Hyperion Asset Management Limited Brokerage Allocations (Soft Dollar Dealing) and Adviser Commission Policy

Transcription

1 Hyperion Asset Limited Brokerage Allocations (Soft Dollar Dealing) and Adviser Commission Policy Document Control Owner Relates to Date Last Updated Version Primary Rules/Rationale Managing Director, Hyperion Asset Limited and dealing function September amended Appendix B Description of Services Conflict of interest management IFSA Guidance Note 10 Brokerage Allocations Hyperion Asset Limited 1

2 Contents KEY TERMS INTRODUCTION BROKERAGE ALLOCATION ADVISER COMMISSION PAYMENTS MONITORING AND OVERSIGHT... 6 APPENDIX A... 6 Hyperion Asset Limited 2

3 Key terms Alternative Brokerage Arrangement Best Execution Broker Brokerage Execution Soft Dollar Dealing Research Includes arrangements between Hyperion and Brokers for the provision of any goods or services that are beyond goods and services produced and supplied by the Broker and directly linked to trading activity. Involves obtaining the most favourable on-going total cost for execution through assessing brokerage, spreads, market impact and speed of transacting with respect to the size and complexity of trades. Broker refers to an agent who handles client orders for purchase and sale of securities, commodities, or other property. The provision of this service attracts brokerage and/or incurs a spread. Brokerage refers to the fee levied by the Broker for executing purchases or sales of securities as an agent. Execution refers to services provided by a Broker in arranging and settling a transaction or series of transactions initiated by the Manager. Refers to the allocation of commissions, arising from share trading, toward the acquisition of goods and services that will assist in the provision of investment services to investors. Research refers to the production of information that is capable of adding value to investment or trading decisions by providing new insights that inform an Manager when making such decisions about investors portfolios. By way of illustration, this can include economic analysis, recommendations and forecast data. Hyperion Asset Limited 3

4 1. Introduction 1.1 Regulatory and policy background The Corporations Act 2001 requires all licensees to have adequate arrangements for management of conflicts of interest which arise in relation to the provision of financial services by the licensee. Further, Hyperion has a fiduciary duty to act in the best interests of clients. Hyperion seeks to engage third parties who add value to its investment process and to avoid conflicts that may arise from certain Alternative Brokerage Arrangements. This policy draws its principles from the standards set out in IFSA Guidance Note 10: Brokerage Arrangements and the AIMR Soft Dollar Standards. The policy outlines the methodology used by Hyperion in selecting Brokers, allocating trades and accepting other Broker services. 2. Brokerage allocation 2.1 Overarching Principles Hyperion s brokerage allocation policies are based on the overarching principles that: Brokerage remains the property of the Client Brokers are chosen on the basis of Best Execution and contribution to the research component of the investment process Research must benefit the manager in the investment decision making process and not the management of the investment firm Brokerage should be allocated in proportion to the value added 2.2 Broker Panel Hyperion primarily utilises a panel of Brokers (the Broker Panel ) to execute trades for its portfolios. The purpose of the Broker Panel is to ensure Hyperion receives optimal levels of service and value-add including research, fundamental data and Best Execution. 2.3 Broker Ratings Each member of the Broker Panel is assessed against a defined set of criteria and assigned a score from 1 to 10 in each category, with a score of 5 being considered as in line with the peer group. (See Appendix A for an outline of the Assessment Criteria). The score of 1 to 10 is then multiplied by the relevant percentage weighting to arrive at a percentage score for that criteria item. Each Broker s overall score determines their targeted allocation. Exceptions: In order to ensure that Best Execution is achieved and/or the research component of the investment process is optimised, trades may be placed with brokers that are not on the Broker Panel. Dealing outside the Broker Panel may occur when 1) there is a need to take advantage of liquidity not available within the Broker Panel; or Hyperion Asset Limited 4

5 2) a Broker not on the Broker Panel has provided a service that adds value to Hyperion s investment process. This brokerage is provided through Hyperion s Tag Pool. Accordingly the Tag pool comprises allocated commission in recognition of work done or services provided that has added value to the investment process. 2.4 Monitoring of brokerage allocation Hyperion monitors brokerage allocations and the associated Broker ratings in arrears on a monthly basis as part of the Hyperion Committee meetings. This enables Hyperion to review the performance of the Broker Panel based on the assessable criteria and effect any adjustments as required. 2.5 Broker service arrangements Hyperion uses the following Broker arrangements to ensure both Best Execution and the receipt of value add Research Standard full service brokerage Standard full service brokerage covers the provision of Broker produced and supplied goods and services that are directly linked with the investment process. Hyperion uses the following Broker produced goods and services: (a) (b) Broker Execution-only; and Broker Execution with in-house Manager Support Services including Broker Research. The receipt of these services from Brokers is acceptable as the services are directly related to the provision of investment services to investors. Hyperion estimates that the cost of broker execution-only is approximately 10 basis points. The cost of Broker Execution with in-house Manager Support Services including broker research is between 23 and 28 basis points. The difference between the costs of broker execution only and in-house Manager Support Services reflects the amount of soft dollar inhouse research benefit as defined by the CFA Standard. Hyperion considers that this amount is appropriate given the nature of the Hyperion process Acceptable Alternative Brokerage Arrangements Alternative Brokerage Arrangements may include agreements with Brokers that involve the allocation of certain commissions towards the purchase of third party Research, software or services that directly aid in the investment decision-making process. Where the research, software or service is of mixed use, the cost components that aid in the investment decision-making process are determined. If available, the components are valued according to billing invoices. Only the portion that aids the investment decision-making process is included within any Alternative Brokerage Arrangements (See Appendix B). Hyperion Asset Limited 5

6 Hyperion does enter into Alternative Brokerage Arrangements of this nature which include the use of third party Research. Hyperion considers these Alternative Brokerage Arrangements to be acceptable as they provide a direct benefit to the Hyperion investment decision-making process Generally unacceptable Alternative Brokerage Arrangement Broker produced and supplied or Broker purchased goods and services that do not directly aid the investment decision-making process are considered unacceptable for inclusion within an Alternative Brokerage Arrangement. Examples include: (a) (b) (c) (d) (e) (f) (g) services relating to the valuation or performance measurement of portfolios; subscriptions for publications; computer hardware; free or subsidised office space; staff remuneration; paid travel, accommodation, and entertainment costs; and costs associated with attending conferences and seminars. Hyperion does not enter into these types of Alternative Brokerage Arrangements. 2.6 Client Directed Brokerage Hyperion may direct a portion of the brokerage associated with a Client s account to a nominated Broker at the direction of a Client where the Client receives a benefit in addition to execution services. 3. Adviser commission payments Adviser commission payments refer to certain payments by an investment manager to financial advisers which are designed to incentivise the sale of the investment manager s product by the financial adviser. These may be structured within a product fee structure (ie. paid out of the relevant fund) or paid directly by the investment manager out of their fee. Hyperion considers the fee arrangements for its products on a product by product basis and may pay adviser selling fees as determined by the Managing Director, and in accordance with the disclosure provisions set out below. 4. Monitoring and oversight 4.1 Procedures Trading and therefore Broker allocations are driven by Hyperion s Process. The allocation to Brokers and resultant receipt of associated goods and services are used to support Hyperion s proprietary investment process with the end result being the creation and review of its model portfolios which are consistent across client portfolios. Hyperion Asset Limited 6

7 From time to time, Hyperion may also use Wilson HTM Ltd as Broker in its ordinary course of business. Wilson HTM is a related party of Hyperion, however Hyperion contracts with all parties on standard commercial terms. The Executive Committee approves all third party agreements in order to manage any potential conflicts of interests. Any offer of incentives set out in paragraph must be reported to the Executive Committee. It is the ultimate responsibility of the Executive Committee to ensure all Hyperion staff conduct themselves in accordance with this policy. 4.2 Reporting A Brokerage Allocation report along with a report outlining any Alternative Brokerage Arrangements is reviewed monthly by the Hyperion Committee and the Executive Committee. 4.3 Annual Review This policy will be reviewed at least annually by Legal and Compliance with any associated changes being approved by the Hyperion Asset Limited Board. 4.4 Disclosure Hyperion adopts the following disclosure practices in relation to this policy: (a) (b) (c) This policy is available on the Hyperion website at This policy will be made available to investors free of charge; and If there is a significant change this policy, Hyperion will communicate that change to investors in the manner Hyperion would customarily do so. Hyperion Asset Limited 7

8 APPENDIX A BROKER ASSESSMENT CRITERIA Hyperion Asset Limited 8

9 APPENDIX B BREAK DOWN OF SERVICES Provider Service Components Description of Services Service Benefit Decision / Firm Thomson QAI Worldscope Global Financials/TQA Database REPLACED BY EIKON IN JULY 2013 Thompson Reuters Eikon including data stream for office HT Net Eikon to the Sydney office Global database platform providing company financials information. Global database platform providing company financials information. Global database platform providing company financials information. Calibre RMS Calibre RMS/AMP Financial model administration/amps Equity Research System Database query tool/internet enabled front end Impact Impact Internet enabled front end that provides performance and attribution analysis, historic holdings data and risk modeling. Ownership Matters * Proxy Voting Recommendations Provision of proxy voting recommendations research rationale for all companies within the portfolio. Provision of historical financials utilized during universe filtering, peer comparisons and ratio analysis. Populate financial models with data stream pricing. Provision of historical financials utilized during universe filtering, peer comparisons and ratio analysis. Populate financial models with data stream pricing. Provision of historical financial data used for marketing purposes Houses and administers all financial models Internet enabled front end allows for easy sorting and analysis of internally and externally generated data across a global set of companies. Provides the tools and queries to conduct the universe filtering. Provision of performance analytics and portfolio metrics that are utilised in the portfolio risk style analysis. Research is in-depth and detailed. Provides a skill set which is not available internally. Decision Decision Justification Historical financial data is directly used within the first stage of the investment process. The data allows for competitor and industry analysis on a global basis and provides background data when conducting initial research. Historical financial data is directly used within the first stage of the investment process. The data allows for competitor and industry analysis on a global basis and provides background data when conducting initial research. Component Split 83% Yes Marketing, 17% No Firm Decision Firm /Client Reporting/Marketing Decision Source of historical, fundamental data, consensus forecasts and broker published research notes. Conducts initial filtering process. Provides research and rationale behind management recommendations with regards to AGM items. Provides governance research beyond Hyperion s internal capabilities. 10% No 90% Yes Soft Dollared? Hyperion Asset Limited 9

10 Provider Service Components Description of Services Service Benefit Decision / Firm ISS Risk Metrics Proxy Voting Administration of all proxy voting IRESS IRESS Company news announcements, regulatory releases and company reports, including financial statements and company AGM reports. Allows for the efficient submission of proxy votes including the facility of a standing instruction with regards to voting intentions. Contributes to and enhances the investment team s understanding of the company s operations, financials and development. IOS ASX Trading System Electronic placement of orders, real time monitoring of order execution and electronic generation of order trade confirmations. IPS Portfolio Administration System WebIRESS Browser to provide stock and company information to fund managers and dealers Factset Factset Workstations Data provision to investment team. Records internally generated data as well as research data and feeds into research templates to facilitate decision making Factset Workstations to Sydney office plus attribution and reporting modules Data provision to marketing team, attribution and client reporting modules Portfolio administration and reporting Internet enabled front end for IRESS systems Contributes to and enhances the investment team s understanding of the company s operations, financials and development. Provides attribution via a terminal to the marketing and client service team to enable them to produce client reports and attribution for client reports Firm Decision Firm Firm Decision Decision Firm Justification Understanding of the company s operations and keeping up to date with development impacts the investment decision making process. Allocation based on number of licences allocated to investment staff. provides stock and company information to fund managers and dealers Understanding of the company s operations and keeping up to date with development impacts the investment decision making process. Allocation based on number of licences allocated to investment staff. Component Split 42% Yes 26% No 32% No Soft Dollared? Hyperion Asset Limited 10

11 Provider Service Components Description of Services Service Benefit Decision / Firm Bloomberg Bloomberg Terminals and Data Company news announcements, regulatory releases and company reports, including financial statements and company AGM reports Contributes to and enhances the investment team s understanding of the company s operations, financials and development. Value Line Subscription to report Analysis subscription Contributes to and enhances the investment team s understanding of the company s operations, financials and development. S&P/ASX Index Alert Constituent & Index Level Data Provision benchmarks GBST Provision of benchmarks FTSE Provision of benchmarks Warakirri Asset of Provision of after tax performance analytics Electronic provision of benchmarks to analysis and reporting systems Electronic provision of benchmarks to analysis and reporting systems Electronic provision of benchmarks to analysis and reporting systems Provision of after tax performance analytics to analysis and reporting systems making Decision Decision Provision of reports to clients Firm Provision of reports to clients Firm Provision of reports to clients Firm Provision of reports to clients Firm Justification Understanding of the company s operations and keeping up to date with development impacts the investment decision making process. Allocation based on number of licences allocated to investment staff. investment research, data, expert analysis, and commentary with a stock ranking system Component Split Soft Dollared? Hyperion Asset Limited 11