Investment management push by JANA raising eyebrows

JANA has pushed further into investment products, raising questions about potential conflicts as asset consultants grapple with super consolidation.

JANA CEO Jim Lamborn says managing conflicts is entrenched in the firm’s processes. Picture: Hollie Adams / The Australian

Advisory group JANA is pushing further into investment management products – raising questions about potential conflicts of interest – as the asset-consulting industry grapples with consolidation in the $3.4 trillion superannuation sector.

JANA – whose customers include super funds, government departments, charities, universities and endowments – has 85 institutional customers and total assets under advice of about $850bn.

Its main business is to provide “unbiased, responsible advice” according to the firm’s website. Asset consultants are seen as gatekeepers generally providing financial product and investment advice to wholesale customers.

In December, JANA quietly released documents for a diversified infrastructure investment trust directly to investors. It draws on the services of a group of underlying fund managers selected by JANA. Channel Investment Management is the responsible entity and trustee.

The trust is the fourth such product launched since 2019. JANA has two investment trusts spanning real estate and alternative assets and another that includes shares, property and sub-investment grade debt exposures.

A private wealth executive, who declined to be named, said while JANA wasn’t “double dipping” on the fees charged for its investment trusts, a bigger push into the products did raise questions.

“The thing about asset consultants is they are meant to be independent,” he said. “How do they choose managers (for the investment trusts)? They are coming through their own process.” The executive said potential issues arose because JANA rated products across entire sectors and asset classes such as equity markets, infrastructure and real estate funds.

The infrastructure trust’s sale documents said it would provide “a range of exposures to majority unlisted infrastructure strategies via domestic and foreign domiciled funds including co-investment opportunities”. It charges a management fee of 0.5 per cent per annum.

JANA chief executive Jim Lamborn said the trust structure meant JANA did not charge or receive remuneration or soft-dollar commissions from the fund managers it selected for the trusts.

“ Our priority is to generate superior investment returns for our clients, whether these clients are advisory or utilise the multi-manager trusts,” he added.

“Specifically in relation to the Infrastructure Trust, JANA’s independence relates to receiving no payment nor having any incentive to recommend one manager over another ... We think this is important and there is no conflict involved in either utilising funds or co-investments.

“A key part of JANA’s long-term success is that effectively managing conflict is entrenched in our processes and culture.”

Mr Lamborn said the trusts were primarily aimed at wholesale institutional investors, such as endowments and charities, that may not have access to leading fund managers around the world.

While not commenting on JANA, Deloitte’s superannuation leader Russell Mason said the asset consulting industry was evolving as it came under pressure from other forces. “The traditional role of the asset consultant has changed and they’ve gone into other markets,” he added.

Mr Mason was referring to the wave of consolidation that has occurred in the superannuation market, reducing the number of customers for asset consultants, and the trend for some industry funds to bring more investment functions in-house.

Mr Mason said asset consultants were increasingly providing investment management options and tending more to charitable trusts, family offices and university endowments. “They have certainly had to move into different areas of the market,” he said.

Industry fund giant AustralianSuper, which oversees more than $244bn, manages about 44 per cent of those assets in-house. Other funds are also increasing the proportion of funds managed internally.

The Australian Securities & Investments Commission released a report into asset consultants a decade ago, finding conflicts of interest existed that needed to be “managed appropriately”.

“These conflicts included fee structures based on preferring services and in-house funds,” it said.

The report noted, though, there were no “systemic issues” that warranted a regulatory response.

Federal Liberal MP Jason Falinski, chairman of the standing committee on economics, said ASIC’s approach to many areas of financial services enforcement was inconsistent, including when it came to asset consultants.

“This is the problem ASIC gets itself into every time it shows favouritism towards different market participants,” he said.

Mr Falinski has previously questioned the use of the independent label by asset consultants, including industry-fund owned firm Frontier, whose shareholders include AustralianSuper, HESTA, Cbus and First Super.

But Frontier is one of few asset consultants that steers clear of having its own investment options.

“Frontier has always had a firm conviction around the importance of unconflicted advice so we do not offer investment products,” chief executive Andrew Polson said.

“This means we can avoid the conflict, perceived or real, of channelling investor’s funds into products that we earn more fees from. Equally importantly, we aren’t tempted to keep our best ideas for our own portfolios. Our best ideas go to our clients.”

On Frontier’s ownership, he added: “Our owners’ primary interest in owning Frontier has always been, and remains, ensuring a strong and truly independent asset consulting practice exists.”

JANA said its implemented consulting customers – or those drawing on outsourced investment management services – benefited from the $10bn scale of its broader platform.

National Australia Bank sold a majority stake in JANA to the consultant’s management in 2017. The residual holding is now owned by Insignia, formally IOOF.

JANA is not alone in the implemented consulting part of the industry, with many others also participating.

Mercer houses a series of unit trusts that are registered managed investment schemes. The majority of its funds are actively managed, by multiple managers.

WTW, formerly Willis Towers Watson, can be given responsibility for implementing asset strategies for investors. It also manages specialist portfolios across alternatives, illiquid assets, credit, secure income assets and equities and has “a small number of pooled fund-of-funds” products.

Zenith Investment Partners offers managed accounts – a portfolio of individual securities or assets managed on behalf of investors by Zenith – where changes happen automatically. It has set options to customise the managed account to a particular investor.