Looks like something is brewing ...possibly some positive news leakage?

One possibility I'm wondering about is it could be relating to First Sentier's (microcap fund)'s stake in Earlypay?

Not sure if anyone has been following - but some time ago the parent company of FIrst Sentier (Mitsubishi UFJ Trust) made the call to shut down a number of divisions - including their Australian equities small-cap funds. Obviously could be difficult to shift such volumes of their small & microcap holdings over the bourse - given the low turnover liquidity it would take a long time or could really move the market adversely & get a poor price for their shares.

They just shifted their stake in COG last week (announced 25th July in AFR - have a look at the chart the day leading up to this (leakage), and especially the week after (relief rally at removing the stock overhang?). Still don't know who purchased the holding yet - perhaps a number of buyers, as no one yet has had to disclose being over the 5% substantial threshold.

Could be FS's Earlypay holding is in play? If I were COG (our major shareholder at c17%) - it could be a perfect time to up their holding in us to the 19.9%, limit, ready to make an opportunistic move on the company while share price still depressed and all the post-RevRoof house-cleaning work has been done. Anyway something is afoot - nice to finally see some signs of life & interest - has been a very long cold winter for Earlypay shareholders!

First Sentier shuts Australian fixed income, global credit funds, hands $14b back to investors (copyright link)

First Sentier shuts fixed income funds, hands back $14b

Jonathan Shapiro and Cecile Lefort

Apr 23, 2024 – 10.12am

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First Sentier will shut down its Australian fixed income and global credit units and hand back $13 billion to investors, marking the end of what was once the biggest local bond fund.

The $237.6 billion Sydney-headquartered fund manager, formerly known as Colonial First State Global Asset Management, says it will also close its emerging companies and equity income strategies, handing back another $1 billion.

First Sentier is shutting its fixed income funds. Wolter Peeters

As a result of the fund closure, 30 staff will leave the firm, reducing its investment management headcount from 120 to 90.

First Sentier’s global head of investment management, David Allen, told The Australian Financial Review that closing the funds was “financially immaterial” to the business, which wanted to focus on profitable strategies.

“Each of these teams are delivering good outcomes for clients, but not able to attract enough assets at the right fees,” Mr Allen said on Tuesday. “We’ve made difficult decisions to call time on them, so we can focus on businesses that do make a difference.”

Mr Allen said the units that were closing had challenging economics. The $700 million Australian micro-cap team, he said, had performed well but was too small and did “not move the needle, in terms of profitability”.

Equity income as an asset class, he said, “has not taken off the way people anticipated” as investors turned to capital growth to finance their retirement.

“More of the world has realised that you don’t need to live off income in retirement. You can maximise your total return and take capital out of your investments,” Mr Allen added.

Fixed costs

But fixed income appears the most challenging, given fund managers can charge only modest fees but require relatively large teams to manage their exposures.

“Fixed income is a fairly complicated market to keep on top of. Of the 30 people who we’re parting company with, 20 were in our fixed income and credit teams. That’s a large cost base,” Mr Allen said. “It’s hard to actually get the numbers to stack up. It’s a scale business, you need tens of billions of dollars to be able to fund active fixed income.”

However, First Sentier will retain the $50 billion cash and short-term investment fund managed by fixed income veteran Tony Togher.

First Sentier was acquired by Japan’s Mitsubishi UFJ Trust from Commonwealth Bank in 2019. At the time, the manager had $218.4 billion of assets. That figure is now about $237.6 billion, according to its website.

The cash unit accounted for just under 25 per cent of its total assets under management at the end of last year. Listed and public market equities accounted for 56 per cent of assets while private markets made up 18 per cent.

Mr Allen said First Sentier was focusing on investment strategies that were more differentiated and delivered higher outperformance, like its Australian growth and small-cap equities funds.

He also said clients were more interested in private markets.

“The fees tend to be a bit higher and, importantly, private markets are very hard for clients to replicate in a passive way,” he said “Those fees are more defensible and clients are more willing to pay fees and allow us to also run profitable business.”

But the viability of other fixed income funds may now be called into question.

The decision to close what was once Australia’s largest and most influential bond manager comes as the asset management industry is being battered by several disruptive forces that are particularly pronounced in Australia.

A proliferation of low-cost index funds and the choice by large superannuation funds to internalise most investment functions has eroded the profits and asset bases of fund managers.

While the decline of the active stock-picking industry has grabbed most of the headlines, these forces have also weighed heavier on fixed income funds that have battled to prove their value by beating their benchmarks after fees. According to data compiled by S&P Global, less than half of fixed income funds beat their benchmark over three-years while just over half beat it over five years.

Bonds have also struggled to keep pace with stocks as Australian and international equities funds returning around 10 per cent per annum over five years, compared with just 1.1 per cent for bond funds.

These low returns meant fees charged by funds accounted for a greater share of returns relative to equities.

But there are signs of life in fixed income: Australian bond funds appeared on track to deliver losses in 2023 but swung to a 5.9 per cent annual return. That was insufficient to compete with the double-digit gains by stocks.

Magellan chairman Andrew Formica told analysts in February he was looking to add fixed income funds to the global equities manager’s product suite.

“We know that whilst they could have lower overall margins, they do also have very long term support from clients. In that regard, it’s an attractive area,” he said at the time.

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