The concept being followed by philanthropic listed investment company (LIC) Future Generation Global Company (FGG) has already been demonstrated by its stablemate, the Future Generation Investment Fund Limited (FGX), which listed on the ASX in September 2014.
Like FGG, FGX is a “fund of funds,” where a portfolio of fund managers invests in ASX-listed companies, such that FGX offers in one share a diversified Australian share portfolio. But unlike any other LIC, all service providers – including the funds managers who invest the money – donate their services for free, and every year, 1 per cent of the fund’s net asset value is donated to 14 children’s charities, with a particular emphasis on children at risk.
With the Future Generation Global Company share offer closing in a fortnight – and the shares expected to list on the ASX on September 10 – it is worth checking on how the concept has performed in the Australian shares asset class, in the form of FGX.
Between inception in September 2014 and 30 June 2015, FGX has earned a return of 3.97 per cent, compared to a return of 0.82 per cent from the fund’s benchmark, the S&P/ASX All Ordinaries Index.
This performance has been achieved with volatility, as measured by the standard deviation (the extent of movements in the portfolio’s valuation, around the mean) of 7 per cent, compared to 13.8 per cent volatility in the S&P/ASX All Ordinaries Index.
But perhaps more important is the fund’s parallel objective, to generate a stream of funding for its panel of recipient charities. For the period to 30 June 2015, FGX has streamed off $1.64 million for this purpose – equivalent to an annualised figure of $2.1 million.
FGX shareholders are in the process of deciding how the $1.64 million is to be allocated: holders of more than one million shares can choose that their pro rata contribution is directed to any charity in Australia; holders of less than one million shares can choose between FGX’s panel of 14 youth-oriented charities.
Geoff Wilson, the chairman and chief portfolio manager of Wilson Asset Management, is the driver behind the creation and listing of FGX and FGG, says the concept has been proven to work – and is now being extended into the ‘international shares’ asset class, through the FGG offer.
“We are looking to replicate the concept exactly, in FGG,” says Wilson. “Firstly, the objective is to deliver investment outperformance. We do that by choosing a panel of investment managers that has a core ‘long equities’ component, augmented by ‘absolute-return’ managers that have a great deal of investment flexibility.”
These absolute-return equity-based funds may be long-short funds, which will simultaneously go long (buy) under-valued stocks and short (sell) over-valued securities, or ‘market-neutral’ funds, which try to deliver above-market returns with lower risk by hedging out market risk, looking to negate the impact and risk of general market movements, trying to isolate the pure returns of individual stocks.
Another feature of the absolute-return bias is the ability to hold much higher allocations to cash if the managers do not see enough value in the market to commit to buying stocks. With no mandate to be invested to a certain percentage of the fund at any time, absolute-return managers are in theory more able to ride out market downturns than funds with a less flexible mandate.
While investment returns from such a strategy can never be guaranteed to be positive, FGG expects to be able to offer a globally diversified equity portfolio that shows relatively lower volatility than typical global funds.
“The idea is to choose a portfolio of global equity managers that has good scope to outperform, but to do so with less volatility than the market,” says Wilson.
He says financial advisers very much like this idea, because usually, low-volatility has meant low returns. But with FGX showing more than four times the performance of the S&P/ASX All Ordinaries Index, with half the volatility, the allure of such an outcome in the global shares space, in FGG, is obvious.
And the fact that this highly desirable outcome is also designed to generate annual funding of 1 per cent of FGG’s funds under management (FUM) to mental health charities – an amount estimated to be at $5.5 million a year, at the initial size of FGG – is likely to be very popular with investors, who can (a) gain exposure to overseas stocks through high-quality managers, (b) potentially beat the market return with less volatility, and (c) participate in a vehicle that demonstrably puts something tangible back into society.
The charities that will be supported by FGG are:
beyondblue
beyondblue works to protect everyone’s mental health and improve the lives of individuals, families and communities affected by depression, anxiety and suicide, so that all people in Australia achieve their best possible mental health. beyondblue will focus its funding from FGG on a program which will undertake in-depth research to generate new knowledge about how to build the resilience of children.
Black Dog Institute
Black Dog Institute is dedicated to improving the lives of people affected by mental illness. It does this by rapidly translating knowledge gained through research into improved clinical treatments, increased accessibility to mental health services, education and awareness programs, and overall delivery of long-term public health solutions.
Black Dog Institute will use FGG funding to help establish the Youth Centre for Research Excellence in Suicide Prevention, with a mission to reduce suicide attempts and deaths in young people
Brain and Mind Research Institute (BMRI)
BMRI works on utilising new and emerging technologies (such as software applications and e-tools, wearable technology, social network services, big data and interoperability, robots and virtual reality) combined with latest clinical knowledge to improve the delivery of primary, secondary and tertiary healthcare services and ultimately patients’ health and wellbeing. With FGG funding, BMRI will link a network of stand-alone primary care clinics and thereby will enable 20,000 young people over five years to use these new systems.
Butterfly Foundation
Butterfly Foundation represents all people affected by eating disorders. The funding from FGG will establish the Butterfly Youth Intensive Outpatient Program (Butterfly Youth IOP) in Australia, an evidence-based program centred on effective, early intervention for young people with eating disorders.
headspace
headspace is the National Youth Mental Health Foundation, providing early intervention mental health services to 12-25 year olds. It is designed to make it as easy as possible for
a young person and their family to get the help they need for problems affecting their wellbeing. headspace will use FGG funding for the development and implementation of a headspace National Aboriginal and Torres Strait Islander Traineeship Program offering training and employment of Aboriginal and Torres Strait Islander mental health workers.
MadCap Social Enterprise
MadCap Social Enterprise focuses on support for people who experience barriers to employment as a result of mental illness. The Enterprise operates as a commercial enterprise that both generates income and provides practical employment support for
at-risk-youth. FGG funding will support MadCap Young Futures, which is designed to support young people with mental health issues to prepare for, obtain, and sustain open employment.
Orygen
Orygen’s vision is that all young people enjoy optimal mental health as they grow into adulthood. It works to reduce the impact of mental ill-health on young people, their families and society by driving and delivering innovation in youth mental health. Orygen will use funding from FGG for a project that will research and deliver strategies and treatments to reduce self-harm, suicide attempts and suicides by young people.
ReachOut Australia
ReachOut Australia provides simple, practical solutions to help all young people be happy and well, by using technology to deliver help that is accessible, scalable and relevant to the lives of young people today. ReachOut Australia will use FGG funding to investigate the barriers of young people seeking help in remote and regional areas and then develop a tailored online service that will better meet the needs of this target group.
SANE Australia
SANE Australia’s mission is to help all Australians affected by mental illness lead a better life. This is achieved through the provision of support, training and education for individuals, carers, families, as well as professionals and businesses. SANE’s strategies include providing support in a range of areas such as suicide prevention, online and telephone advice and advocacy at the national level.
Through FGG, SANE will support up to 50,000 young Australians – aged 18 to 30 (and their families, friends and carers) – affected by mental health problems every year, through an Australia-wide, interactive, multi-channel mental health Help Centre.
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