"It's in my blood": Q&A with Russel Pillemer on the Pengana and Hunter Hall merger June 2017
The dust has now settled on the recent merger between Hunter Hall and Pengana, with Pengana Capital Group established as the newly formed entity under the leadership of CEO Russel Pillemer. Industry Moves catches up with Russel to find out how he has fared in what has been a 'challenging' negotiating process and how the changes will affect investors. We also find out about Russel’s introduction to the industry – it was in his blood – and the importance he has always placed on a positive, family-friendly work culture.
- What have you found the most challenging aspect of the negotiations preceding the merger?
The length of time required to complete the deal was particularly challenging. Investors in Hunter Hall’s funds were waiting to see what we would be offering them post the deal, however because Hunter Hall was a publicly listed company, we were restricted in terms of how fast we could move and what we could say. We always pride ourselves on our treatment of investors and in particular on transparency in our communications, so this was a difficult period.
- Will the merged funds continue with Hunter Hall’s focus on ethical investing, including the use of a negative screening policy?
Absolutely, we will adopt the Hunter Hall Ethical framework in its entirety. The Hunter Hall funds have been operating with that ethical framework for many years and we will continue with those exact frameworks. It’s not new for us, because the Pengana International Equities Fund already operated with a very similar framework. This was actually a major advantage for us in the transaction.
- In March there was a prediction that the merger would result in $6 million in cost savings. How will that relate to better returns for investors?
This deal was never about cost savings – but rather about revenue growth resulting from creating better investment strategies for investors. The reason for the cost savings is that the two organisations operate in the same spaces with similar types of businesses and so there was a lot of double-up.
Also, we want to have the best possible investment offering available and you can’t get that by simply aggregating the two teams - you’ve got to think very carefully about the best structure to run money. We don’t believe in having very large teams, we run a centralised structure whereby our individual teams operate as one unit using our portfolio construction models. It’s quite different to the Hunter Hall business where they managed a disaggregated model - whereby the individual fund managers were allocated discreet amounts of money to manage and they could each buy whatever they wanted.
- What major advantages for existing Hunter Hall International investors and future investors do you predict to come from the merger?
The key advantage for investors in the old Hunter Hall International funds, is that they now have access to a world class investment team and investment process. We think that the Pengana International Equities team of six is amongst the best that there is. Our CIO, Jordan Cvetanovski and our Head of Research, Stephen Glass are exceptionally strong and quite unique in the Australian context of being true international equity fund managers. They’ve done this for many years and they work very well together. In addition, the other team members including Jim McDonald and Ryan Fisher are also very talented and experienced.
Hunter Hall was a stock pickers fund. Their main objective was to pick stocks where they could make many times their money. At Pengana, we don’t manage money like that. What we focus on is generating superior long-term returns for our clients - with a particular focus on capital protection. We do this by generating good consistent lower risk returns – utilizing the magic of consistent compounding to generate those superior long term returns.
- As CEO, what do you feel is the most important aspect of settling in a newly-merged investment team?
It’s not really a newly-merged team. The investment team on the International Equities side is the Pengana investment team but we have including into that team two of the individuals from Hunter Hall, as we considered them to be excellent additions. They will be additional resources operating within the framework that the Pengana International Equities team has been using since its inception. That being said, our people are our key assets in the business – so we’ve got to make sure that our teams are working well together and that we have the right culture across the organisation. Culture is critically important for a business where it’s main asset is its people. Our aim in the business it to generate superior long-term returns for our clients and to achieve that aim, we need well-functioning team members. Making sure our people are happy and culturally suited to the Pengana framework is essential.
- What prompted you to found Pengana in 2003?
I was working at Goldman Sachs in New York and I wanted to come back to Sydney because I have four young children and I wanted them to grow up in Australia – as it’s the best place in the world to bring up a family. I’ve never actually managed money, I used to be an investment banker and I would advise people on buying and selling fund management companies. It was actually one of my clients in New York, Fred Shuman from Archstone Partners, who was an inspiration for me. He really encouraged me to go out and do this.
- What lead you into a career in financial Services?
It’s in my blood. I was inspired by my father who was in the life insurance industry. I’ve got two brothers that work in the financial services – one runs a very innovative new life insurance company called PPS Mutual Australia – and the other one runs a large risk advisory business called Fairbridge Financial Services. Financial services was dinner talk at the family table – so it was a natural fit.
- Where did you grow up?
I grew up in South Africa, in Johannesburg. I came to live in Australia at the age of 20 and did my university degree here at UNSW.
- Who has been the biggest influence in your career so far?
Probably the client from New York that I mentioned earlier, Fred Shuman. He’s a legendary guy in the US Hedge Fund industry and he was a really great influence on me. My other key influences are my father and, of course, Malcolm Turnbull.
- How do you maintain a work/life balance?
I’m very focused on my family. I try and get home every night for dinner, no matter what. I’ve got four kids ranging from 13-19 and they keep me very busy. I always make sure that after hours, they come first. If you’ve got a happy family life, then you’re much more likely to have a happy work life and we apply that across the whole business. We’re a very, very family friendly business. We encourage our people to bring their kids into the office whenever they want. We have set up a break-out area in our office that has a train set, games and a TV etc – and children are always made to feel welcome. Also, we’re very flexible if parents need to work from home or attend their kid’s concert or sports match, we’re very happy for them to do that. Our family friendly focus is not just because it’s just the right thing to do, but also because we think it ends up being very good for the business as it keeps our staff happy and attracts the right kind of people.
- Do you have a charity or organisation that you support?
On a personal level, there is a wide range of charities that I am involved with. However, my key philanthropic efforts are focused on a charitable venture that is run by my wife Carole - the Orah Project. The venture is based upon an investment fund (the Orah Fund) where all funds management fees are donated to charities. The Orah fund is a fund-of-funds with 10 excellent underlying funds where the fund managers are very kindly donating all of their fees to charity. Pengana also operates the entire Orah Fund structure free of charge. The charities that receive donations from the Orah Project are predominantly associated with Jewish community backed charities that focus on disadvantaged people. The Orah Project concept was copied from Chris Cuffe’s Thirdlink fund venture. The Orah Fund was launched 6 months ago and is growing rapidly – and now has in excess of $10 million under management.