Long-established Australian boutique Hyperion Asset Management has been here before.
With almost 25 years on the clock, the now $7 billion plus investment firm has some crisis management credentials to lean on.
During the last big market meltdown in 2008, for example, the Hyperion flagship Australian equities fund stayed flat amid rough seas that sunk the ASX benchmark 20 per cent over the 12 months to June 30, 2009.
Featuring short-term volatility more violent than the global financial crisis, if not the depth of losses, March 2020 has once more tested the Hyperion ‘protect and grow’ investment philosophy.
To date, Hyperion’s three share funds – two Australian and one global – have performed to specifications with all staying well above benchmarks despite recording absolute declines in March.
But while the short-term figures might boost morale, Hyperion managing director, Mark Arnold, plays a long game.
“Our philosophy is to first protect clients’ capital and then invest in high quality companies that can compound that capital over long periods of time,” Arnold said. “We’re not momentum-based growth managers.”
Patience was also required in the long interval between Hyperion’s launch in 1996 and its return to the global equities sphere in 2014.
Hyperion began life running individually management accounts (IMAs) for high net worth clients across Australian and international shares. After seven years in operation – and on the advice of consultancy firm Willis Towers Watson – the firm switched to a pure Australian equities approach in an effort to break into the industry super fund and institutional markets.
“It was a hard decision to drop global equities but it was the right one for the business at the time,” Arnold said.
More than 10 years after exiting international shares, he said Hyperion had grown enough capacity (staff numbers increased from three to 13) to re-enter the market.
“We always wanted to get back to global equities – it just took us a long time,” Arnold said. “It suits our style and philosophy and gives us a bigger universe to create value from.”
Since inception in June 2014 the Hyperion Global Growth Companies Fund (Class B) returned just over 20 per cent annually to the end of this February – about 6.5 per cent above the MSCI World Index.
And it’s the global fund that is starting to gain traction among NZ investors, according to David Batty, Pinnacle distribution director on this side of the Tasman.
Hyperion is a member of the ASX-listed Pinnacle affiliate family that also includes two other managers carving out a presence in NZ, Antipodes and Metrics.
Batty said over the last six months the Hyperion global fund has been attracting greater interest from NZ financial advisers and some institutional investors.
“The fund is now on some model portfolios and platforms,” he said. “And we’re starting to see significant flows – mainly investors directing new flows rather than transferring from other funds.”
NZ investors and advisers have an appetite for active global strategies, Batty said, despite the rise of passive funds.
Arnold, also Hyperion chief investment officer said in what is likely to be a “low-return, disrupted” world ahead, index-based strategies would struggle.
“In a low-growth world it will be more difficult to be passive,” he said. “And the case for active management should improve over the next 10 years.”
As well as short-term volatility, Arnold said the current coronavirus-driven economic shutdown would likely fast-forward the disruptive trends that Hyperion has weighted towards.
“Because this crisis might permanently change some consumer behaviour we could see acceleration of structural trends such as less business travel and more people working from home,” he said.
Regardless of these behavioural blips, Hyperion already leans towards “modern” enterprises designed to capture the tailwinds of technology and demographic change.
Jason Orthman, Hyperion deputy chief investment officer, said the global portfolio features, for example, companies benefiting from the shift to online services, the ageing population and rising demand for luxury goods.
Orthman said the global fund includes some familiar names – such as Amazon and Salesforce – to less well-known entities like cloud company, ServiceNow.
In practice, Hyperion sifts a potential universe of 20,000 stocks down to a pile of about 150 that survive quantitative screens, eliminating highly-indebted companies and the like.
Further qualitative overlays condense the final global fund to a portfolio of up to 25 holdings, which Orthman said the manager tends to hold for the long term.
On average, the global fund has annual stock turnover of around 20 per cent while the changing about 10 per cent of underlying companies every year.
However, stock selection has contributed only about half of the Hyperion fund alpha, Orthman said, with its “proprietary” portfolio management system adding the remainder.
“Effectively, we’re doubling returns with a portfolio management process that tells us what the stock weightings should be on any day,” he said.
As investment markets rumble on through another period of turmoil, the Hyperion portfolio is “as robust as possible” with 75 per cent of its companies holding net cash, Orthman said.
“No-one knows how the coronavirus crisis will play out,” he said. “But we’re seeing an increasing level of interest from investors in this crisis – just as we did in the GFC.”
Identified with the sun, Hyperion is one of the more “obscure” Greek gods, according to Wikipedia, noted in mythology as the first to understand the movement of celestial bodies and seasons by “diligent attention and observation”.