Milford Asset Management is seeking to emulate the success of its flagship NZ Active Growth fund with a new product aimed at the Australian market.
Formally launched last October, the Milford Australian Absolute Return Growth Fund – the Auckland-based manager’s first Australian-domiciled product – has already raked in over $10 million, according to co-founder and head of investments, Brian Gaynor.
“The fund has had a good start. It’s attracted more than $10 million from clients and returned 8.2 per cent in the first three months,” Gaynor said. “But we’re under no illusion that it will be tough going [to grow in Australia] but this is a long-term strategy.”
He said the new product, modeled on Milford’s reputation-defining $2 billion plus NZ Active Growth fund (now closed to new investors), would invest primarily in Australian equities under the oversight of Sydney-based portfolio managers William Curtayne and Wayne Gentle.
Milford, which recently surpassed $5 billion in funds under management, already runs over $1 billion in Australian equities, mostly on behalf of NZ clients.
The Australian fund targets a return of 5 per cent above the Reserve Bank of Australia cash rate following an “unconstrained” approach.
“Most Australian equity managers tend to be relative managers,” Gaynor said. “But we’re not limited to the ASX200 or ASX300, for example. We think our absolute return strategy could be a differentiating factor in a crowded market.”
Documents show the Milford fund would typically allocate between 75-85 per cent to Australian equities, up to 10 per cent in international shares (of which a maximum 30 per cent could be NZ equities), 0-15 per cent in fixed income and 0-10 per cent in cash. However, the fund could switch entirely to cash if required with the ability to short-sell (up to 10 per cent of portfolio value) and use derivatives also in the Milford tool kit.
Gaynor said Milford deliberately set up the new fund under Australian conditions rather than offer a NZ-based product using trans-Tasman Mutual Recognition protocols.
“We decided we have to do this the Australian way – the standards are higher in Australia anyway and we can improve our processes by adopting them,” he said. “We’re a registered investment manager in Australia – and have been for some time – and the fund is offered by a Milford Australian company. We’ve got an Australian CEO in Auckland [Troy Swann] and six people in our Australian office that we’ve had for many years.
“This is not a soft approach.”
Milford has appointed Equity Trustees as responsible entity (akin to the trustee/supervisor role in NZ), National Australia Bank as custodian, Mainstream Fund Services as administrator and UBS as prime broker.
Gaynor said the fund was targeted to high net worth investors in Australia including self-managed superannuation funds (a roughly $700 billion market) and NZ ex-pats.
“There’s a large number of New Zealanders living in Australia who appreciate the Kiwi connection,” he said. “There’s also those who live in NZ but want to invest in Australia through an Australian-based fund.”
While Milford has yet to list the new fund on any of the plethora of Australian investment platforms – a must-do for wider distribution across the Tasman – Gaynor said it had begun talks with several research houses and ear-marked a handful of advisory firms to work closely with, which represents a distinct change of approach for the direct-focused NZ operation.
“Milford is 100 per cent direct in NZ,” he said. “We accept that we will have to be 100 per cent indirect in Australia.”
The firm’s Sydney office houses six staff with a business development manager likely to be hired this year.
If Milford can crack the Australian market it would be a first for a NZ-based mainstream fund manager but Gaynor is confident the long-term strategy will pay off.
“We haven’t pushed [the Australian fund] hard – and we don’t really want a rush of money right now. We just want to prove our performance and learn,” he said. “The [NZ] Active Growth fund had a slow start before taking off and we’re hoping the Australian fund can follow a similar path.”