Ohanessian was speaking shortly after Praemium released its full year results, which show the company recorded a net profit of A$0.8m (£0.5m, $0.6m) having posted a net loss of A$2.1m the previous year.
It looks as though Praemium has really taken off in the UK, how are you finding the market?
It’s been a really good year for us, our business is doing well all over, and we were really pleased to win International Adviser’s international platform of the year award.
We’re very happy with our UK and international platform. We transformed the business a few years ago and are now managing over £250m in assets.
If you look at the trajectory of the UK business in terms of revenue growth, it was 53% and 66% growth, year-on-year, for the last two years. Growth this year it was 76%. We’re showing that our proposition is a scalable business model. And equally importantly it is proving very popular with clients.
As a platform, technology is core to your business. Are there any innovations you have brought over from Australia?
Morgan Stanley have done a pretty important research paper which actually talks about how the Australian platform market is about to be dramatically disrupted by the sort of technology that we already have, known as separately managed account (SMA).
This happened in the US many, many years ago. And we’ve got that same technology for our UK and international clients.
It’s basically the crossover between a model portfolio and technology. That’s when you get a true separately managed account. It’s the technology that makes model portfolios work very well and efficiently. It is scalable for advisers and a cost effective solution for investors.
A lot of the platform technology in the UK market is a derivative of what has come out of Australia. And while the UK is very good at model portfolios, they’re doing it on technology that is about to become obsolete.
That’s why we’re really pleased to be in the UK and offering our service internationally. We believe that our technology is the technology of the future.
Low risk investment profiles tend to include a large bond allocation. Has Praemium’s strategy changed now that a large proportion of bonds are yielding negative returns?
There are a number of different ways we handle those sorts of issues, particularly around the pricing of bonds, which everyone is very worried about.
Our investment management team, in their strategic asset allocation and fund selection, have a variety of things they can throw into the mix. For instance, some very specialist assets, including absolute return.
We also have our new protected range of funds that have protection written by Morgan Stanley who write put options* against the funds and we protect clients’ assets to 80% of the highest value of the fund. Like a high watermark type approach.
(Put options give sellers the right, but not the obligation, to sell a specified quantity of a security at a specified price within a fixed period of time. Buyers of put options are obligated to buy the security at the strike price if the option is exercised.)
You are referring to Praemium’s Smartfund 80% Protected range?
That’s probably the one single product that we are most excited about. The Smartfund range is proving very popular because, in a world of low yield and risk on even the more defensive assets, having the ability to stay in growth assets but still have protection on the downside is going to be a winner.
We’ve had great success with this fund since we launched it in September last year and we don’t even need the market to crash a lot for the protection to kick in – it has that sort of airbag effect. So we are delivering clients a much smoother investment journey that protects them on the downside so they can afford to stay in growth assets.
With increasing market volatility, has that 80% barrier caused Praemium much concern?
In the Smartfund we are investing in index funds with Morgan Stanley writing put options against those funds. They write the options every single day and swap them the next day. So it is a very active process, done every single day, backed by Morgan Stanley. There is no discomfort at all in terms of our ability to deliver on that protection because it’s done with put options, on a global scale, with lots of liquidity.
We don’t need markets to fall 20% for the put options to come into play because even when markets move down a little bit the put options help cushion the portfolio. There was one particular period when markets were down 5-6% and we were down 1%. It smooths out the journey.
Obviously when markets are up the fund will underperform the markets because the protection costs a bit of money. But if you think about the clients, particularly those in retirement phase, they are going to be much more worried about the downside than the upside. So they are usually quite happy to trade a little bit of the upside if it means they can be involved in riskier assets and protect their money.
It’s a very robust product and with Morgan Stanley we couldn’t have a better partner.
FY2016 results
Revenue rose 23% to A$30.1m for the financial year ending 30 June 2016.
UK revenue was up 76%, while Praemium reported 10% growth in its home market, Australia.
Underlying EBITDA was up 72% to nearly A$3.8m, while net profit before tax remained relatively stable, rising 1% to just under A$1.6.
