• Christopher Hall

Aoris Investment Management

Aoris Investment Management are a reasonable addition to a portfolio, but concentration risk would reduce it being a cornerstone.

Here are some more in-depth thoughts on the research that I have received on Aoris. This is general advice, not personal advice.

1) Regulatory risk

Generally a focused manager like this has greater exposure to regulatory risk. This is often a function of their in-depth granular primary research into specific industries.

With the commitment to researching industries over the global landscape, it's difficult to be across South America Grocers and North Sea oil producers at the same time. As a thorough investor I would do, we'd tend to invest across the same theme, one that we have an edge over because of our in-depth research.

One recent example was Arowana's research into renewable energy, namely solar projects and imports into the US. Their exposure was from the fund investing into solar panel manufacturers in Asia; installation companies in the US, through to another arm developing solar cities and collecting significant multiples from preparing the site in a similar way to a a developer receiving a re-zoning permit for an industrial to residential site in Alexandria.

The Arowana solar cities, fund management company and funds themselves, all took massive hits when Trump announced the trade war through a tweet. While the installation of solar panels employed more than ten times more US citizens in the US than the panel manufacturing business, the industry was moth-balled and many US citizens were unemployed or had to re-train as a result. This conversation fell on deaf ears at the White House.

This is just one example that shows the inherent risk which comes from a smaller team with a concentrated focus.

2) Track record

Conversely, the team's track record shows that they have provided strong returns throughout the full market cycle of ups and downs. Additionally, external and publicly available research indicates that the team avoid heavily regulated industries which may be subject to this type of exposure. This leaves them being subject to greater geo-political threats that can be wielded through 180 characters, making them not dissimilar to an ETF.

In other words, their process apparently does a good job of mitigating this risk.

3) Liquidity

The Aoris PDS states daily liquidity is available which is positive.

4) Responsible Entity

Aoris' responsible entity is Perpetual, or external.

This means they don’t mark their own homework and is the preferred structure of such funds.

5) Ownership / key personnel risk

Steven Arnold owns 90%; the other staff have no holdings.

WAM's CIO was Chris Stott who oversaw a large growth in the company. However, he arguably didn't have enough equity to keep him there and he left the business well before retirement age. His exit was noted across all their funds and it took a little while for investor confidence to regain.

WAM is different as WAM is a closed-end fund (LIC) whereas Aoris is open-ended and no investor sentiment of the management team is relevant.

The point is that with a small analyst team and no skin in the game, the management risk of the positions and ongoing research is higher for the small team at Aoris than with WAM who had still had approximately a dozen analysts when Stott left.

6) Performance Fees are high

Although fairly consistent with benchmark un-aware managers who are willing to put their reputation on the line in pursuit of superior performance, Aoris' fee is similar to Magellan's before Magellan grew to very large funds under management and reduced their fees and buy/sell spread.

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