Future Generation Global A Rare Win-Win-Win
Plenty of investment funds are launched promising a new twist, some kind of tweak of approach that delivers something never before offered to retail investors. But Future Generation Global Company (FGG) is genuinely unique – it is a global philanthropic managed fund.
FGG is a listed investment company (LIC) that is launching to give investors access to a range of high-quality global fund managers, to diversify their share exposure away from a reliance on local stocks. It’s effectively a “fund of funds,” which alone is a first: individual fund managers operate all of the other global LICs that trade on the Australian Securities Exchange (ASX). But what really stands out as unique is that 1 per cent of the net asset value of the fund each year is being donated to not-for-profit organisations working in the mental health field – in particular, with young Australians.
Every service provider – from the fund managers to the FGG directors, the company’s lawyers and accountants – is doing it pro bono. The ASX is not charging FGG listing fees.
It is the same model on which the $200 million Future Generation Investment Fund Limited (FGX) listed on the ASX in September 2014, using the shell of the former Australian Infrastructure Fund Limited. FGX offers investors exposure to a diversified Australian share portfolio: FGX's investment objectives are to provide a stream of fully franked dividends, achieve capital growth and preserve shareholder capital. FGX invests through a group of at least ten selected Australian Fund Managers, who manage the money for no charge – no annual management fee, no performance fee.
This sounds like investors are getting their money managed for free, which would be a great deal: the average annual management fee and performance fee charged by FGX’s 15 different funds is 1.3 per cent and 13 per cent, respectively. But it’s actually better than that, because the managers actually gift all these fees – which add up to more than 2 per cent a year – to FGX. In return, FGX donates 1 per cent of its net asset value a year – about $2 million a year – to 14 childrens’ charities, with a particular emphasis on children at risk.
Now the same approach is being followed in international shares, with the Future Generation Global Company (FGG).
"It’s a win for the fund managers, because it gives them
the opportunity to give something back. It’s a win
for the charities, and it’s also a win for the investors,"
Future Generation's Geoff Wilson.
The two companies were the idea of renowned funds manager Geoff Wilson, the chairman and chief portfolio manager of Wilson Asset Management, which operates three LICs: WAM Capital Limited, WAM Research Limited and WAM Active Limited. Wilson saw how the Battle Against Cancer Investment Trust, which was listed in 2012, worked in the UK – where the managers give back their fees to the company, and a percentage of the net assets goes off to charity every year.
“BACIT was launched by a noted fund manager called Tom Henderson, who invested $25 million of his own money into the fund at launch. I saw it about three years ago and I was very impressed,” says Wilson. “The beauty of it was that structure: the pro bono investment and the annual donation, which becomes a recurring – in fact, increasing – funding stream for cancer research.
“But it was also pretty impressive that most of the managers that Tom talked into managing the money for free were actually not accessible to retail investors: they are normally only available to very high-net-worth individuals or institutional investors. We have taken a similar approach and we’re able to use funds that had closed to new money, in some cases, and wholesale funds that are not open to retail investors. I wanted to put the best group of fund managers in Australia together and give retail investors access to that.”
That is the critical point about FGX, and now FGG: while the charitable purpose is laudable, the investment more than stacks up on its own. Where FGG is concerned, Australians are constantly warned that they must diversify their equity investments: while the ASX is the twelfth-largest sharemarket in the world, at US$1.3 trillion in size, it accounts for only about 1.8 per cent of the total value of world sharemarkets. To put the size of the Australian market in perspective, the largest US stock, Apple, is worth 54 per cent of the Australian market on its own.
More critically, Australian self-managed super funds (SMSFs) only have about 1 per cent of their assets invested offshore, meaning that they are arguably too exposed to a sharemarket that is overly concentrated in banks, Telstra, domestic retailers (Woolworths and Wesfarmers) and big miners – and they need to get exposure to industries that the Australian sharemarket does not offer.
“From an investment point of view, that is the problem we ware trying to solve: helping investors to get high-quality global equity exposure,” says Wilson. “But there is that other purposes running concurrently – to changing Australians’ lives, particularly young Australians’ lives, by generating recurrent, rising funding for mental health services.”
FGG is an ambitious raising: it is looking for $550 million in subscriptions (FGX raised $200 million). The investment houses that will manage the money include the likes of Magellan Asset Management Limited, Cooper Investors, Ellerston Capital, IronBridge Capital Management, Paradice Investment Management Neuberger Berman Australia and Insync Funds Management.
“At that initial raise, we’ll be giving $5.5 million a year to mental health. The disturbing thing is that we’ll be the largest funder of mental health in Australia, excluding the government,” says Wilson. “But this is money that the charities currently do not get. The fantastic thing for the charities is that this situation is ongoing funding: in 100 years’ time they will still be getting the funding, and it will be 1 per cent of whatever the FUM is at that time,” says Wilson.
Wilson describes FGG – like FGX – as a rare “win-win-win” situation in the investment markets. “It’s a win for the fund managers, because it gives them the opportunity to give something back. It’s a win for the charities, and it’s also a win for the investors,” he says.
The FGG offer is expected to close on August 28, with the shares scheduled to begin ASX trading on September 10.
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James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au