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here - Eight Investment Partners
18
Companies&Markets Financial Services
Wednesday 4 November 2015
The Australian Financial Review | www.afr.com
AFR
Westpac sees
blockchain as
opportunity
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James Eyers and Jessica Sier
Kerry Series and Steve Walsh’s managed fund portfolio has returned 67 per cent since June 2104. PHOTO: DOMINIC LORRIMER
Small cap fund focuses on finding
Silicon Valley-like gems on ASX
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Jonathan Shapiro
Small cap stock picker Kerry Series
says Australia is in a new phase of the
bull market where fear turns into
greed, and buyers become more attracted to growth opportunities.
To take advantage, Eight Investment
Partners, which Series runs with
Stephen Walsh, is marketing a listed
investment company seeking to raise
up to $50 million for its strategy that
has so far picked up technology gems
like 1-Page, Reffind and Migme.
‘‘For a lot of this bull market, it’s been
a fearful one and people have been cautious focusing on large cap yields
stocks,’’ he says. ‘‘We might be moving
into the ‘greed’ part of the bull market
[when investors] look at things that
have gone up a lot and ask ‘why didn’t I
own 1-Page and where is the next
one?’’’
As the pair plan a stock market
adventure of their own, they’re keen to
tell investors how they’re managing to
find Silicon Valley-like gems on the
local bourse.
The small cap fund, which now manages about $100 million, is optimistic
that more winners are on the way.
‘‘The small end of the ASX has got
really exciting. It may be because of
1-Page inspiring other companies to list
early stage,’’ Series told The Australian
Financial Review. ‘‘We are the beneficiary of that evolution and we are now
seeing a steady stream of exciting
stocks not just in technology, but medical equipment, consumer staples and
even one or two in resources.’’
Eight Investment Partners has
delivered strong numbers in its concentrated managed fund portfolio –
returning 67 per cent since June 2014. It
has done that by getting into some
growth stories early and riding the
wave.
Series says the ideal company is at an
early stage, has a big growth opportunity in a big market and has a competitive advantage that 8IP believes will
help the company grow.
One of 8IP’s biggest winners has
been online recruiter 1-Page – which it
initially bought at the 20¢ initial public
offering price, riding it all the way up to
Our philosophy is
run our winners and
cut our losers.
$4.50, valuing the company at more
than $600 million. The fund still holds
the stock.
‘‘Our philosophy is run our winners
and cut our losers and we build a financial model that looks out several years.
A lot of investors didn’t do the work
and sold it quickly whereas for us it’s
about mapping the growth path, to
make sure the potential is there for
much greater value creation even
though the share price has risen
sharply.’’
Other stocks 8IP has backed in its
current
funds
include
human
resources technology outfit Reffind
and social media start up Migme.
It is also invested in Yowie Group, a
Perth based start-up that morphed
from miner to distributor of the wellknown chocolate-cased surprise toys
that secured Walmart as a customer.
Series says that as larger high-quality
small cap stocks such as TPG have
‘‘rerated’’, the fund has found better
opportunities ‘‘further down the market cap spectrum’’.
In fact, the smaller stocks which
have lagged the broader market by
about 10 per cent a year for the past five
years are finally beginning to beat the
big end of town, outperforming by
about 5 per cent in the past six months.
Series says the attraction of a listed
investment company is that it will give
the fund permanent capital to invest
without the fear of redemptions, which
he believes suits the strategy of backing
small companies with conviction.
‘‘It can be sort of private equity style
investing because you are getting into
stocks that are relatively illiquid and
with that type of strategy, you don’t
want redemption risk.’’
Though there’s no issues around
liquidity in bull markets, Series is
mindful that when the tide turns,
forced selling as a result of redemptions can create difficulties in large positions. But he believes we won’t see a
bear market for a while.
This market, he says, ‘‘rhymes’’ with
the late 1990s when wobbles in Asia
kept the central banks on easy street
sustaining the bull run.
‘‘The interesting thing is that the
small ordinaries outperformed which
is not what you would have expected.
While there were a lot of bearish headlines, underlying dynamics were
bullish – that’s not a true bear market.’’
Westpac Banking Corp chief executive
Brian Hartzer describes innovative
‘‘blockchain’’ technology as an
intriguing development that could
reduce the bank’s payments infrastructure costs in the future.
A blockchain system underpins
cyber-currrency bitcoin and Mr
Hartzer said it was ‘‘more of an opportunity than a threat’’ for Westpac.
Westpac’s trials with the fintech
start-up Ripple Labs, which is developing a real-time global currency settlement system based on blockchain
technology, had produced encouraging
results, he said.
‘‘I am told by the people involved ...
that it’s a very sophisticated and
advanced proof of concept,’’ Mr
Hartzer said of Ripple, which is also
being trialled by Commonwealth Bank
of Australia.
The blockchain is a secure database
managed by thousands of linked computers that continuously maintain
records of the payment history of every
bitcoin in circulation, providing proof
of who owns how much of the cryptocurrency at a point in time.
But in theory any asset could be
transferred using a blockchain so its
potential for banks extends far beyond
crypto-currencies.
As the Bank of England said in a
report last year, ‘‘most financial assets
today exist as purely digital records.
This opens up the possibility for distributed ledgers to transform the financial system more generally’’.
In its report on the big bank full-year
profit season, PwC said on Monday that
the blockchain ‘‘typifies the boundless
opportunity and challenge of fintech
and its relevance to incumbents as well
as disrupters. It has moved from novelty status to the mainstream in a
remarkably short time’’.
CBA and National Australia Bank
have joined a group of 20 other global
banks to design protocols for a blockchain system to transfer funds to each
other at low cost.
The others that have joined start-up
R3 to develop the protocols are Bank of
America, Bank of New York Mellon,
Barclays, BBVA, Citi, Commerzbank,
Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Morgan
Stanley, Mitsubishi UFJ Financial
Group, Royal Bank of Canada, Royal
Bank of Scotland, SEB, Societe Generale, State Street, Toronto-Dominion
Bank and UBS.
Westpac has chosen not to join the
R3 trial but its venture capital fund,
Reinventure Group, has invested in
Coinbase, one of the world’s foremost
bitcoin exchanges and ‘‘wallets’’, which
is also backed by Silicon Valley VC
powerhouse Andreessen Horowitz.
‘‘We are quite intrigued about the
possibility of bringing real efficiencies
into some of our payments infrastructure and the like through the use of
blockchain,’’ Mr Hartzer told Fairfax
Media on Monday.
‘‘In focusing on the use of the blockchain, we see it as far more of an opportunity than a threat. It increasingly
looks like there is something in it. It is
not surprising banks around the world
are starting to say what is this and how
can it help us?’’
In a panel discussion at StartupWeek
Sydney last week, Simon Cant, cofounder of Reinventure, said there was
a danger in banks taking the blockchain private because that would stifle
innovation. An open source system
was preferable, he said.
‘‘If the banks all make their own
private networks, they will struggle.
Because it won’t be open source and it
won’t have the mass adoption.’’
But Scott Farrell, partner at King &
Wood Mallesons who counsels global
financial institutions on alternative
payment systems, said there were
hurdles to banks adopting an open
source system.
‘‘You’ve got a technology allowing
people to transact between anonymous
parties. And banks are beholden to
their regulation. They need to know
who is transacting with whom. And
that’s the gap between what’s expected
from banks and what bitcoin is capable
of doing.’’
Global banks are looking at how the
blockchain technology behind bitcoin
can help them. PHOTO: BLOOMBERG
Bendigo and Adelaide Bank takes the lead on raising interest rates
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Shaun Drummond
Bendigo and Adelaide Bank was the first
bank to raise interest rates after the
Reserve Bank of Australia left the cash
rate on hold at 2 per cent on Tuesday,
upping its residential variable rates
between 0.12 and 0.15 percentage points.
Most smaller lenders have been
waiting for the RBA’s Melbourne Cup
day decision before following the
majors’ lead on rate rises to ease
squeezed profit margins, with many
holding pricing decisions on Tuesday
and Wednesday.
AFRGA1 A018
Sources say most smaller banks and
credit unions will raise rates. If the
RBA had lowered the cash rate on
Tuesday, it was thought the majors
would have passed on the whole
0.25 percentage cut and the smaller
banks would have passed on a smaller
cut to retain some profitability. That is
despite the fact smaller banks do not
face the same capital rises on mortgages as the majors from July 2016.
Bendigo raised its owner-occupier
standard variable rate by 0.12 per cent
to 5.68 per cent and its investor rate by
0.15 per cent to 5.91 per cent.
The bank had already raised its
investor rate in August by 0.2 per cent
following pressure from shareholders
when it said it would leave them on
hold at its annual results briefing
earlier that month.
Bendigo Bank has tended to keep its
interest rates higher than regional
rivals but on a par with some of the
cheaper major banks.
Managing director Mike Hirst said
the move takes into account the needs
of its ‘‘stakeholders’’, maintaining competitive pricing and capital requirements. ‘‘Our bank regularly reviews
our pricing, and the needs of borrowers‘, depositors, shareholders, partners
and the wider community remain front
of mind,’’ he said in a statement.
As Mr Hirst signalled in previous
comments, while the banking regulators response to the inquiry ‘‘will go
some way to levelling the playing field,
the fact remains our bank is still
required to hold significantly more
capital than the major banks’’.
‘‘Adjusting the interest rate reflects
our need to generate a reasonable
return given we are competing against
the major banks to attract capital to
grow. The pricing we set must continue
to be competitive in this historically
low interest rate environment
while also reflecting our premium
value proposition.’’
Fellow regional lender Suncorp
raised its rates for owner-occupier and
investor loans by 0.16 per cent on Monday afternoon to 5.7 per cent and 5.97
per cent respectively after a similar rise
in investor rates in August.
ME Bank raised its rates by 0.2 per
centage points to 5.08 per cent on
Thursday last week. Like Westpac, it
also raised its online deposit rate.

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