Brian Sherman, who died this week, was one of the “Equitilink twins”, a funds management duo who democratised sharemarket investing while riding the 1980s bull market unleashed by Paul Keating’s deregulation of the financial system. He was 79 years old.
This week, Sherman, who died after a decade of fighting Parkinson’s disease, won plaudits for his contribution to the arts, his philanthropy, his work on the Sydney Olympic Committee and for using all his energy and drive to transform the Australian Museum between 2001 and 2009.
But his mighty contribution to financial services, including helping build the first significant Australian funds management business in North America with $3 billion in funds under management, has not been examined in detail.
Sherman’s death has left a gaping hole in the life of the other Equitilink twin, Laurence Freedman, who, for the first time, shares his memories of a business partnership that lasted 20 years.
Sherman and Freedman’s first connection was a familial one and happened in their country of birth, South Africa.
Sherman, who was from the small town of Brakpan, married Freedman’s cousin Gene, who later went on to become one of the towering figures of the Australian art world.
Sherman was convinced to migrate to Australia by Freedman, who had already made the leap to Sydney, where he worked as a junior at global gold miner Gold Fields.
Soon after, Sherman arrived in Australia with his wife and two kids, and $5000 in his bank. He quickly got a job with the Bank of NSW, the country’s oldest bank, now known as Westpac. He worked in the fixed interest department, which soon became aware of his talent for investing.
“Brian revolutionised the way that they functioned,” Freedman says. “The portfolio had about 20 different government authority stocks and they had one common feature, which nobody had focused on.
“They were all guaranteed by the federal government. He basically sold everything and put it into one investment with superior yield and the same level of security.”
Freedman, who did an accountancy degree while studying at night, switched from Gold Fields to the Bankers Trust funds management arm, Pendal, which was a hotbed of financial entrepreneurs.
Freedman and Sherman joined forces in 1981 with the formation of Equitilink, the first funds management company specifically aimed at offering retail investors the kind of sophisticated products sold to institutions.
For the next 20 years, they shared the same office, overheard each other’s conversations and brainstormed ideas about opportunities in funds management.
What distinguished Sherman and Freedman from their competitors was the lack of silos in the Equitilink business. They managed the money, developed the marketing strategy and went out on the road to sell the products.
There is no doubt their business rode high on the surge in the value of the Australian sharemarket, which rose from $53 billion in 1983 to $225 billion in 1987.
Much of that was thanks to Keating’s reforms, particularly the introduction of dividend imputation which ended the double taxation of company distributions.
The 1980s was a fortuitous time to launch retail unit trusts because former nascent financial planning firms such as Monitor Money were open to the receipt of healthy upfront commissions.
The Equitilink domestic retail funds paid an upfront fee to the planner of 8 per cent while Sherman and Freedman earned a management fee set at 1.5 per cent of the funds under management.
But generous commissions would have been all for nought if Equitilink had not delivered market-leading returns, which it did until the 1987 sharemarket crash. Its losses were only about 9 per cent, a relatively modest fall compared with the 50 per cent fall in the ASX.
During one of the Sherman/Freedman brainstorming sessions, which were held either on long walks around the harbour or in a Japanese basement restaurant on Macquarie St, the two agreed that Equitilink should take on the US market.
They hired top-line US brokers to help sell closed-end, listed investment companies, which have the advantage of having permanent capital under management.
Freedman says these were right in the sweet spot of the pair’s philosophy, which was “risk averse, but adventurous”.
“We were, on the one hand, risk-takers, but we took the lowest possible risk with the highest potential reward,” he says. “As a result, we never borrowed money and we funded expansion from our own cash flow.”
Freedman gives a nod to Keating for the success of their first American fund, which raised about $US90 million.
“Thanks to Paul Keating and others, interest rates were about 18 per cent in Australia and about 8 per cent in the States and the Americans loved it,” he says.
The second fund, which was invested in Australian equities, was a blockbuster. The two divided up 92 cities between them and then worked for six weeks selling the idea of Australia as the centre of the Asia-Pacific region. They raised $US1 billion.
When Equitilink was sold to Aberdeen Asset Management in 2000 for $153 million, it had $5.5 billion under management, with 55 per cent of that in the US.
Freedman says his relationship with Sherman was unusual because they were both partners and rivals.
“We always had this need to compete with whoever we were up against whether it was each other or competitors,” he says.
As the Equitilink business grew, Sherman and Freedman turned their entrepreneurial talent to corporate situations using their own private funds as well as the Equitilink “treasury” funds.
Their most famous corporate play was Telecasters North Queensland, which had a major shareholding in Channel Ten.
The Equitilink twins joined forces with American media guru Izzy Asper to gain control of Ten. Others in the ownership consortium were Jack Cowin of Hungry Jacks, John Singleton, Isi Leibler, Robert Whyte, AMP and Steven Skala.
Under Asper’s leadership and Ten managing director John McAlpine, the station owned the 16-to-39 year age group with programs such as The Simpsons and Big Brother. The consortium bought Ten from Westpac in 1992 for $230 million and within five years it was worth $650 million.
Sherman’s fight against Parkinson’s disease was described sensitively by Jill Margo in a lunch with The Australian Financial Review earlier this year.