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Hyro an unlikely hero of meltdown

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We at Unbalanced love it when an Australian does something world-first, even if the honour in question is somewhat dubious. An ‘honour’, say, such as placer of the very first call to the administrators of Lehman Brothers in September 2008. As Wall Street burned, the board of the ASX-listed technology small-cap, Hyro Limited, realised it had a problem. It was a A$21 million problem, actually, in the form of a convertible note taken out in July 2008 (nice timing!) which now gave the corpse of Lehman a stranglehold over the Melbournebased security software vendors. “When we woke to the [Lehman collapse] news, we knew the wind-up process would be incredibly lengthy, so we thought it best to get on the front foot,” reminisced Hyro’s chairman, Robert Clarke, last month. “The administrators in Hong Kong [dealing with Lehman’s Asia- Pacific business] told us we were the first counterparty in the world to have called.” With the note’s fixed and floating charges restricting Hydro’s every move, Clarke needed a quick resolution and his place at the head of the queue got him one, at least by the standards of other Lehman victims still before the courts. By August 2009, Hyro had struck a deal whereby the Lehman liquidators forgave the debt in return for a 17 per cent stake in the company, as well as some cash raised from divestments, including the obligatory underperforming subsidiaries in China and New Zealand. The company is now focused on Idaptive, which claims to help the many IT systems heading into the Cloud keep their identity and access management grounded. Hyro is even feeling chipper enough to be going back to the capital markets, to raise $4 million of which three-quarters will be used to retire a longstanding debt to the Australian Tax Office. The patient owner of 8 per cent of the company, the Macquarie small-caps fund run by Neil Carter, will no doubt be at the head of the queue of those approached.

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Greater SG boosts more than super

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If you were a student of economics or politics in the 1980s or early 1990s, you will remember the debate that raged on national savings. We were all told Australians did not save enough and that as a result our current account deficit was too large. JOHN BROGDEN, CEO of the FSC, writes.

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Technology drives break from the past

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Investment administrators have access to new technologies which can usurp the layers of complexity that have accrued over the years, reduce the rate of errors and enhance services, write the CEO of the Milestone Group GEOFF HODGE and PHIL DAVIES, chief technology officer. Technological innovation comes in cycles. Every 10 or 15 years, a new wave of solutions comes along and shakes up industry standards, forcing users, administrators and funds managers to think again about the systems they use on a daily basis. We are at such a point today. Little more than a decade ago it was all about automating departmental workflows and eliminating the most egregious paper trails. Since then, some formidable systems have been built up and have gradually added more complex functionalities to investment administration. However, built on the mantra that greater automation leads to greater efficiencies, these systems are now at the point where the marginal utility of the architecture, the technology and the operational structures is all but exhausted. A radical change is needed in the way technology is viewed and deployed at an enterprise-wide level.

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Funds, join the conversation

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Superannuation suffers from some truly large disadvantages when it comes to social media: it’s factual, it’s not entertaining, and Charlie Sheen is not tweeting about his transition to retirement problems. The challenges facing super funds are to engage, entertain, and trust their members. PHILIPPA YELLAND reports.

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Breaking News: ACSI’s decade of action

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As the Australian Council of Superannuation Investors (ACSI) prepares to host its 10th annual conference in Melbourne this month, MICHAEL BAILEY spoke with Michael O’Sullivan, the organisation’s long-serving president, about its historical highlights and future. The roots of the ACSI lie in a trip that Michael O’Sullivan took to the Netherlands in 2000. It’s hard to imagine now, but at the start of this century virtually no superannuation funds used the voting rights attached to their shares. That was left to their funds managers, whose cosy relationship with the top end of town meant that any advocacy was conducted behind closed doors, rather than in the unseemly form of a negative vote at an annual general meeting.

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Innovation Extraction

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05_IMag_May_2011
Australian venture capital is an almost forgotten asset class. In the past decade, institutional investors – particularly those who lost money in the dotcom crash – have bypassed the industry in favour of other alternative strategies. But are they right in doing so? Some practitioners argue the mining boom provides the right conditions for resources entrepreneurs to build highly profitable businesses and provide venture capitalists with a rich series of vintages. Others expect more pain in the industry for years to come. SIMON MUMME reports on the current state of Australian venture.

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Seek risk, not asset-class conformity

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Investors should embrace idiosyncratic risk factors in their pursuit of outperformance – an asset allocation framework at odds with modern portfolio theory, according to Ashvin Chhabra, CIO at the Institute for Advanced Study (IAS). AMANDA WHITE reports. By clearly defining their objectives, investors can distinguish what they can and can’t control through their investment strategies. “What are the objectives of your process? What risk, return and drawdown do you need? Then your process is the execution of how to get those objectives. The quality of managers, and things like the amount of leverage, costs, all help in shaping a realistic risk management,” Chhabra told the CFA Institute Asset Allocation and Risk conference in Chicago last month. “You can’t control market returns and volatility. The risks you don’t know about are incredibly important. People associate risk with volatility – the variability of returns – but if you control variability then it’s not a risk anymore.

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New normal, but some things are familiar

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It’s been called the age of uncertainty and, famously, ‘the new normal’. But global equity managers should feel they have dealt with the major investment themes playing out in markets worldwide at least once before. David Marvin, chairman and portfolio manager at $4.5 billion global equity shop Marvin & Palmer, laid out the broad bets he’s making at an ASFA lunch last month. He is overweight the fast-growing emerging markets and the energy, materials and industrial companies benefiting from this growth; and he favours the luxury goods businesses of Europe which are exporting increasing volumes of stock to the growing number of high-end consumers in the emerging world.

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China property: bubble, toil, trouble?

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The China property market is now being considered by bubble watchers, with fears that one of the greatest stories to come out of the gloom of the global financial crisis could fall victim to the cyclical, populous investment movement known as asset bubbles. While there was evidence of some aspects of the China market becoming overvalued, industry sources doubt this really is enough cause for concern. Asian equity and property markets and commodity markets were all named as potential candidates for a bubble in the MLC Investment Insight report for February 2011, an Investment Roadmap. MLC Investment Management investment strategist and co-author of the report, Michael Karagianis, warned investors to approach the Asian markets in general with “great caution.” “Asia probably comes up in many people’s minds as potentially a focal point for asset bubbles,” said Karagianis. “The reason for that is the policies that have been run in Asia since the financial crisis have lent themselves to very substantial capital inflows from other markets, so investors globally funnelling money into Asia.”

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Investment Magazine provides in-depth, monthly analysis of trends and developments for all the businesses in which superannuation funds engage‚ including asset allocation, investment manager selection, custody and fund accounting, member administration, group insurance and compliance.

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