The announcement that Hunter Hall founder Peter Hall is stepping down as CEO and CIO of the ethical investment fund and is selling his ownership stake has led asset consultants to re-evaluate the firm from an operational perspective as well as raise questions as to the durability of the firm’s ethical investment mandate.
Hall announced on 30 December 2016 that he had sold the equivalent of 19.9% of total stock to Washington H Soul Pattinson Limited at $1.00 per share and will sell his remaining 24.05% stake in HHL to SOL at $1.00 per share unless “he receives a superior offer,” according to a statement from Hunter Hall.
Hunter Hall was founded in 1993 and describes itself as “a funds management business built on superior long term investment performance with an ethical investment overlay,” according to its website. Hall has stepped down and the company has appointed Paula Ferraro, the current CFO, as interim CEO, and James McDonald, the current deputy CIO, as interim CIO. McDonald “has assumed responsibility for the portion of the HHV investment portfolio that was being managed by Hall,” Hunter Hall said.
“McDonald has confirmed that the HHV portfolio will continue to be managed in line with the investment objectives and philosophy established by Hall,” Hunter Hall said, indicating that the ethical investment overlay will continue.
However, asset consultants- who provide analysis of fund managers from an investment and an operational/governance perspective to institutional investors – say the announcement impacts on their view of Hunter Hall.
Mercer has evaluated Hunter Hall in its Global Investment Manager Database (GIMD) and had previously rated Hunter Hall a B, meaning the fund had average investment return prospects, with a T-rating for higher tracking error risk. In light of Hall’s resignation and sale of his stake in the business, Mercer has re-evaluated Hunter Hall as R, or not rated, meaning that Mercer will no longer list Hunter Hall as part of its active coverage list.
“In normal circumstances, if a manager rating did move to an R, that could preclude participation by an IMA investor on a platform, because that’s not in our active research universe,” said Clare Armstrong, a principal at Mercer responsible for evaluating equities funds managers in Australia. “We would say that we can comment on the manager, but it wouldn’t come into a new search”
Mercer’s public comment on its rating cited “uncertainty about the company’s viability given [Hall’s] profile and standing in the market,” as well as speculation about treatment of minority shareholders.
“In time, we are sure that there will be some beneficiaries from this event who will have been able to capitalise on the current uncertainty,” Mercer said. “However, at this time, we do not believe we are in a position to contribute to the debate and don’t see a clear path to a satisfactory resolution. Hall remains at the firm for a six month notice period. As such, we propose to amend our ratings on the Hunter Hall strategies from B and B(T) to R.”
Consultants that conduct operational risk reviews to examine the governance and culture of a fund manager say that changes in key personnel could prompt a review.
“We look at it in two ways,” said Jo Leaper manager, operational consulting at JANA. “We would do a lot of interviews and find out why they left. We feel it is important to get to know the managers, get a feel for the team and understand who they are. If you’re in a situation where a fund manager has had quite a few leave in quick succession, you ask is there something going on? What are the practices of the firm, has there been a change to culture. If there is a change to ownership structure, that’s going to be naturally unsettling to any staff, senior or junior. What our investors would look for is, does this change make sense? Is management still aligned with management outcomes, has it changed?”
Currently, none of JANA’s clients are invested with Hunter Hall, said Kirsten Temple, a senior consultant with JANA.
The fact that Hunter Hall is an ethically aligned investor brings an added complexity to the ownership and management changes.
“It brings another dimension to the need to understand the plans and the objectives of the new management,” Armstrong said. “Investors who have sought Hunter Hall specifically for its ethical nature will be much more focused on the outcome of the management and ownership change and the characteristics and beliefs of the team that steps up. Where Peter Hall’s particular interests – such as social justice, environmental protection –were a part of the reason for investing with Hunter Hall, naturally investors will have questions about the beliefs of his successor. It definitely does increase the significance of the event from an ethical investors’ perspective. It is a highly specialised field, and the number of competitors/alternative investment teams is more limited. From an operational perspective, I think there will be questions.”
Rachel Alembakis is the publisher of The Sustainability Report a weekly digital publication that provides reporting into Environmental, Social and Governance (ESG) issues related to companies listed on the Australian Stock Exchange.