Every Basis Point Counts...
Coolabah Capital Investments (CCI) is a leading long-only and long-short active credit manager that is responsible for managing numerous institutional mandates, the Smarter Money Investments’ product suite, and the BetaShares Active Australian Hybrid ETF (ASX: HBRD). As at September 2020, CCI managed circa $4 billion.
CCI’s edge is in alpha generation in liquid, high-grade credit in contrast to traditional fixed-income strategies that drive returns through adding more interest rate duration, credit default, and/or illiquidity risk (beta). This alpha is a function of the world-class analytical insights rendered by CCI’s human capital, which includes 25 executives with a long-term track-record of delivering prescient insights. In 2019, CCI’s portfolio managers were selected as one of FE fundinfo’s Top 11 “Alpha Managers” based on their risk-adjusted performance across all asset-classes.
Coolabah Capital Investments Pty Ltd (CCI) is an independent long and long-short active credit manager founded in 2011 by Christopher Joye and Darren Harvey, and Chaired by experienced super fund director Melda Donnelly.
CCI is 75% owned by its investment team and 25% owned by the $60 billion boutique specialist investor, Pinnacle Investment Management, CCI owns 100% of the retail fund manager Smarter Money Investments Pty Ltd (SMI).
Pinnacle’s mission is to establish, grow and maintain a diverse stable of world-class investment managers. It holds equity interests in 14 specialist investment managers, including CCI, and provides them with a comprehensive range of high quality and cost effective infrastructure and other support services.
In 2019, CCI’s portfolio managers were selected as one of FE fundinfo’s Top 11 “Alpha Managers” based on their risk-adjusted performance across all asset-classes.
In 2016 SMI was a finalist for Money Management / Lonsec’s “emerging fund manager of the year” award.
CCI believes that there is a significant role for liquid and low duration active credit exposures to play in both individual and institutional portfolios. This is particularly true in a world where interest rates are very low and duration risks are elevated.
CCI’s comparative advantages are complex asset pricing, unique quantitative research, intensive financial and commercial due diligence, active asset-selection and driving returns via pure credit alpha rather than conventional interest rate beta, credit beta, and illiquidity beta.
CCI is responsible for managing numerous institutional mandates, SMI’s portfolios, and the BetaShares Active Australian Hybrids ETF (ASX: HBRD) with total FUM around $4bn as at September 2020.
Smarter Money Investments (SMI) is a wholly owned subsidiary of Coolabah Capital Investments that represents its public offer strategies.
SMI’s first solution, called the Smarter Money strategy, was launched in February 2012. SMI’s second solution, the Smarter Money Higher Income strategy, was publicly launched on 1 October 2014. SMI’s absolute return credit hedge fund strategy, the Long Short Credit Fund, was launched on 1 September 2017. These products are rated by FE Analytics (quant), Lonsec, Mercer, Australia Ratings and Atchison, with specific ratings and reports available on request.
THE COOLABAH TREE
The Coolabah is a native Australian tree (different sub-species are also referred to as “Coolibah”) that features in the de facto national anthem, Waltzing Maltida, wherein “a jolly swagman camped by a billabong under the shade of a coolibah tree.”
The Coolabah tree is a durable, salt-tolerant tree known to live for hundreds of years and offer shade for Australian fauna. The wood is heavy and white ant (termite) resistant, and was used by European settlers for early Australian construction and fencing. According to one account, “aboriginal use of Coolibahs was quite diverse roots were used for emergency water supply, the inner bark was used against snake bite and the bark was harvested.”
Shelter, longevity, durability and catastrophe insurance are valuable attributes that we hope this namesake imports to Coolabah’s business.
CCI’s macro forecasting prowess is well documented and has included, amongst other things, accurately predicting well ahead of other analysts:
- the record housing boom between 2013 and 2017;
- the need for the bank regulator to introduce macro-prudential constraints on lending in 2014;
- the dramatic decline in the major banks’ returns on equity between 2015 and 2019 from 16% to 19% to around 11%;
- the record housing correction between 2017 and 2019;
- the otherwise unexpected upgrade of Australia’s sovereign credit rating to AAA “stable” in 2018;
- the early return of the federal budget to surplus in 2019;
- the shock outcome of the 2019 Federal election;
- the retention of franking credits on hybrid securities;
- the upgrade of the major banks’ senior bonds to AA- “stable” in 2019;
- the sharp housing recovery in May 2019;
- the upgrade of Australia’s economic risk score in 2019;
- the upgrade of the major banks’ stand-alone credit profiles from “a-” to “a” in 2019;
- the unanticipated upgrade of the major banks’ hybrids from a high yield BB+ rating to an investment-grade BBB- rating in 2019;
- the upgrade of the major banks’ subordinated Tier 2 bonds from BBB to BBB+ in 2019;
- in February 2020, the emergence of an extreme liquidity/solvency crisis in global financial markets because of investors’ inability to price pandemic risks, which would necessitate unconditional central bank liquidity and quantitative easing support;
- in February and early March 2020, the RBA commencing quantitative easing to mitigate the COVID-19 crisis, including government bond purchases and the provision of a term lending facility to banks along the lines of a Bank of England model, and the Commonwealth Treasury re-starting purchases of RMBS and ABS;
- in March 2020, the early April 2020 peak in COVID-19 infections in Australia, the US and Europe, months ahead of epidemiologists’ predictions;
- in March 2020, Australia’s early exit from COVID-19 containment in May 2020 on the back of the early peak in new infections and the aggressive flattening of Australia’s curve; and
- in March 2020, aggressive mean-reversion in credit spreads of high-grade and liquid assets that benefited from central bank QE (CCI spent $942m net buying assets during this time as credit spreads blew-out to historic wides).
CCI’s team comprises over 25 executives including five full-time portfolio managers and thirteen full-time analysts with decades of fixed-interest trading, quant and credit research capabilities.
CCI’s unique analytical and quantitative capabilities are recognised in Australia and overseas as the basis for unusually high win ratios and prescient projections. CCI’s leadership is often called on to advise government on complex economic policy formulation. CCI’s chief investment officer co-developed the ideas for the Australian government to invest in the residential mortgage-backed securities (RMBS) market during the global financial crisis and more recently the SME loan market. In 2018 CCI developed the world’s first hedonic index of RMBS default rates.
The team’s investment philosophy fuses both bottom-up and top-down quant asset pricing, credit rating and macro research with intensive operational, commercial and financial due diligence.
CCI’s Investment Committee and Compliance & Risk Committee is chaired by the experienced funds management and superannuation executive, Ms Melda Donnelly, who is supported by Mr Robert Henricks.
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Authored by Kieran Davies; Coolabah Capital Investments. In a major effort, Coolabah Capital has developed a simple framework for tracking potential revisions to the term
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