’Right place, right time’ for Pella Funds Management as Steven Glass nears its launch

After his abrupt departure from Pengana last year, ‘conscious capitalist’ Steven Glass has launched his new ethical investment vehicle.

Steven Glass, above at Sydney Maroubra Beach, says Pella has been inundated with ‘very strong commitments’, including an external capital raising funded by a major investment from a ‘very wealthy family ­office’. Picture: John Feder

The past year has not been a quiet one for Steven Glass, the Sydney fund manager best known for his years at Russel Pillemer’s Pengana Capital outfit.

Glass’s departure from the funds giant early last year was abrupt and, as some might say, the result of a divergence of views about the future of the business.

The former co-founder of Pengana’s ethical international equities strategies fund took with him almost his entire team. The fund’s chief investment officer, Jordan Cvetanovski, is now also working with Glass.

Now, after almost a year working on their new business Pella Funds Management, Glass and Cvetanovski have started 2022 with $100m pre-committed to their funds vehicle, Pella Responsible Investing.

“Pella is different, the entire business is dedicated to sustainable investing,” says Glass, Pella’s managing director.

“We’ve always invested this way, I’ve always invested in things that don’t contravene my ethics.

“We describe ourselves as conscious capitalists, we look at what our conscience allows.”

However, Glass insists he is not chasing Pengana’s customers – current or former – with clients of his former employer between July 2015 and March last year unable to sign up to the new fund.

“We’re happy to have control of our destiny,” Glass says.

Pella is yet to start raising money, but has been inundated with “very strong commitments”, including an external capital raising funded by a major investment from a “very wealthy family ­office”, Glass tells The Australian.

“We’ve just launched our retail fund, we’ve just got to now get it on the platforms. Hopefully it’ll be available on the platforms by the end of the first quarter,” he says.

Glass says Pella is already setting a good record with its investments sitting “well ahead of the market”, adding: “We did that being underweight big tech.”

Cvetanovski, now Pella’s chief investment officer, is scheduled to head to Europe in a bid to drum up potential investors. Glass says Pella will cap its growth at $7.5bn.

The investment strategy at Pella is divided into three buckets, which Glass describes as core, cyclical and innovative.

Core investment will make up 60-80 per cent of funds, with holdings in “high-quality franchise-type businesses”. He says: “These businesses create the ­ballast for our portfolio to take us through choppy weather.”

Cyclical investments will make up between 0 per cent and 30 per cent of funds, with exposures in companies to give Pella “a way to participate in short-term cycles”.

But Glass says Pella investors will have protection, with stop losses and smaller position sizes.

The innovation allocation will make up between 0 per cent and 20 per cent of Pella’s funds.

“Segmenting our portfolio creates a risk budget where we’re not overexposed to one theme and it allows us to participate in different parts of the market in a controlled way,” Glass says.

Pella’s launch comes at a time of heady valuations for market equities, with Australia’s benchmark S&P/ASX 200 index well up from its 2020 lows. The index rose 13 per cent last year, following a 52 per cent rebound from its lows in 2020.

“We think we’re at the right place at the right time,” Glass says.

“The market has been driven by these big growth stocks.

“I don’t know how much longer this can go on. People want funds that can invest outside of big tech.

“We think the market is very crowded. They talk about a bull market for everything, but we’ve got NFTs and cryptocurrency without any meaning.

“There are a lot of signs of excess liquidity in the market.”

In response to the uncertainty in the year ahead, Pella is taking stakes in companies with a volatility upside if interest rates rise.

“If you turn that tap off we may see a reassessment in asset price inflation,” Glass says.

“We own derivative exchanges which will make more money when that happens.”

Glass says he was very aware of the downsides of certain funds-management strategies that had stung other high-profile players, including Magellan Financial and the company’s star stock picker, Hamish Douglass.

“One of the issues is you’ve got fund managers who have a particular style and approach and make big bets on that,” Glass says.

“There’s nothing wrong with a particular style, but when you concentrate on particular corners of the market there are going to be periods when you are a hero and a villain.

“If you’ve got the biggest exposure, you look like a hero and everyone goes ‘what a wonderful fund manager’. The other side is berated and made to believe they’re so dumb.

“These people are not dumb. They’re not bad managers, they are doing what they said they would do.”