Not since the development of ETFs has there been a potential disruptor in funds management like this. A group of international equities managers has launched a performance-fee-only plus pay-for-research series of funds, with full transparency of holdings and with administrator Fundhost’s first all-electronic application and redemption process.
The firm, Atlas Trend, has designed its business strategy for small investors in Australia and New Zealand to invest in international equities, either by replicating the portfolio managers’ own decisions – like a model portfolio – or through the four actively managed world ex-Australia and New Zealand funds.
Kent Kwan, co-founder and chief investment officer, said the business grew out of the frustrations he and some friends had when they returned to Australia after working in funds management overseas and witness the reticence of small investors, such as SMSF trustees, to invest offshore.
“We saw that there was not a lot of product they could access,” he said last week. “Most of the managed funds have high minimums [investments] of $50,000 or $100,000 and people who wanted to trade directly didn’t have much information about the stocks to go by. Atlas Trend was born out of those observations.”
The firm charges a flat fee for its research, including actual portfolio holdings, which subscribers can act on as they see fit. For those who want to invest in the funds, subscribers are charged a 15 per cent performance fee only. But this fee is not like any other. It is charged only when the investor exits the fund, in order to avoid the main problem with unit trusts of inequality for tax allocations among unit holders depending on when they have invested.
Minimum up-front investment is $1,000 for subscribers at a minimum level of $27 per month. In fact, the firm has maximum investments under its unique fee scale. For the $27-a-month subscribers the maximum is $50,000 and for the gold $83-a-month subscribers it is $200,000.
“And our fees are not charged at the fund level. They are at the individual level, and we don’t charge them on paper profits – we charge them on real profits,” Kwan said. “We want our interests to be truly aligned with those of the investor. And we are doing it in, easily, the most transparent manner possible.”
Atlas Trend also keeps its funds management costs down through the use of filters to screen its universe of about 5,000 stocks through the employment of big-data technologies, before applying fundamental analysis.
From the administrator’s perspective, the offering is also a first. Drew Wilson, joint chief executive of Fundhost, said the company had been working on streamlined direct distribution – for individuals who may or may not be advised – for some time.
“We decided to invest in technology to reduce the friction associated with direct distribution. This is a perfect example,” he said. “Our online application system, powered by Oliva123 software, is paperless – we do not require a ‘wet’ signature. AML & KYC [anti-money laundering and ‘know your customer’ regulations] checks are performed online. Clients can save or redeem whenever they wish. The whole system is designed to shorten the time between the investor deciding to invest and actually being invested.”
Unlike many administrators who charge for each application, Fundhost does not, Wilson said. “Instead, we fund this initiative out of its efficiencies. Everyone says this business is about scale – but it is amazing how technology can level that playing field. With the right technology partner, boutiques can provide superior service with a similar cost base to the big guys.”
Atlas Trend’s four initial funds – it has plans for other strategies – are thematic growth-oriented investments. And, like the funds themselves, the ideas behind the investment strategies are easily accessible. One, for example, is online shopping. Kwan asks: who would not want to invest in the future of online shopping?
Kwan and co-founder Kevin Hua have spent most of their investment careers overseas, Kwan in London with JP Morgan and Hua in Hong Kong with Stark Investments. Hua also worked at JP Morgan on the investment banking side of the business.
* Greg Bright is publisher of Investor Strategy News (Australia)