Pie Funds reopens soft-closed funds
Pie Funds is again accepting investments in three of its funds that were previously soft closed, although they are each holding back from their target markets.
Monday, September 2nd 2019, 6:00AM 
6 Comments
Paul Gregory
It had previously had four funds that were soft closed, and was not accepting investment from people who did not already have money in the funds.
But it had received feedback that that was confusing, group head of investments Paul Gregory said.
Instead, it had opted to close its emerging fund completely but open its growth, dividend and growth 2 funds. That decision was made based on Pie Funds’ view of the capacity of the funds, he said.
But Chris Douglas, a principal at My Fiduciary, said it was a "puzzling" decision.
Growth has 60% cash, growth 2 32.25% and dividend 38.52% cash. Each has a target of 100% Australasian equities.
Usually fund managers would reopen a fund because they had withdrawals or the market increased to the point where they thought there were increased opportunities for investment.
"It's hard to know why they're reopening their funds now. I doubt it's because of the view that there's a greater amount of opportunities to invest in because they have such a significant amount of cash they must be relatively pessimistic abut the market at the moment."
Gregory said the composition of the fund at a point in time was not that important to capacity, "Especially if – as now – there is high cash. Cash is much more liquid than equities. We could maybe argue the capacity of the fund is higher with high cash, because it grows more slowly. But our intention with our cash is always to invest it, as much of it as possible, if we find good companies at good prices. Cash is a tool, so it’s not really appropriate for us to regard it as ‘additional’ capacity."
Performance in the funds has dropped off recently, though they have been strong performers in the past.
In 2018, Growth 2 delivered 14.87% against a market index of 14.99%. Growth returned 7.12% in 2018 compared to a market index of 14.99%.
Gregory said Pie Funds determined the capacity of each of the funds and how much space might be left to accept more investment and determined the three had more room to move.
“What’s important to us is how efficiently can we move into or out of the positions we have.
"Given the weight we have in that company how big are we on the company’s register? If it’s a smaller company that can be quite large.”
That created filing requirements that could slow the process of moving out of a position, he said.
“We want that to be as efficient as possible because the longer it takes to get out the more the price can move against you.”
He said it was likely the now open funds would close in future.
“At some point there will be too much money in them to generate the return we want.”
Gregory said he hoped the emerging fund would remain closed. “The only reason it would open again is if it gets below capacity which would happen because of bad returns or because of withdrawals and those tend to go hand in hand.”
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Comments from our readers
Hang on. If there is a tonne of cash in the portfolio right now, that must mean there aren't any opportunities out there. So any new investment is going to go straight into cash?
Well, at least they aren't charging active equity manager sized fees on the cash portion of the portfolio.
Right?
Oh. They're charging 1.85%pa.
As the story says, all four funds were already accepting money from existing investors, which reduces capacity as much as money from new investors. A fund has capacity or it doesn't. If it is taking on additional money from any investor, it does. So if you accept, as we did, we needed to be clearer about the status of our funds, you label them more clearly (i.e. 'open' or 'closed'). But this isn't 're-opening' the funds (and in fact as the story says, we've closed the Emerging Companies fund to all investors). Regardless, changing the labelling must of course be disclosed in the PDS, which we did, which is how it was picked up and written about.
We also talked with Susan about how we calculated capacity. We review this regularly and the prompt for the latest review was, naturally enough, the decision to clarify the labelling.
As the story says, all four funds were already accepting money from existing investors, which reduces capacity as much as money from new investors. A fund has capacity or it doesn't. If it is taking on additional money from any investor, it does. So if you accept, as we did, we needed to be clearer about the status of our funds, you label them more clearly (i.e. 'open' or 'closed'). But this isn't 're-opening' the funds (and in fact as the story says, we've closed the Emerging Companies fund to all investors). Regardless, changing the labelling must of course be disclosed in the PDS, which we did, which is how it was picked up and written about.
We also talked with Susan about how we calculated capacity. We review this regularly and the prompt for the latest review was, naturally enough, the decision to clarify the labelling.
As they say, the status of the funds hasn't really changed they've simply tried to make it clearer to investors who didn't understand the terminology 'soft closed'.
Going forward the funds are either 'open' or 'closed' regardless of whether its a new or existing investor (which as Paul states has no relevance to capacity constraints anyway).
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