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The ‘three’-pillar investment structure and why Australia is falling behind

By Jessica Penny
4 minute read

For this ASX-listed asset manager, the segmentation of its investment team and portfolio managers is crucial for maintaining a diversified and resilient investment portfolio.

MA Financial distinguishes itself from the typical dynamics within Australia’s asset management industry by segmenting its investment team and portfolio managers, a key difference that sets it apart.

According to Frank Danieli, MA Financial managing director and head of credit investments and lending, this structure is surprisingly uncommon in Australia but critical for maintaining a diversified and resilient investment portfolio.

“We have designed our business splitting those functions, in three, very intentionally. So think about portfolio management, investment management or investment activity, and then risk management,” Danieli said on a recent episode of the Relative Return podcast.

“I think it’s common with some global managers, but it’s surprisingly uncommon in Australia and I find it a bit odd.”

He elaborated that the investment team” function involves sourcing investments for the firm to purchase, conducting due diligence, underwriting the investments, and, most importantly, retaining ownership of those investments throughout their entire life cycle.

“They’re not originators. I really don’t like that term. Their job is not just to find a deal and get it done, and then it’s someone else’s problem. They got to own that investment for their life,” Danieli explained.

“Then we have portfolio managers, and their job is not to go out actually and find investments and make investments. They’re the fiduciaries of capital. So they’re the people who are the fiduciaries of our clients whose money we raise and then have to go and invest.”

Portfolio managers at MA Financial have multifaceted roles, including maintaining portfolio balance, managing the books, overseeing portfolio composition, handling treasury and liquidity management, and fostering collaboration with the investment team.

Expounding on the company’s culture, Danieli further emphasised the importance of being able to “eat your own cooking”, noting that of the some $4 billion that MA Financial has invested in private credit, the firm and its staff have invested $170 million of that.

“So we’ve got people who are pretty aligned, and they’re all aligned to make sure that we do the best job we can for our clients and our fund; we have to put the interests of our clients first.”

However, he pointed to the “natural tension” that may arise between the two groups.

“Sometimes an investment professional will have found a really good deal, right? They like this loan and imagine that it’s a loan on all its fundamentals, it stacks up.”

“But imagine it’s a loan to a healthcare company, say it’s the fifth healthcare company loan, it might be a good investment on its own. But if in one of our funds we’ve already got five such good loans, do we actually need a sixth?”

As such, he said the portfolio manager’s job is to make a call on whether a particular investment is a good deal for the fund, for example, whether an investment risks a portfolio being overweight in a particular industry or investment.

Namely, the investment team can conversely assist portfolio managers from “the ground” – who, Danieli said, can often be concerned with portfolio diversification or book balancing – as they assess the health of particular investments.

“We’ve designed a structure and a series of processes, which is all about keeping that in check …and then finally make sure both of those groups have a lens and participate in the third really important pillar of investments, we think, which is risk management.

“And that is really understanding where the issues that can arise in your portfolio and your investment book are, how things would go wrong if we do go through a cyclical downturn, or there’s some sort of left field event out there in the world or the economy, and actually how we’d actually be prepared for that,” he concluded.

To hear more from Danieli, click here.