With more traditional funds managers looking to launch SMA versions of their unitised offerings as a way of tapping into the growing managed accounts market, Queensland-based Elston has bucked convention by leveraging the research of its separately managed account to launch a unitised managed fund.
“We’re sort of engineered the opposite to most fund management businesses,” acknowledges Elston CIO Andrew McKie.
As managed accounts have grown exponentially over the last five years many entrenched fund managers – Bennelong, Ausbil, Hyperion, Nikko AM and Pendal among them – have latched onto the trend and launched Separately Managed Account versions of their unitised funds.
Elston first made a name for itself in advisory services and managed accounts, growing its funds under management to $2 billion. In December last year Elston launched its ASX100 focussed Australian Large Companies Fund.
So why take on a managed fund offering when most traditional managed funds providers are moving the other way?
According to McKie, one reason was because advisers don’t always want the transparency that comes with a managed account solution.
“Many [advisers] still prefer to use a unitised fund because they don’t necessarily like to have the transparency issues of direct ownership,” he says, before explaining that advisers don’t always want to spend time “discussing why they’ve recommended BHP over RIO”.
Having a both managed account and managed fund offerings gives advisers a choice, he says, depending on the conversations they prefer to have with their clients.
“One of the advantages we talk about with SMAs is the transparency, but one of the disadvantages is the transparency,” he adds.
“It can be quite challenging for advisers if they want to elevate the conversation to goals-based advice and strategic outcomes but they’re getting dragged back into these conversations about individual securities,” he continues. “It lets them keep the conversation at a higher level.”
McKie acknowledges the counterpoint that unitised funds lack some of the flexibility of SMAs. “You can’t do things like manage after-tax return outcomes through CGT, franking credit and cashflow levels,” he says. “It’s much harder to do within a unitised product.”
Ultimately, he reckons, advisers want the choice and Elston found itself in a position – due to the existing research expertise – to give it to them.
“We do have the comfort that comes from doing the SMA strategy for a long time, and it’s the same strategy underpinning the fund,” he explains. “Same strategy, same teams, same processes, just two different ways of accessing it.
A third incentive for setting up the fund was that while SMAs are gaining traction with advisers and consumers, traditional unitised funds are the ones that asset consulting firms and ratings agencies pay attention to. They needed a managed fund product code to get noticed.
“Our product track record wasn’t coming up on the radar of many of the senior asset consulting firms,” McKie says. “We wanted to launch a unitised product for the strategy so we could go into those databases and then potentially move into institutional as well.”