Munro Partners has adjusted the hurdle rate on its Global Growth fund in light of the persistent ‘lower for longer’ interest rate environment.
In a quarterly update, the firm said the fund would now have to return 6% for investors before a performance fee would kick in.
Rates had been held at 0.1% by the Reserve Bank of Australia for almost a year and were low globally in other markets such as the US and the United Kingdom.
This was a change to the benchmark from the Australian Government 10-year Bond yield plus 3.5% per annum to the Australian Government 10-year Bond yield and 2.5% plus 3.5% per annum.
“We are pleased to announce that we have introduced a floor to the Hurdle Rate for the Munro Global Growth fund of 6% p.a. As a result, the minimum return to investors required before a performance fee can be charged is 6% p.a,” Munro said.
“We had not anticipated that interest rates were likely to stay “lower for longer” and have made this change effective from 1 July, 2021.”
According to FE Analytics, the Munro Global Growth fund had returned 16.3% over one year to 30 September versus returns of 14.9% by the absolute return sector within the Australian Core Strategies universe.
Meanwhile, the firm reiterated it was pleased with its decision to exit its China holdings earlier this year as the regulatory had “worsened considerably” since the sale. While valuations had become attractive, the firm said it would wait on the sidelines for the time being until the situation improved.
“Munro is not overly negative on the Chinese economy, but rather has some key capital market concerns with how shareholder capital is being used to pay fines, contribute to government initiatives and bail out problem companies with limited legal recourse or shareholder consultation,” it said.
“We ultimately concluded that these actions meant we had limited visibility as to the long-term earnings potential of our investments and stepped to the sidelines. Post our sell-down, the situation has worsened considerably and while valuations have become significantly more attractive, the above concerns remain and we will look for more clarity on governance and regulation before considering a return.”
