TheMorningstarresearch house has given its tick of approval toColonial First State’sdecision to link up with 452 Capital, reconfirming Colonial as a five star manager today.
In a statement released today, Morningstar said Colonial’s tie-up with the new group, set up by ex-Perpetual senior analyst Peter Morgan and Warwick Negus, represented an “innovative combination with a promising boutique manager”.
Colonial announced yesterday it had signed an exclusive deal with 452 to distribute the boutique manager’s funds to the retail, wholesale and master trust markets.
“This is an innovative way for Colonial First State to combine its own administrative skills with the investment skills and advantages of a very promising boutique manager. Potentially, this is a win-win for both organisations, although 452 has still to establish its own track record, particularly if its value investment style moves out of favour,” Morningstar says.
Morningstar says the deal was a “great vote of confidence” in the stock selection and portfolio construction skills of Morgan, who left Perpetual in September after 12 years with the group.
However the research house says the move may pose a risk to some of Colonial’s own funds, with some investors likely to switch out of them to invest with 452.
“There is a risk for Colonial First State investors in the flagship Imputation and Australian Share Funds that some investors may prefer to switch to the 452 alternative,” Morningstar says.
However Morningstar says the move may signal a new direction for Colonial, whose funds under management may be growing to a point where its future investment performance could be under question.
“This is quite a clever solution from a business sense for Colonial First State to the potential risk of underperforming because of large size. If there is any switching out of Colonial First State’ own funds into 452, then any loss of investment management fees may be at least offset by retaining the associated administration and platform fees,” Morningstar says.
“Presumably, if this alliance is successful for both Colonial First State and 452, Colonial First State could then consider alliances with further start-ups. The names of several other recently-departed portfolio managers come clearly to mind.”
