Skandia Investment Group (SIG) has switched sub-adviser for its $363 million Greater China Equity Fund from First State Investments to boutique firm MIR Investment Management.
Effective from March 5, the move comes despite a 140% return to date since First State took on the sole sub-advisory role for the US dollar fund in December 2005 – compared with 85% for Europe OE Greater China Equity, according to Morningstar data.
The Skandia fund, which has an inception date of May 1998, has a 1-year return of -3.41% and an annualised 5-year return of 10.24%, against 6.94% for the average in its category across the Europe open-ended universe, finds Morningstar.
James Millard, SIG’s chief investment officer, concedes in a press statement that First State has been an excellent partner, but adds: “We are in agreement that further asset growth could be a future constraint in sustaining performance.
“First State has always taken a very prudent approach to capacity management and has closed many of its strategies to new investors; SIG is supportive of this stance to protect their ability to deliver returns for clients. As such the time is right to change the manager of this fund.”
Michael Stapleton, regional managing director for Asia and Japan at First State Investments, notes that its Asia ex-Japan and global emerging markets strategies have been closed to new institutional business for some time.
“Skandia is looking to grow its funds significantly from where they are today,” he says. “But as a manager we would prefer to limit the growth of our China equity business.
“There is a limited amount that fund managers should really be willing to take on in markets such as China and India where capacity is an issue. So we agreed the best thing to do was appoint another manager that has capacity in Greater China equities.”
Stapleton says that First State Investments is managing $41 billion in global emerging markets and Asia ex-Japan strategies, of which $7 billion is allocated to Greater China.
He agrees that First State takes a cautious approach in markets with limited liquidity because of the need to maintain a sensible level of liquidity in equity portfolios. “Our approach is to invest in quality businesses, and there is a limit to how many there are in any equity market,” he adds.
He says First State Investments has no plans to seek a replacement client, and notes that it is already sub-advising on other strategies for Skandia, including an Asia ex-Japan portfolio and a global best ideas portfolio.
Asked why, given the fund performance, Skandia might not have been prepared simply to add other managers to the strategy, Stapleton says: “You’ll need to ask Skandia.”
A spokesman for Skandia was unavailable for comment at the time of going to press.
MIR is a boutique fund manager established in June 2003 that began managing Australian equities in January 2004. It added Asia ex-Japan equities in June 2007 and Greater China equities in May 2010.
The MIR Group is headquartered in Sydney and has offices in Singapore and Melbourne with about A$1 billion in assets under management as at December 31 last year.
It established a joint venture, MIR Libra Capital Management, in January 2010 to focus on Greater China equities with offices located in Hong Kong and Shanghai.
Through its Greater China strategy it aims to achieve a positive 5% return over a rolling five-year period, with an average tracking error of 6-10%. It is exposed to between 60 and 100 stocks.
Its style is to exploit market inefficiencies and mispricings, initially through a quantitative screening process using valuation, momentum, acceleration and corporate signals. It then uses qualitative analysis to gauge financial strength and earnings improvement or re-rating potential.
The MIR group of companies are 100% employee-owned, with founder Michael Triguboff the largest shareholder. It has 19 investment professionals, including nine in quantitative research and eight qualitative analysts, as well as two senior staff on its portfolio management committee.
It says it is a firm believer in having on-the-ground qualitative research, with its Asia ex-Japan team based in Singapore and its Greater China team of five analysts located in the Hong Kong and Shanghai offices of Libra.
Millard of Skandia describes MIR as a high-quality equity manager. “Our team is always proactively looking to identify the next generation of managers,” he says. “This change also allows retail investors to access outstanding, but less well known, investment talent in the region.”
SIG - which has needed to appoint four global CEOs in the past two years - is a wholly owned manager of managers business in the long-term savings division of Old Mutual Group. It is the sister business of insurance business Skandia International (which is also one of its clients) and effectively acts as gatekeeper of the funds platform.
SIG has 23 externally managed sub-funds under three ranges: Skandia Global, which is the range distributed in Asia; Skandia Fonder (Sweden); and Skandia Investment Management (UK).
Globally it manages around $23 billion, which includes around $1 billion in Asia-based assets.