[GRTV] Pie Fund Management CEO, Mike Taylor is in studio

Mike Taylor chats positive changes and growth for Pie Funds

Monday, September 17th 2018, 4:09PM

My next guest is Mike Taylor, the chief executive of Pie Funds. I've invited Mike along because Pie Funds has been doing pretty well out there but is going through a lot of change at the moment, and one of its latest innovations, if you like, or newest things it's done is launched a KiwiSaver fund under the JUNO brand. Why KiwiSaver now, so late in the game?

As you say, Pie Funds has been going through a number of positive changes and growth over the years, and for us it's an evolution. Previously, we felt we weren't ready for KiwiSaver, and that we've been looking at it for probably three years, and it takes a long time to get a KiwiSaver product up and ready, so literally that's how long it's taken us to get ready.

It takes that long? What is critical mass and how long will it take to get there?

Pie Funds as a business has critical mass. We'll be on that now, and in terms of KiwiSaver, our product is as much about social good as it is about having lots of funds under management and lots of members.

You're taking an approach where your KiwiSaver, where you're investing in a small number of big-brand companies, is that correct?

Yeah. It'll be a mixture of what we call household names and also specific stock selections which we find.

So that's a little bit different to how you've been running the Pie Funds business, isn't it, which has been very much about finding smaller companies which aren't that well-known and have good growth potential?

Yeah. Over the last decade or so we've found in our, well originally was in Australasia, and we've expanded that globally. Yeah, by and large it has been small companies.

Why such a change in strategy?

A KiwiSaver product is probably not that well-suited to a small cap portfolio.

Is that the volatility?

The volatility, but also, you need to be able to have some capacity, because most of our small-cap strategies are closed so there's no point having a KiwiSaver fund which can only have 100 million in it. By having an open size market cap fund, then we can include any company.

Your whole fee approach is quite different as well, because in the past Pie Funds has done very well, particularly out of performance fees. You're getting, or you're changing your performance fee structure, but also with JUNO you've got a totally different low fee structure.

Yeah, so the reason for us doing that is, well firstly, our fee structure is fixed monthly fees, which are set on tiers based on what your balance is. But there are two important thresholds, is that if you are under 18 or if you've got a balance of less than $5,000 we don't charge any fees at all. No management, no admin fees, nothing.

It's basically a free KiwiSaver.

It's a free KiwiSaver, because we want KiwiSaver to be for everyone. We want to make everyone an investor. Investing's not just for high net worths, and it can be for everyone. As you know, KiwiSaver may be the only investment that some people have in their whole lives, so for us we really want to encourage that for those with small balances and for the young. At the other end of the spectrum as well, having a fixed fee means that as your balance grows, once you hit our top tier you're not paying any more for the KiwiSaver service.

Do you think advisers will support your product, and if so, why should they support it?

Certainly, we're really encouraging children to join KiwiSaver and one of the drawbacks is being the fees will eat away at the thousand dollars or the 500 in there. I think advisers should embrace it for children, definitely, and also look at the product for their own clients because we have a pedigree of producing funds that perform well, and also the fee structure is compelling.

So is it the sort of product where they might then charge their own fee for service or not?

Sure. That's up to the relationship the adviser has with their client. We support a model where clients pay an advice fee, which is what we have done with our own advice model at Pie, is that you pay for a service.

One of your other changes is you have launched your own wealth business with, I think you got two AFAs at the moment. What's the strategy there, and how big's that going to get?

We want to keep our AFAs relatively boutique, and that is a limited client base that they have to look after. The main reason for doing it, really, is that as our overall client base has grown, we noticed that there were a large number of clients who came in and said, "Can you tell me which fund to go into?" They really needed advice, so the natural step for us was to hire an AFA to be able to advise clients.

Will they primarily be using Pie products, or do they have discretion to go wider than that?

An approved product list includes non-Pie products, and we think it's healthy to have non-Pie products in a client's portfolio. Obviously, if we're looking at a global equity fund and we manage one and it's performed well, then we'll have it in there, but if we want to expose you to bonds or to property which we don't do, then we'll use external.

In the spaces where you've got your own product, like equities, obviously, you'd expect them to be primarily using Pie Fund products? How big do you envisage that team being? Where do you think that will be in three years' time?

Correct, yeah. Look, we'll probably add more advisers. How many, I don't know, but I don't think we're going to be a massive advice.

Do they sit under a QFE, or are they just AFAs in their own right?

Just AFAs in their own right.

So when we go to licensing, will they become - what's your thinking around that?

It's up for review, and I guess we'll look at it.

Coming back to fees, you changed your performance fees structure in Pie Funds. Can you tell me a little bit about that, and why you did it?

The reason, I guess, we did it is that when Pie Funds was a small business, managing a relatively small amount of money, that in essence, survival required us to perform extremely well, and to generate performance fees to stay alive.

Quite a high-risk strategy, wasn't it?

Yes. But we did it. I mean, most fund managers wouldn't dream of starting with 3 million under management like we had. I think, I guess, as the industry's matured, we've matured as well, and that performance fees are almost, by and large, a thing of the past, and maybe in the future.

Is that your thinking? Do you think they will go?

Yeah, I think that's the way it's heading. Even hedge funds now struggle to charge the traditional two and 20, so yeah.

What's going to drive that? Is it going to be regulation or just market forces?

I think market forces. There doesn't seem to be an appetite for regulators to impose fixed fees, from what I can gather, so therefore it comes down to market forces, yeah.

So you're trying to shake the industry up a little bit?

Yeah, you could say that. I guess we've always seen ourselves as an underdog and a bit of a disruptor in what we've done, so we're continuing in that vein.

What is next for Pie Funds?

I think as you alluded to, there's been quite a lot on this year, so we've got to bed down our growth that we've put in place. We've got a wealth division, we've got a KiwiSaver, we've got Pie Funds itself that's doing really well, so there's plenty on.

Yeah. Will you ever look at listing the company or going that sort of track?

Yeah, that's something that we've discussed. It's debatable whether fund managers should be listed entities because of the potential volatility in the share price during a market correction.

Does it also have an issue that there's too much focus on the shareholders and returns for them which may then impact on the cost structure?

Yeah, that's another point is that who are you looking after, the shareholders or the clients? Yeah, it's probably a low probability, I would say.

It's been excellent to get a bit of an update on what you're up, and thank you for coming in, Mike.

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