Tax impact
Pendal does not provide advance notice of the tax impact of transactions within the portfolio to investors. This was, however, a factor in our consideration of whether the proposal is in the best interests of investors.
At 30 June 2019, the Fund had net assets of $220.2M of which $22.1M were net unrealised capital gains (before the application of the 50% CGT discount). The Fund also had carried forward revenue losses of $10M related to currency hedging which may be available to offset realised capital gains.
Pendal has appointed a London-based impact investment team to launch a Global Equity Impact strategy in late 2020.
The team will join Regnan, a leading provider of ESG research, engagement and advisory services, which is wholly owned by Pendal.
The appointment marks the expansion of Regnan’s capabilities into responsible investment funds management.
The four-person team will be led by Senior Fund Manager Tim Crockford working with Mohsin Ahmad, Maxime Le Floch and Maxine Wille.
The team previously managed the Hermes Impact Opportunities Equity Fund, which Mr Crockford co-launched in 2017.
The team will be based in the J O Hambro Capital Management office in London.
‘Global leader in responsible investment’
“One of our strategic objectives is to become a global leader in responsible investment,” said Pendal’s Chief Executive of Group, Emilio Gonzalez.
“The move to 100 per cent ownership of Regnan in early 2019, and now the appointment of a specialist impact investment team, demonstrates our commitment to delivering on this strategy.
“The impact investment market is currently worth over half a trillion US dollars and there is an obvious and growing demand from clients for this capability.
“Given our 35-year heritage in responsible investment, we believe we have an important role to play in delivering positive impact alongside strong investment returns for clients.
“Our combined deep knowledge and expertise in this area enables us to deliver innovative and credible Environmental, Social and Governance (ESG) and impact investment solutions that will meet client needs and grow funds under management.”
Late 2020 launch
Regnan’s Global Equity Impact strategy is expected to launch in late 2020 and be available across Pendal’s global distribution network.
The team will aim to generate long-term outperformance by investing in mission-driven companies that generate value for investors by providing solutions for the growing unmet sustainability needs of society and the environment.
The fund will use the United Nations Sustainable Development Goals (SDGs) as an investment lens:
“We are delighted to welcome Tim and his team to Regnan and the Pendal Group,” Mr Gonzalez said.
“The team hire expands our investment capability while enabling us to leverage Regnan’s ESG expertise.”
Background on Regnan
Regnan is a leading provider of ESG research, engagement and advisory services.
Its focus on environmental and social issues traces back to Melbourne’s Monash University in 1996.
Regnan was established to investigate and address ESG-related sources of risk and value for long-term shareholders in Australian companies.
It has evolved to become a global leader in long-term value, systemic risk analysis and responsible investment advisory.
Regnan’s in-house team of experienced analysts produce rigorous, relevant ESG investment analysis.
From this research and insight, the team tailors solutions to meet the specific needs of its asset-owner clients.
These clients use Regnan’s services for a range of purposes from stock selection, portfolio construction and stewardship, through to all aspects of responsible investment framework development and implementation.
Regnan also advocates for ESG considerations to become mainstream through contribution to the public policy debate, board and committee-level participation in industry bodies, and submissions to government.
Regnan staff recently co-authored a UN Principles for Responsible Investment report, Active Ownership 2.0: the Evolution Stewardship Urgently Needs.
Pendal Sustainable Balanced Fund – Fee Change
Pendal Sustainable Balanced Fund (Fund} APIR: BTA0122AU, ARSN: 637 429 237)
Reduction in management costs from 2 December 2019
From 2 December 2019, the issuer fee for the Fund will reduce from 0.90% pa to 0.80% pa
Pendal’s very own George Bishay has been awarded the Alpha Manager status of endorsement by Money Management’s parent, FE fundinfo. This accolade is in recognition of George’s career-long performance record in the asset management industry.
George was one out of 11 Australia-based investment professionals included in this list across multiple asset classes, after being assessed on his ability to create risk-adjusted alpha (outperformance) over his entire career track record.
FE Fundinfo, creators of the inaugural Alpha Manager award, determined this exclusive list by only focusing on the top 10% of Australia’s retail-facing portfolio managers and analysing their track record.
Shifting the short term focus
The Alpha Manager status has been intentionally designed to recognise career-long performance. Rather than just picking this year’s winners in the investment industry, the Alpha Manager status has been reserved for the select few who have demonstrated a compelling track record of performance throughout their career.
George’s investment management career spans over 22 years with Pendal and its predecessor firms. He is responsible for management of credit, fixed interest and enhanced cash portfolios, including Pendal’s highly regarded Enhanced Cash Fund and Sustainable Australian Fixed Interest Fund.
Diving deeper generates true rewards
While being highly appreciative of the award, George puts his results down to a “fastidious approach” to assessing information and constantly rejecting the human tendency to accept information at face value. “You can’t underestimate the value of digging deeper when it comes to assessing issuers and security structures”. Also critical to his success is the team’s top down process that utilises a quantitative model backbone, qualitative overlay and technical analysis.
A similar mindset applies to holistically integrating ESG and impact investment analysis. Although it is very topical these days to espouse the virtues of sustainability, George and the Pendal Bonds, Income & Defensive Strategies team argue the importance of authenticity when it comes to delivering long term results within a sustainability framework. “Long before sustainability was in vogue, we have been focused on delivering tangible rather than tokenistic outcomes.” George has managed dedicated Sustainable (ESG) fixed interest portfolios since 2009.
Click to view the media release and feature article in the latest Money Management publication.
Investing to take account of humans’ impact on the environment has garnered even greater attention over the past several months and its importance for our clients continues to grow.
As Pendal’s Portfolio Specialist, David De Ferranti outlines, there are now opportunities for investors to make a real difference to the lives of everyday people, while also earning a financial return.
Take a two-minute read on the evolving area of impact investing and the positive contributions it can make to the environment and broader society.
View the article here.
The inexorable drift towards lower and lower interest rates is upending many assumptions; from the role of monetary policy in lifting the economy through to where investors look for yield. Australia and the US have positive rates for now. However, as growth slows further, inflation persistently undershoots central banks’ targets and governments prove unwilling to lift spending, rates are being forced closer to zero. This has raised speculation over non-traditional measures like negative rates, as already in place across Europe, as well as quantitative easing in order to move central banks’ key objectives back towards their targets. At Pendal’s recent Lighthouse event, the Bond, Income & Defensive Strategies (BIDS) team shed some light on the conundrum facing policymakers and what the future may look like when monetary policy is no longer effective.
Monetary means at their limits
Central banks around the world have been progressively targeting inflation since 1989, with our friends across the Tasman at the Reserve Bank of New Zealand the pioneers of its modern form. Over this time the policy setting boards have presided over the structural shift to lower interest rates, lower inflation and considerable economic expansion.
Since the 1990s we have seen a few economic cycles, with each changing the nature of policy effectiveness. Our Australian rates manager, Tim Hext, has experienced many over his career and notes every cycle has lower and lower interest rates. In Europe, several countries now have negative interest rates, led by Denmark, Switzerland and Sweden. They have joined Japan, where interest rates hit zero two decades ago, before turning negative.
The issue now is increasing risk aversion resulting from negative rates. Central bank tools are relatively blunt, so to obtain the desired economic response, even deeper negative interest rates will be required for Europe. This is the problem with blanket policy targeting through interest rates. When you’re a hammer, everything looks like a nail.
As such, to address the failures of the current regime there is growing recognition of need for a different policy approach. Enter Modern Monetary Theory (MMT). The thinking around this form of economic management was pioneered by American economist, Professor Bill Mitchell along with a cohort of academics and finance practitioners. MMT directly repudiates the thinking around government budget constraints which form the basis of the ideologically opposed Keynesian school of thought for economic management.
Breaking from tradition
The chorus is growing as central bankers increasingly appeal for help in the unruly task of economic management. In his last meeting at the helm of the ECB, Mario Draghi called again on greater support from the fiscal arm of policy. RBA Governor Lowe has echoed these calls amid the frugality that has characterised government spending at home, driven by a seeming obsession with obtaining a surplus.
Ultimately, if an economic crisis and recession eventuates it will drive radical political change, forcing governments to boost spending, cut taxes and pursue deeper structural reform. This may include elements of MMT, which we can interpret more as a framework, than a set of individual policies.
At the core of MMT is an ideology that upends the traditional view that considers the economy as separate from individuals, who seek to maximise their utility from it. Rather, MMT essentially sees the economy as the people and in turn, works for us as a collective.
Another conventional perspective which is uprooted by MMT is that governments should operate like households. This is an idea perpetuated by our personal experience with budgeting and debt. Simply, if we live beyond our means, there is a deficit which requires debt to finance. We then project this idea onto how governments should operate. As such, we have the notion that governments must raise revenue through taxes in order to spend, otherwise they will run a deficit and accumulate debt.
MMT takes an alternative view under a few assumptions, including that governments have control over their currency. This means a government could create money to finance spending, rather than raise it through taxes or a combination of deficits and debt. Such an approach can be followed when there is excess capacity in the economy and the need for stimulus.
What creates inflation?
The notion of creating money for spending may raise some eyebrows, given concerns over the idea of money printing resulting in inflation running out of control. However, such worries require consideration of the force behind money creation. As has been proven by the recent era of massive central bank stimulus efforts, inflation is not purely supply-driven. It does not matter how cheap money is to borrow or how much is available, ultimately it depends on demand and a borrower’s ability to borrow.
Government spending can stimulate this demand and taxes can reduce it. In the MMT world, a key policy that can be used as part of this mechanism is a job guarantee program. If economic activity is weak with low inflation, jobs can be created to absorb idle capacity, and as capacity becomes stretched, inflation will rise. True inflation can only emerge once full capacity is reached. As inflation rises, the government can cut spending and raise taxes to bring the economy back towards balance. In this way the policy acts as an automatic stabiliser.
Such a job guarantee program also supports an idea that anyone who wants to work will work. If the private sector can’t absorb them, then the government will. It will guarantee you a job. There are plenty of public services that are needed – building public facilities, cleaning community spaces or whatever host of other productive activities.
A new New Deal
In the US a similar style policy was implemented in the form of the Civilian Conservation Corps – one of the most successful New Deal reforms introduced by Roosevelt in the 1930s. Looking at the debate in the US now, Tim believes it is not a matter of when a form of MMT arrives, but who will move first – when will they do it, how they do it, and who will then follow.
“For example, you could have a 50-year infrastructure project, which you break down into 5-year, short term projects. This can be slowed as inflation rises. And if inflation rises too far, taxes can be hiked”, he says. “The currency may take a hit, initially, but as growth kicks in, that will flow through to the currency.”
Tim highlights the case of Japan, which has struggled to stimulate growth, but boasts one of the lowest unemployment rates in the world; “everyone’s got jobs, everyone is happy. Why do you need GDP growth if everyone is happy? It begs the whole question of why do you need GDP growth for GDP growth’s sake.”
Looking elsewhere, the UK is likely growing closer to adopting some form of MMT. Their economy is really weak now. And once you see job guarantees coming, then others will follow. Tim notes “You won’t announce we’re doing ‘modern monetary theory’, but you will announce job guarantees. The first implementation will be the UK. The US will follow at some point.”
Investing in an MMT world
With significant experience in rates markets as Head of the boutique, Vimal Gor believes secular stagnation is a problem that is likely to persist for a long time to come. In the medium-term and for the practicalities of investing, the baton of policy stimulus will likely not be passed completely from the current hands of central banks to governments. Arguably, even within an MMT world with more of the heavy lifting done by government spending, we will remain in an environment of structurally lower yields over the long-term. The need for rates to remain low or lower represents further opportunities for bonds as we see the race to the bottom continue. Bonds will also continue to offer investors the important safe-harbour that is critical when risk-assets like equities suffer and as such, will remain a vital part of an investor’s portfolio.