Industry super fund pulls $500m from Ellerston Capital investment fund

Sources say the mandate change was linked to the high-conviction Ellerston Australian Share Fund and its performance.

Ashok Jacob, of Ellerston Capital. Picture: James Croucher

Ellerston Capital has suffered the loss of an industry fund investment mandate, understood to be valued at about $500m, on the back of the performance of one of the firm’s funds.

Sources told The Australian the mandate change was linked to the high-conviction Ellerston Australian Share Fund and its performance, although the industry fund remains a customer of Ellerston’s other funds.

According to Ellerston’s website, its Australian Share Fund manages about $2bn. It beat the performance of its benchmark over the three months to September 30, but has trailed the annual returns of the S&P/ASX 200 Accumulation Index over one, three and five years.

Ashok Jacob, who leads Ellerston as executive chairman and a portfolio manager, declined to comment on the fund’s mandates on Wednesday.

The firm’s website says it manages more than $5bn across a range of funds spanning long-only Australian, global and Asian equities, Australian market neutral, global long-short equity and private ­equity strategies. Billionaire James Packer has a passive minority holding in Ellerston Capital.

Equity market insiders noted a range of broader transition trades — where mandates are shifted between investment managers and big lines of shares change hands — in the market over the past two weeks.

Some industry funds have also sought to bring part or all of the management of their investment portfolios in house, spurring mandate changes. Industry super­annuation fund mergers and a revaluation of investment mandates are also prompting change, particularly as the industry digests new measures outlined in the federal budget this month.

This year’s budget outlined a far-reaching package of reforms that will introduce a new comparison tool for consumers, and a test mid next year that will block funds that underperform for two years from receiving new members.

Over five years, Ellerston’s Australian Share Fund has posted annual returns of 5.03 per cent, behind 7.31 per cent for its benchmark. The gap narrows to 8.04 per cent annual performance since the Ellerston fund began life in 2009, versus 8.73 per cent for the benchmark.

A June fund update written by portfolio manager Chris Kourtis said the Australian Share Fund was increasing its exposure to ASX stocks including Downer EDI, NextDC, Treasury Wine Estates and Telstra. It exited its position in Medibank Private and was decreasing holdings in stocks including Janus Henderson, Sydney Airport, Origin Energy and Nufarm.

The update, the most recent for the Australian Share Fund on the Ellerston website, cited GrainCorp, NextDC and Northern Star Resources as its biggest ­positions.

Many fund managers have had a tough year. In March, The Australian reported Ellerston was among those taking measures to help ride out the COVID-19 market rout.

Ellerston imposed some salary reductions on employees instead of redundancies to survive the challenging pandemic market conditions.

At the time, Regal Funds Management was said to have cut a handful of employees, but none were key portfolio managers.

Despite Ellerston’s Australian Share Fund trailing its benchmark over five years, the group of Ellerston Global Equity Managers funds have returned about 9.8 per cent per annum over five years, and its Australian MicroCap fund has posted annual performance of 22.7 per cent since inception in 2017.