Solaris Investment Management gained an up-front $100 million mandate for being grouped into a multi-manager product on the Colonial First State (CFS) FirstChoice platform, as a growth boutique was ousted in the manager swap.
Scott Tully, head of multi-manager investments at CFS, said the business wanted to appoint Solaris’ core fund to its Boutique Australian Share fund because it was impressed by the manager’s performance and had “known them since they were at Suncorp”.
The nine-person Solaris investment team, whose style-neutral process is headed by Denis Donohue, defected en masse from Suncorp Investment Management at the end of 2007.
CFS chose to let Perennial Growth Management go from the five-manager product mainly because its investment style was similar to the Solaris core fund, and it did not want to disturb the style mix in the portfolio.
“Growth and core, we find on the style charts, are quite similar,” Tully said.
Solaris joins Greencape Capital and three ‘cornerstone’ investors in the product: 452 Capital (of which CFS owns 30 per cent), PM Capital and Acadian Asset Management (a joint-venture between CFS and Acadian in Boston).
Because of these cornerstone arrangements, Standard & Poor’s (S&P) recently gave the CFS product a two-star rating. It felt this structure “restricts the fund’s flexibility” and asserted that an unconstrained approach to manager selection would better serve investors,” the ratings agency stated.
Tully said CFS was able to remove any of the cornerstone investors if it was appropriate.
“It’s not locked in stone…There’s no contractual obligation for us to have them there.”
S&P was also critical of CFS’ fixed 20 per cent allocations to each manager.
“FirstChoice’s investment consultant, Mercer Australia, could play a more active role in determining the strategic allocation [among managers], which is consistent with the role it plays in other CFS multi-manager strategies,” S&P stated.
Tully said the allocations were fixed in order to provide financial advisers with an easy way to access boutique managers.