In an open letter shared on LinkedIn, Blackwattle Investment Partners called on the money management industry to recognize the inherent risks, conflicts and distraction posed by personal trading.
The letter, signed by chief executive and chief investment officer (CIO) Michael Skinner, reads: “Personal trading by fund managers constitutes a significant conflict and distraction. »
“This is undoubtedly not in the best interest of the client.” This practice should be abolished not only in fund management, but also in investment banking, equity research and trading. »
Noting that humans are “inherently self-interested”, Skinner said fund managers “may be tempted to prioritize personal gain over client interests”, despite what regulators like the Australian Securities Commission securities and investments could “hope and wish”.
“Consider this scenario: suppose I have personally invested significant sums of my own wealth in a publicly traded company, say Qantas. Now imagine that company loses its CEO, the investment proposition changes, or it becomes overvalued. Would I recommend that the fund I am responsible for sell its investment, which could cause the stock price to decline and result in my own financial loss?
“It’s a moral and ethical dilemma.”
Skinner goes on to say that fund managers are also likely to spend more time on personal trading than on managing their designated funds.
“Consider a reporting season scenario in which multiple companies release results and hold calls simultaneously. If I have a personal investment that is producing results along with a portfolio company, it is likely that my attention will be diverted to my personal gain. This distraction can negatively impact portfolio performance and is clearly not in the best interest of the fund’s investors,” he said.
Ultimately, he believes a ban should be implemented on personal transactions to simplify internal compliance and reduce the risk of compliance breaches.
“At Blackwattle Investment Partners, we have implemented a strict no-personal-trading policy. This policy underlines our commitment to always act in the best interests of our customers. We are calling on regulators, industry bodies and other fund managers to also ban this practice,” Skinner said.
“To our clients, from large pension funds to individual investors, we urge you to hold the industry to account and reject the practice of personal trading by all fund managers. »
Blackwattle Investment Partners officially launched in Australia in May last year with initial seed capital of up to $60 million and six years of funding.
Described as a “highly aligned, next-generation Australian investment manager”, Skinner said at the time that Blackwattle was looking to attract the best investment talent to Australia.
“We have reversed the traditional model and removed key person risk. We do not believe in a focused leadership style: everyone is a significant shareholder and we are all partners,” he said.
“We invest alongside our investors and clients, with personal capital committed and business profits reinvested in our portfolios, there is no personal trading.”
