Zenith targets untapped niche

After many years of working in research for Lonsdale and InvestorWeb, David Wright and David Smythe left the latter to establish Zenith, armed with an idea for filling an untapped niche.

But the past year has mostly been about building the framework of the Zenith Investment Partners business, Wright says.

“We got our (AFS) licence in February last year and since then we have built the framework of the business,” he says.

“We have spent a lot of that time developing the database.”

The heart of the company’s offering will be producing recommendations on best-of-breed in asset classes and model portfolio construction.

“The experience we gained working in research elsewhere showed us how much time was spent on producing ratings and how very little was spent on areas such as portfolio construction,” Wright says. “This was not adding value for the client, which is the adviser.”

The outcome saw them creating a research house with a narrow focus on a few areas of business, Wright says.

“We also saw the demand from advisers for model portfolios,” he says. “The investment industry has proactively been pushing adviser groups to be more involved in portfolio construction.”

The two areas of best-of-breed manager selection and portfolio construction work hand-in-hand.

Wright says constructing a portfolio is about combining managers that have a divergence in styles and growth potential.

“Constructing the portfolio is about managing investment styles,” he says.

The model portfolios include alternative investments, but Zenith believes there are various sub-sectors of this asset class that can also be built into the portfolio.

“Many people allocate a nominal 10 per cent in a portfolio to alternative assets, which we think is a cop-out,” Wright says.

“We see a sub-class such as an Aussie long/short fund as being part of the allocation to Australian equities.”

Zenith is not charging fund managers to be in the portfolios, although it will charge them to use the best-of-breed research reports in their distribution chain.

“With portfolio construction, it is the advisers that will be paying, not the fund managers,” Wright says.

Now the Zenith business model is in place, he says it is time to sell the idea.

“From now on it is about building distribution with advisers and dealer groups,” Wright says.

In Money Management’s Rating the Raters survey earlier this year, a number of fund managers said Zenith had little influence on their business.

Wright understands this criticism and argues it is justified, as Zenith is still a start-up business.

“The criticism doesn’t surprise me as we are just finishing the business development stage,” he says.

“It is still early stages and we have only achieved some distribution through existing contacts.”