Skinner holds multiple roles at the firm, which was launched early last year, as founder, managing director, chief investment officer and partner. Specialising in equities, it started out with domestic Australian equities and recently hired a team from Antipodes to launch its first global equity fund.
Prior to co-founding Blackwattle, he worked as a portfolio manager at Renaissance Asset Management for eight years where he managed $1.7 billion in assets.
Read on as Skinner discusses setting up the firm and the three characteristics he looks for when making an investment.
Money Management (MM): Why did you decide to set up Blackwattle?
Michael Skinner (MS): There was a number of months and years planning behind it. What the company and its founders did was look at the funds management landscape in Australia, and we spent a lot of time recognising where things were done well by managers, but we also identifed where things were done very poorly. We set out to create a better model, a better platform for our clients, for returns, solving for the bad and bringing in the good. We’ve really focused on alignment, transparency and quality are our key kind of pillars that we are proud of and that we’ve focused on in building the business.
MM: How did you decide what funds to offer as a company?
MS: We did a lot of market research on funds and where we thought there was investor demand for the product, we looked at industry surveys on fund manager performance and sought out those teams with top-quartile performance over a long period of time. From a culture point of view, we hold an individual’s or a team’s character equal to the investment capability. They have to be driven and willing to invest their own capital alongside our clients, and they have to exhibit drive, intellectual curiosity and, most importantly for us, integrity and humility.
We wanted to launch more than one product as only one product limits your addressable market or investment audience. So we sought to launch at least three products into the Australian market to gain media and market attention, to enable us to talk to a bigger investment base and build a more resilient business. We are fully cognisant that all funds over time will go through periods of strong outperformance and sometimes underperformance, so by having three products underpinning the business, it makes much more of a resilient business for our staff and our clients.
MM: What is your view of manager alignment?
Personal trading by investment teams is a conflict in our opinion, and it is a distraction. It is not congruent with the best interest of clients. You often have fund managers investing a portfolio, sometimes a very large portfolio, on behalf of clients, and then investing their own capital vastly differently in doing that in the same asset class, it builds a conflict. I can tell you from firsthand experience and experience of others that it is a distraction.
That’s a great example of a practice that we personally think shouldn’t be allowed in funds management, and that’s what we’ve brought into Blackwater. We’ve banned all personal trading in asset classes that we have funds. We are only allowed to invest our own capital into the Blackwattle funds.
MM: Is there a universal investment process applied to the funds in the business or does it vary by manager?
We firmly are of the view that buying quality businesses delivers the best sustained, long run returns so we don’t tie ourselves to investment styles or factors such as growth or value or momentum or resources. We are looking to buy the best quality businesses across every sector of the ASX or every sector globally. So quality is what we focus on.
It’s about three things: firstly, it’s about finding a business with a clear forward advantage in the industry where they will be stronger tomorrow or in five years than it is today. Number two is management quality and the right alignment structures. Third is about finding that company and management team which is trading at the right price.
Valuation is really important in the execution of quality; we don’t want to overpay for great businesses. We want to buy them at the right price, so we can deliver significant returns or aim to deliver significant returns over time.
To listen to the full interview with Michael Skinner and range of other experts, you may access the Relative Return podcast here.
