It was an unconventional sales pitch from the doyen of Australian funds management, but it worked.
Geoff Wilson’s two Future Generation listed investment companies — uniquely established to deliver social and investment returns — now have almost $700 million managed by the best fund managers who are intent on growing value for shareholders while donating their fees to charity.
“My biggest concern in setting it up was asking fund managers to manage money for free,” Mr Wilson told The Australian.
“I always thought that would be the hardest part of the exercise, but they were all incredibly positive and generous.
“I said, ‘I might not be able to get you into the pearly gates, but I can get you right to the front’.”
Not only have the two investment vehicles been a win for the charities that now receive a consistent and growing stream of donations that would normally be paid to the fund managers, the LICs give investors access to highly rated and actively managed fund investing in domestic and offshore markets for a fraction of the cost they would normally pay. Both companies aim to deliver low-volatility, risk-adjusted returns through capital growth and fully franked dividends.
But it’s been a big win for the charities that receive a consistent and growing stream of income. Future Generation Investment Company invests with Australian fund managers and donates 1 per cent of its assets each year to Australian charities focused on children and youth mental health. The Australian Indigenous Education Foundation — headed by 2004 Australian of the Year Andrew Penfold — is among the beneficiaries of the Future Generation Investment Company (FGX).
The Future Generation Global Investment Company (FGG) invests with global managers and donates 1 per cent of its assets each year to Australian charities focused on children and youth mental health.
“If the charities continue to perform, they will get that income forever, and it will grow by the performance of the fund managers,” Mr Wilson said. “And it’s actually a cracking deal for investors because they are getting access to proven fund managers at a cost of 1 per cent.”
Since its inception in September 2014, the FGX investment portfolio has increased 8.7 per cent a year, outperforming the benchmark by 3.2 per cent.
Significantly, the investment portfolio’s outperformance has been achieved with less volatility as measured by standard deviation, 7.1 per cent versus the market’s 12.2 per cent. A standout performer is L1 Capital — a relatively new addition that has delivered about 24 per cent portfolio returns over 12 months.
FGG has faced headwinds from a rising Australian dollar since listing in September 2015, but it is also delivering low volatility returns to shareholders. Since inception, the investment portfolio has recorded standard deviation of 8.9 per cent against the market’s 10.2 per cent. Over the past three months, the portfolio has increased 8.8 per cent, outperforming its benchmark by 0.3 per cent. Most actively managed funds charge annual management fees plus performance fees. For Wilson Asset Management, there’s normally a 1 per cent management fee plus a 20 per cent performance fee.
Magellan Global Fund charges 1.35 per cent plus 10 per cent for performance.
But for the 20 fund managers involved with Future Generations — many of whom already had a philanthropic structure in place — Mr Wilson said it’s a great opportunity to give back to their communities after reaping the benefits of strong growth from the introduction of compulsory superannuation by former treasurer and prime minister Paul Keating.
Not only have the fund managers agreed to work for free, the services providers stepped up as well.
ASX doesn’t charge listing fees for the Future Generation companies. Boardroom waived their share registration costs and Wilson Asset Management does the marketing and communications pro bono.
“The actual costs inside the companies are minuscule,” Mr Wilson said. “In fact they are incredibly efficient, receiving pro bono and discounted support from most service providers and operation support, such as accounting, marketing and legal functions.”
At about $5 billion a year, the value of this support exceeds the annual donation to charities.