Generation Development Group (GDG) has made its $20 million investment in research and ratings house, Lonsec, based in large measure of Lonsec’s managed accounts strategy but with an eye to perceptions of conflicts of interest.
In an investor presentation outlining the risks and benefits of its Lonsec transaction, GDG noted that Lonsec’s strategy is to build its investment solutions business.
But it said this “is dependent upon its ability to provide a bespoke product, developed specifically for financial advisers – effectively an asset consulting service wrapped as a product”.
“Should there be any flaws in the design process, or if Lonsec is unable to develop a marketable product, this will significantly curtail demand for Lonsec’s managed account solutions and result in an earnings shortfall, as well as potential reputational damage,” the investor briefing said. “This may in turn result in adverse financial consequences for GDG’s investment in Lonsec.”
It said that Lonsec “is focused on building its managed account product” but noted that “although this model has been accepted by the regulators and is extensively by Lonsec’s peers, there is a risk that this activity results in a perceived conflict of interest for Lonsec as an integrated research provider and product manufacturer,” it said.
The investor briefing also noted that GDG non-executive chair, Robert Coombe is a member of the advisory board of Five V Capital, which holds a controlling interest in Zenith Investment Partners, a competitor of Lonsec Research.
It said Coombe had provided an undertaking to not be involved in any decisions or access any information in relation to Zenith in his capacity as an adviser to Five V Capital.
The GDG briefing said that there were a number of merger and acquisition opportunities which included managed account providers and research organisations providing data services to the wealth management industry.
“GDG intends to support Lonsec’ future growth and will contribute equity to fund acquisitions that are value enhancing for Lonsec,” it said.
