In his article “Opportunity still knocks – be sure to read the fine print”, Stuart Washington points out that the investment and superannuation industry is finding the emergence of trustees’ liability rather unpalatable.
Sandhurst, Fincorp’s trustee, doesn’t think it actually failed to “exercise reasonable diligence” in its governance role of ensuring Fincorp investments could repay note holders. Earlier this month it agreed to pay a $29 million settlement anyway.
Washington proposes that a trustee’s ability to pay for fund failure (like Sandhurst’s owner, Bendigo Bank) might turn out to be their main purpose.
However, if, as this proposal suggests, only megafunds backed by large banks can really be trusted with investors’ money when things go wrong, what would this mean for investors in small boutique funds lacking deep-pocketed trustees?
Small boutique funds have always had advantages and disadvantages compared to big funds. They often perform better, being less bureaucratic, more “concerned” with results and more nimble at changing direction in uncertain environments. They’re also more difficult for investors to find, and may suffer more than their heavily-resourced big brothers if they lose a key person.
A “deep pockets” risk mitigation criterion might tip the balance in favour of the megafunds, resulting in the death of small boutique funds, limited choices for investors, and eventually, one-size-fits-all investing.
Or perhaps the boutique funds will survive through increasingly innovative offerings.