PIMCO unitholders have voted overwhelmingly in favour of the manager internalising responsible entity services for over $10 billion in funds under management, representing one of the largest RE transitions in Australian history.
Just five months ago, PIMCO obtained a responsible entity (RE) licence and said it would be petitioning unitholders to approve internalising RE for all 12 Australian funds. At the time, the RE for these funds was Equity Trustees. The move followed the manager also internalising distribution capabilities from EQT in December 2015.
PIMCO head of Australia and New Zealand Adrian Stewart said the success of the proposal has "exceeded all expectations," noting that 98.5% of unitholders who voted across the PIMCO fund complex voted in favour.
Stewart, who took the reins at PIMCO in 2014, believes the transition was inevitable given his company's $2 trillion global footprint. "We do this everywhere else around the world. So when we reviewed it and did our assessment, it was really compelling that we should internalise RE and have a closer relationship with our clients at every level," he said, adding that even in Australia, a manager of PIMCO's size was an outlier in not having internal RE.
In order to facilitate the transition, PIMCO has established a statutory compliance committee consisting of former EQT chief executive Robin Burns, Bell Asset Management chair Christine Feldmanis and Penni James, who chairs BT Investment Management's compliance committee.
Putting together such an experienced team was a crucial step in PIMCO's move, because as K&L Gates partner Liz Hastilow noted to Financial Standard, in taking on an RE function, "a fund manager takes on significant responsibilities and liabilities, and it's not something that can or should be done lightly."
"Internalising an RE is a business transformational project which requires extensive resources and a significant build-out of legal, compliance and operational functions and careful planning and transitional arrangements are required," Hastilow said.
"A good working and transitional relationship between a fund manager and its outgoing RE service provider is key to producing the best results for clients."
However, despite the significant effort involved and liabilities assumed when internalising RE, Hastilow said she sees "a lot of very good reasons" to do so. Specifically, she cited the provision of an "end-to-end client experience for investors" as well as "operational and cost efficiencies."
"This will not always be the case, though," she added. "At the end of the day, whether an internal or external RE solution is most appropriate should always be driven by what is in the best interests of investors in a fund."
It's worth noting that part of the reason global investment managers with the requisite domestic footprint tend to take RE in-house is because RE itself is a particularly Australian concept - at least in terms of the specific duties and requirements. Hastilow said she has yet to see depositary obligations and trustee obligations oversees that match the "onerous standards" to which REs have to adhere in Australia, such as uncapped capital requirements.
This is an extract of a news story first published in the latest issue of Financial Standard. You can view the full article on our iPad app.