Welcome back to the Rate of Change with York Wealth Management.
As advisors to some of the wealthiest families in the country, the Rate of Change is a podcast
designed to help you in the pursuit of building long-term wealth through the insights of some
of the brightest minds in asset management.
I'm your host Murdoch Gaddi and in today's broadcast, we're speaking with Cameron Brownjohn,
the CEO at Federation Asset Management about investing in mid-tier Australian private equity.
If you're an investor familiar with private equity or this is your first rodeo in exploring
this asset class, then I think you're really going to benefit from Cameron's experience
and insights.
Federation has roughly 2 billion of funds under management in which institutional investors
such as BlackRock, KKR, Goldman Sachs, Suncorp, Hestar, family offices and more comprise
of roughly 85%, whilst the remaining 15% is wealth management investors.
Cameron unpacks some of their investments such as they have Australia's third largest
childcare rate, a disability housing rate, Australia's largest battery, wind farms, financing
businesses targeting the Australian aging population, mid-tier private equity as a whole
and we discuss whether or not nuclear energy is a viable solution for Australia.
The institutional business has been targeting a return on investment per asset by the time
it's sold of roughly 60% for the life of the asset, whilst the Federation Alternative Investment
Fund too for both wholesale and retail investors has averaged 17% for the past 12 months as
of time of recording.
Before we get into the conversation, please remember this podcast is made for entertainment
purposes only and not to be construed as any form of advice.
I encourage you to listen to this glamour at the end of the rockcast and to keep your
feedback coming.
You can reach me at mgatty at ywm.com.au.
So with that being said, I hope you enjoyed this conversation as much as I did.
So sit back, relax and enjoy it.
Cameron Brownjohn, welcome to the Rate of Change with your cloth management.
Thanks for having me.
Why don't we kick things off and just telling us a little bit about yourself and how you
got into financial markets.
Thank you.
I'm a 47 year old father of four, wasn't always of course, graduated from university, studied
commerce and law and took a job at one of the global investment banks.
I was fortunate enough to work with those guys around the world.
So I spent time with them in their New York office, in their London office, in their Hong
Kong office and of course in their Sydney office.
And sometime early enough in that journey, they moved me from advising clients across
to managing the firm's balance sheet.
I guess I got poached ultimately to join the Macquarie group, worked for some of the famous
people there at Macquarie and in 2018 was fortunate with a group of the Macquarie team
and I where we decided to go out and invest for other clients, not just Macquarie's balance
sheet and hence Federation was born.
That's fascinating.
To run a balance sheet of a firm, look, I know we're going to get into Federation and
private equity, all that sort of thing, but what was it like literally going from buyers
making investments to essentially running an entire company's balance sheet from the
get go?
Running a section of the balance sheet.
Oh look, it was great.
It's nice to have reach and relevance and to put to work some of the things that you'd
been working hard to learn in your career.
I guess that comes with it.
I need to be right in some of those seats, you won't be thanked for being wrong.
I think it was excellent.
I've enjoyed my career to date and certainly my time at Macquarie group was no different.
The reason why I find it so fascinating is half the reason why we do these conversations
is to get to another person.
We're going to get into the assets and what you've been buying and why you've been buying
it, but I just find it's so fascinating the journey about how you get there and how that
shapes the way you think.
So did you find that having that experience of learning essentially how to run the business
first and then seeing, as you said, the ramifications of the decisions, the good, bad, the ugly
and the impact that has, has that molded how you think about investing in these private
equity businesses?
I guess listening to your question there, sort of two things sprung to mind.
One was don't lose money.
And the other was just kind of this journey that you're probing at what I've enjoyed the
most about it.
So yes, I think investing in investment banks capital into the sorts of exactly the same
things that Federation does, probably myself and my team have just been trained to look
for downside protection and to try and find a way to not lose money before we turn our
minds to how we will make money.
So probably now wired to not be one of those teams that tries to swing for the fences and
make 10 times our initial investment on a deal and then the next deal.
Don't lose money.
So we're probably not suited to venture capital.
There are some venture capital firms that fully expect to be losing all of their capital
on 30% of their deals, but they hope that they're really good ones make that and more
for them back again so that as a portfolio, they can do really well.
And they'll unashamedly tell their investors, well, if we're not losing money on a deal,
we're not taking enough risk.
So that's a very different way than the Federation team and I have been, I guess, through that
journey wired to think.
So don't lose money would be our key area that we, I guess, we start from thinking about
and then we try and grow our capital or our client's capital from there.
The other element-
Sorry, go ahead.
Go on.
I was just going to say the other element that you're probing at with these early questions
is kind of like my career and what was it like and what you kind of almost from a certain
perspective, what are your most joy out of it in terms of that would have therefore shaped
the direction of where you're headed.
And I've thought about that question a fair bit.
At least I've been asked variations of it in the past as well.
And my answer is definitely I've enjoyed working with entrepreneurs or families or people that
have built a thing.
And I guess was always fascinated in these people that have grown a business or grown
a portfolio of their own investments or gone out and achieved something notable in the
business world.
And in the seats that I've been able to sit in for people like the McCrory Group, I've
got to spend a lot of time with these people, sort of fly around on planes and try and buy
businesses or do something together.
And so get to know them quite well over dinners or just traveling in taxis or whatever it
might be.
That probably was a key reason why in my early 40s, I left McCrory to be a founding partner
of Federation because probably my appreciation for those people who've gone out and done
something to grow something probably led me to also want to have a go.
And circa 20 years, maybe a slightly under 20 years into my career at that time, it felt
like a good time to do it because, well, firstly, I'd been working together for a long time
with the teammates that I left to start Federation.
So we knew that we worked together well as a team.
I'd made some good investments and figured that others that were aware of that would
potentially back Federation with some capital to allow us to start.
And then also, I guess, just in terms of running these investment teams at these places, and
ultimately, I was running McCrory Capital's principal investment team out of headquarters
for this region.
I guess I'd seen what not to do as well and probably have those life lessons and investment
lessons in my mind.
So I felt like it was a good enough time to start.
Yeah, I couldn't agree more.
The thing of the expression is you can teach finance, but you can't teach experience.
That's probably right.
So okay, so Federation, in a nutshell, for someone that's not familiar with the firm,
what exactly do you guys and girls do?
Thank you.
Federation's a private capital firm based in Sydney, Australia.
We focus on investing in businesses and assets that meet social and economic needs.
At the moment, most everything has a nexus to Australia, although it need not necessarily
always be so into the distant future because some of this team have experience of working
around the world.
We manage a little under $2 billion of client commitments, and there's 23 of us right now.
I guess the key areas of expertise that people would know us for are threefold.
One is mid-market private equity.
So we have a very strong track record in mid-market private equity and over all realized exits
that we have achieved as a team.
So cash getting back into someone's bank account, not some spreadsheet saying that values have
gone up.
We've achieved 60%, 6-0% gross IRR in aggregate now into our 14th year.
The next of the three areas that we're notable for is sustainable infrastructure.
So we have a different team of people that own, we think, Australia's best renewable
energy platform.
We own one of Australia's biggest batteries.
It's big enough to fuel Canberra, but we don't fuel Canberra with it.
We have contracted it, fully contracted these assets, and that asset is half contracted
to shell inflation link for over a decade, and the other half is contracted to Energy
Australia inflation link for 10 years.
And we've got another generation asset, again, fully contracted.
So we've got an infrastructure team that looks for fully contracted inflation linked cash
flows, and that team has done very well in infrastructure.
Their track record is 23.5% gross IRR on realized performance.
And that is in infrastructure excellent.
And then the final area is real estate.
Some parties consider it social infrastructure, the areas of real estate that we're investing
in.
I guess in short summary, we have from scratch built what is now Australia's third largest
child care rate and probably Australia's largest NDIS rate, so these specialist disability
accommodation rates that you read about in the paper.
Federation would manage probably the largest.
If not the largest, it would be the second largest, and Macquarie would have the largest
of these things now.
And both of those asset classes are performing incredibly well for our investors as well.
So mid market private equity, and we also have real asset pools of capital as well,
probably that play the same sort of thematics that we do on the private equity side, but
just on doing it on the real asset side.
What's the unpack there?
And we'll get into that.
I suppose what people just kind of want to get their head around a little bit is people
listening to this are probably high-end family officers, incredibly wealthy people, but there's
also a number of people there that retail investors or normal wholesale moms and dads
are something equivalent.
So one of the things we're discussing off air is you have an ability for different types
of investors to access what you're doing.
Do you want to break that down and how the mechanics of that work, please?
And the other reason is you're saying 60%, right?
But then when you go and look at the returns, it says something different.
And if you could explain that, that'd be great.
The returns in the unit price of more recent unit trust for wealth management channel,
yes.
So to explain, about 85% of Federation's capital comes from institutions and the remaining
15% come from perhaps people that are listening to your podcast and others like them, generally
speaking, the wealth management channel, people that may manage their own money, people who
are in family offices, people whose financial advisors have decided to allocate a section
of their portfolio into the things that Federation's doing.
It's probably fair to say with our institutional clients, we tend to lock them in for a period
of time.
Most commonly across the industry, they're committed for about 10 years.
And it is the same for the things that Federation does for our institutional clients.
Generally speaking, these people commit to us for 10 years and we try and do a good job
for them and at the end of the decade, give them their money back and hopefully, hopefully
their profits with them.
It doesn't work the same way in wealth management.
We have in the past and certainly in our first wealth management fund, given a five-year
version of the same thing, takes people's money, do a good job with it, but lock it
up and not allow redemptions for five years, give the money back and hopefully the profit
with it.
And that's certainly the way it's looking like behaving in both of those instances today.
But a little over a year ago, we were asked by a range of our clients to provide a liquid
private equity solution and it's this liquid private equity solution that has been performing
to an annualized rate of return of 17% on a mark-to-market basis, on a net basis after
performance fees, after management fees, after costs, after everything.
So net returns, share price, kind of equivalent related to the investor's perspective.
But that's only been in existence for a little over a year.
So firstly, 14 years of track record and one year of track record are different things.
This thing has been achieving a 17% net unit holder rate of return since inception.
And the difference to our institutional products that investors are able to access this fund
every single month and they're able to redeem every single month.
And we have to therefore set the unit price every single month.
It's the team's most favorite day every month where they have to value their portfolio companies
and our valuation committee signs off on those valuations.
This is an independently chaired valuation committee, I might add.
And it's that work that trickles down into the maths of what our unit price might be
every single month.
And we invite and permit investors to increase their allocations or for new investors to
join at that unit price.
And we permit people to redeem under the terms of their redemption mechanism with us every
single month at that price.
No fees, no costs, no drag.
If people want to get out, they can get out at that same price that people are getting
in as well.
We've been asked how we manage this liquidity.
And we can, of course, go on and explain that we've got a diversified portfolio and there's
a natural cadence of portfolio investments rolling in and out of the portfolio over time.
That's of course true until it is not.
So ultimately, we need a logical end game for how we fund our redemptions.
And in our instance, it's cash.
And so the simplest way to think about it is that if redeemers want to redeem, they
get the first call on the cash available in the tin before the next cool investment the
team wants to do, I guess in short summary.
And like other versions of this same thing, there are others that provide liquid products.
Generally speaking, they're the global investment houses, someone like Partners Group, someone
like Hamilton Lane, someone like Schroders.
They all have versions of a liquidity mechanism, usually monthly or quarterly.
In our instance, it's monthly.
So we think best in class in the same way as others in the industry find it within private
equity prudent to cap the level of redemptions so that you don't have a Mary Poppins style
run on the bank.
You need an ordinary orthodox exit of a private equity portfolio if it is that you are to
achieve full and fair value.
The redemption mechanism is therefore capped at 5% of NAV per quarter.
That's not to say you can get five cents in the dollar of your money back.
That is to say that we think less than 5% of unit holders would want to redeem any given
quarter.
That's certainly been the case in our history.
I guess it's not until it is.
And so you need some very clear guidelines as to how much the redemption capacity will
be capped at.
So does Partners Group, so do the others.
And we are industry standard in providing that liquidity up to 5% of NAV per quarter.
Not to teet your horn, but look, in all seriousness, 17% is not to be sniffed at.
And I'm a big fan of private equity and the ability for companies you may recommend to
high quality other firms that give access to this particular asset class.
I think it's fantastic.
But there's a big gap between what other people are getting returns wise to 17%.
And I just want to make that incredibly clear because 17% isn't exactly normal in this space
unless you're going physically directly into the asset class and you're moving all the
middleman stuff.
Right?
So do you want to give a bit more clarity?
And I think we discussed it off air, how it works.
But do you want to give a bit of clarity on that?
And then we'll get into the fun part, which is what actually are the assets and how you
actually bake this cake.
Yeah.
Okay.
Well, 17% is below our realized track record, and we certainly hope to continue to successfully
build wealth prudently for our investors.
So yeah, thank you for the, I guess, the pat on the back.
We're pleased with how we're going.
And we would hope that our performance will at least achieve the same level and ideally
improve from 17% because it's below where we've sold companies and it's below the latest
exit that we've had, which I'll speak to in a second.
I guess when you're valuing your portfolio every month, investors will be certainly unhappy
if I over promise and under deliver on our returns.
And I think there is therefore probably a minor bias towards conservatism in how we
value the underlying assets.
I don't want that to sound like we're sandbagging the portfolio because we certainly are not.
We are trying to find fair value every month and we are hand on heart and our valuation
committee is hand on heart believing that these valuations that we set for each portfolio
entity is fair.
But if you are on the bias of conservative or aggressive side of those marks, probably
history has shown we're on the conservative side.
There's probably a key reason for that being consistency of valuation approach.
So one of the way private equity firms make money is to buy well.
Another way is to manage the company's well and another way is to exit well.
There's a range of other things people can do.
You can use balance sheet to buy growth.
You can do all sorts of tricks but at its simplest, buy well, sell well and manage well
in the interim.
So we certainly try and do that.
And the valuation parameters that we use entering an investment, we will stick with in how we're
valuing a company through its life cycle.
I'll give you a hypothetical example.
Let's say a healthcare facilities business, hospital or hospitals company.
We do not have one in the current portfolio but we do know a fair bit about that asset
class.
Let's say if we were to buy a hospitals company, we might think that a key valuation parameter
might reference say it's EBIT or it's EBITDA.
And so we would look at a basket of other hospitals companies, people like Ramsey and
HealthScope and others and we would reference say where their multiples are trading.
And let's say I'm not sure where Ramsey is at the moment.
Let's say 12 or 14 times EBITDA and we've entered our investment at eight times EBITDA.
So a discount to where the prevailing comparable companies are valued on the stock market.
We would retain that discount over the life of our investment.
So if Ramsey goes to 20 times, we may mark up our parameters that we value the earnings
of our company for every given month, but we won't mark it to 20 times.
We'll keep that same pro rata discount.
And so conservatively probably marked versus bouncing it straight to haha, we've bought
this thing wonderfully.
It's definitely worth 14 times and we've paid eight times.
Let's mark it straight to 14 times because who knows that that's right.
You need evidence and time to confirm that that's right.
And there's no rush to confirm that that's right.
The only time the proof will be in this pudding is when you sell that asset.
And so that's, I guess, probably why.
One of the reasons why there is a difference in 17% and 60% of a gross realized IRR in
what we've achieved in PE historically.
The other obvious one occurs to me is just time period, 14 years of data versus one and
a bit years of data.
There's going to be some fuzziness in that there.
Turning to sorts of investments that we're doing and maybe starting with this latest
exit that we've had, which was a contract research organization.
So it was a health care business, a health care services business.
It's called George Clinical.
We invested in this business in November of 2019 after about a four month exclusive due
diligence period.
So this company came to us seeking some growth capital, which was nice.
We were approached exclusively.
We were known by this company as someone who could help them with our knowledge of health
care services and things that they were wanting to do with their growth of this business.
And fortunately, in our background, we had directly been invested in a company with a
contract research organization.
So kind of recommended that we were good enough people to work with and that we could help
them with the things that we're thinking about.
So coming to us was nice.
Doing four months of exclusivity to really get under the hood of the business was nice.
And then ultimately investing in them was nice too.
Through that due diligence period, we, I guess, wanted to believe the things that management
were telling us would happen with this company.
We wanted to believe that the growth and their business plan would manifest, but we were
worried about a couple of the factors that they were telling us that maybe wouldn't come
home to roost.
And so it would be fair to say that they thought EBITDA would be here and we thought there
was a risk that it might be slightly lower.
So we explained to them that, look, we're willing to, we really like the business.
We really like the shape of what they're doing.
We really liked the evidence of what they'd all done before.
And so we wanted to give them the money to achieve the business plan that they wanted
to achieve and we wanted to directly plug in with our operational skills to help them
do it.
And we thought that that would all work, but we were worried about being edge of value
equity at the price that they were asking for.
And so we said, look, two things.
We can give you money at a different price, or it would be actually our preference to
just put our money in as a convertible note, debt, there was no debt in the company of
any consequence.
So put our money in as firstly in debt, first dollar out.
But importantly, to retain this equity optionality.
So a debt that can convert into equity, a convertible note.
And we said being debt, and this note, by the way, was a five year convertible note
with a four year conversion period.
So that allowed us to be on the board, have excellent information, inside information
on what the company was doing.
Great transparency on all of their reporting, direct working relationship with CEO, CFO
and their teams.
But importantly, be debt and protected way away from the edge of value.
Through that debt like period, we negotiated an 8% coupon.
But we explained to the management team and they got it straight away that our investors
are not giving us money to achieve an 8% rate of return.
We want to believe in the equity story.
So we were positively predisposed to converting to equity.
So if all of the things that the management team is saying will happen, we'll of course
convert to equity.
And then they'll get the money that they wanted at the price that they wanted in the first
place.
So it's kind of like, here's the money, back yourself.
And if all these things that you're saying are going to prove to be true, then you'll
have like it's all the same to you because we won't be dead anymore.
We've converted to equity at the price that you wanted.
And you know what?
To their great credit, they did.
They did back themselves.
And to their great credit, they were right and we were wrong.
Earnings was what they like.
We did get that and more of what we all hoped and dreamed would happen with this company.
And on the way in, Bupa, the global healthcare investing company, sort of saw what we were
doing and liked that and came in alongside of us.
And I guess we were fortunate to credentialize ourselves with that.
And it's a good evidence of this, I guess, federation-ness of what we can do with our
client's capital.
We commonly blend our clients, our wealth management client's capital in this instance
with institutional capital, in this instance, Bupa came in alongside exactly the same thing
that our wealth management clients were doing, exactly the same terms.
So how did this business go?
We were in it.
We entered in November of 2019 and we exited ultimately in July of 2023.
So we're in there a bit over three and a half years.
And over that, I'll note those dates, 2019 to 2023, COVID happened in there.
I've heard lots of people complain about operating performance of companies through COVID.
Well, this one, we grew by three times.
We grew the earnings of this company by three times, including through COVID.
And it wasn't going that well through COVID.
People weren't doing drug trials through COVID, but we didn't lose any contracts.
And in fact, we gained and grew the business, at least their contract book materially through
the period.
And so at all of the right settings and systems and processes and cash flow management, cost
controls, but all still the same settings for growth that you would want in a growing
company all kept pretty integral, even through COVID.
So it was that when it came out of COVID, which inevitably was always going to, it performed
well.
And earnings between our entry and exit trebled.
Without M&A, we didn't go and buy things.
People can go and say, my M&A is three times.
But if you put three times as much money in, there's no scale on your equity.
We did not have to do that.
Three times earnings without buying it.
Three times earnings through organic growth.
And to my earlier point around buying well and selling well, when we exited, yes, someone
paid a higher multiple than we did on our entry.
And so the money multiple that we made for our investors over three and a bit years was
4.7 times money.
So someone gave me a million bucks.
I gave them $4.7 million back.
And that is an IRR of 59.8%.
So sorry if that was a long way to go.
No, no, no, no, I actually prefer this.
I find this fascinating.
So how big was the convertible note?
I don't know if you can discuss that.
It's of less consequences.
The reason why I'm phrasing that question right is what was the percentage of the two
billion because then that determines as well how it moves the needle on the other end.
I think the way I would have you think about federations sort of hitting zone in mid-market
private equity is kind of 20 to $50 million checks.
And so our business is often might be, say, 200 and at the upside, maybe $500 million
of enterprise value.
So they're not new companies.
They're long-term successful companies.
And they've kind of grown into that $200 million of earnings or so.
And probably this, sorry, $200 million of capitalized value or so.
And it was sort of a similar consequence here.
To answer your question strictly, convertible notes were about $30 million into this business.
So perfectly suited for a growth equity investment.
Importantly, with Federation, we can be more than 50% of the equity of a company.
And we're equally happy to be less than 50% of the equity of a company as long as we have
the key package of controls, positive or negative, depending on the circumstances that we require.
And if we can find mechanisms for this downside protection, just like we did with that convertible
note in this instance.
But short answer, it was a $30 million aggregate convertible note tranche.
I find the mechanics of how this all works fascinating.
I'm quite familiar with it, but a lot of people aren't.
So you have four years term on that convertible note.
You bought in 19, sold in 23.
When did you actually convert it to equity?
We didn't need to convert until after the sale agreement.
So with certainty.
Really?
So you can potentially organize the sale, get everyone backed in, and then decide you
can still convert in the sale of that process.
The amount of downside protection to do that is huge.
Now I want to know about the other businesses that you've been buying.
Actually one other thing, which I just wouldn't mind you explaining the universal landscape.
What exactly, for a lot of people that are familiar with this, is Australian mid-tier
infrastructure.
Does it include toll roads?
Can you go anywhere or are there some things you're like, I just don't want to participate
in that space?
Well we have done toll roads as a team before at Macquarie, but no, Federation is mostly
interested at the moment in this renewable energy boom that is going on in Australia
and other parts of the OECD.
Some people in your program will be happy to hear that and they'll think someone's
out there doing a good thing for the planet.
Some people listening to your program will be climate skeptics perhaps.
From our perspective, we aren't doing it just to make the world a better place or not.
We're doing it because you can build things into an area of need and people will sign
long-term inflation link contracts for you to do so.
So we're doing it to make money for our investors.
It's an important point to highlight to your listeners.
We think first and foremost around how to protect our investors' capital and how to
grow it.
We are pleased as a team that in the areas that we play, we are doing things to help
make the world a better place.
The healthcare example I just spoke of, we talked around mechanics and business and return
profiles and $4.7 million for every million dollars.
But that business itself is one of the world-leading entities involved with renal dialysis and
it has also non-trivial involvement in areas of cancer care.
That's a cool thing to be involved with and help to grow.
In renewable energy, in short summary, or in infrastructure in this country, the only
things we've really done at the moment is we've bought into the former CSIRO, Wind Science
Division and we're helping to grow it.
So it previously was government, then commercialized, it then IPO'd and Federation took it private
in 2020.
We've grown that business material and I'm happy to talk about that if it's of interest.
And then we also own one of Australia's biggest batteries.
And we're doing these things because corporate Australia really likes the ability to lock
in long-term energy purchase agreements from us.
And we like that because others pay us, well, it's like the rent.
It's like they rent the capacity of these things on an inflation link basis for a long
time.
So our most recent power purchase agreement that we signed was with Rio Tinto, an A-rated
company, a mining company.
And they signed that agreement with us for 25 years.
And they did it on a 1.2 gigawatt slice of assets.
It costs about two and a half million bucks per megawatt to build a wind farm.
So they did that on three and a half to $4 billion asset.
They have underwritten a three and a half to $4 billion asset for us over 25 years inflation
length.
That's good business.
And we'll do that as much as we can.
That's huge.
Do you want to walk through how that works and give a bit of color around those assets?
Okay, excuse me.
So Windlab, the wind farm platform, it was formerly a listed company, as I mentioned,
and Federation privatized them in 2020.
And in fact, our wealth management clients capital, co-invested alongside Andrew Forrest's
Squadron Energy.
So we own that business with Andrew and we have since 2020.
And I will note that they've been good partners.
And we've invariably agreed with most everything at the board table.
And Andrew and his team have been good to work with for the avoidance of doubt.
So it's been a happy symbiotic relationship where we've all brought things hopefully to
the table consistently and well.
The business when we bought it, we just thought the listed market was pricing it improperly.
Kind of the listed market didn't get it.
And there's a number of instances where history will show that to be true.
And this one is another one of them.
So when we bought it, it had assets and operations in Australia and the United States and some
countries in sub-Saharan Africa.
And we're kind of working through it, the management team and said, if you haven't noticed,
there's $150 billion worth of deployment in the next little while in Australia because
the coal-fired power stations are becoming too old and they are being switched off because
they are uneconomic and they're breaking down.
And their shareholders are no longer making money or as much money as they need to out
of these things.
And this capacity is being replaced by renewable energy.
It's not a matter of whether it should be or not.
It is being replaced by renewable energy.
Why don't you just focus at home?
There's so much to do.
Don't be distracted with these little things you're trying to do in America and these other
random countries in Africa.
And they said, you know what, fair enough.
And so we sold out of the international assets.
And to my earlier point of the listed market not pricing Windlab properly, well, the random
non-core international assets, we sold them for more than our entry price in Windlab in
a year or so.
So within a year or so, we had got all of our money back from our initial investment
and then some, and we've created Australia's biggest and best Windlab or Windfarm platform
for less than three.
And we've then materially grown it, I don't know, by a factor of five or more times the
development size of its book.
And along the way, probably solved a couple of problems in there that we inherited.
So a couple of things when we were buying in were multiple years late.
Well, one of the reasons the management team, I guess, wanted to work with us is that we've
got some skills to bring to bear into that sector too.
We fixed those problems and those assets are now humming along at nameplate capacity and
working properly.
So Windlab so far has been a happy investment.
We continue to hold it.
We haven't exited it.
I'm not sure that we have plans to exit it.
Obviously, you would always be mindful to sell it at the right price at any given time.
But if I had my preference, we would be in Windlab for a while longer yet because this
renewable energy wave is only really starting.
So that's one example.
Maybe I can give you more if you want or we can follow you.
No, I just want to look.
The beautiful thing about this conversation is you just, you know, it's like an onion,
you pull back one layer and you just keep going.
What's left?
Go on tangents.
Well, my brain's running over here.
I do have one question for you since you're in this renewable energy space.
What is Australia's, as you're saying, you're investing in assets that essentially Australia
is backing and hence they're paying you for it, which is fantastic.
But I've had a number of very interesting conversations regarding what's happening with
uranium nuclear power, these smaller reactors that are half a football field.
Is there a place for nuclear powered power stations generating very clean energy in Australia?
Is that even in conversation?
If it wasn't conversation, would you look at that as a class or is that currently, you
know, a no-no because people just still remember Fukushima and Chernobyl and they just can't
get their head around it.
What's happening in that space?
It sounds like that's the solution to most answers and the UK is putting in how many?
Yeah, thank you.
Gee whiz, politicised topic.
Half of your listeners will like what I'm about to say and half of them will hate it.
I'll try and not express it, my answer, from a political perspective, but just sort of
focus on the realities of and the pragmatics of what we're trying to do.
I guess in very short summary, nuclear on a levelised cost of energy basis is more expensive
than renewable energy sources.
Nuclear has a range of tail topics that need to be thought about not just by a company,
but by a country, like how you deal with waste, etc.
And you will be able to live in the community with a wind farm if it doesn't go the way
you think it will.
Nuclear won't if that happens in nuclear.
So it's not even difficult to say that nuclear is more dangerous.
The tail risks with them are profound.
If it is that nuclear becomes an investable asset class in this country, I think it will
be a very long way away.
And if it becomes an asset class at all in this country, I think it should certainly
be the preserve of government, not the private sector for a protracted period of time.
Because the private sector is driven by other motivations, like making money for their clients.
And I certainly don't want to be living or having my family live near a nuclear power
plant if profit motive was one of the key topics.
So yeah, more costly, not as effective and dangerous.
Now a lot of the world have nuclear power stations.
And so that's obvious that a lot of these other markets are bringing them to bear or
have them to bear.
And nuclear has been around for nearly a century.
And so hopefully some of the ills of the past have been learned from.
So I can see why there is a debate at national level for these things.
I will make the point that Australia has got an enormous geographic landmass.
England doesn't.
So just because England's looking to find a fuel solution that fits them, by the way,
England had a nuclear power industry for a very, very, very long time.
So it's potentially more obvious for them to think of bolt-on solutions to it than we
do.
Because, yeah, we've probably got an ability to consider nuclear, but we don't have an
entrenched industry like they do.
But England doesn't have as much land as we do.
We've got heaps of land.
And so the relative efficiencies of one industry to the other and then the background and legacy
way that the grid has been fueled in these countries should also be considered when the
debate turns to just because they're doing it, we should do it too.
So that would be my view on nuclear.
And probably it isn't an active topic for Federation to be talking about because we
cannot in any realistic timeline, even if it was going to be the next greatest thing
since sliced bread, deploy our client's capital into it.
And we certainly wouldn't be the first to invest into the sector.
And so this is a topic for very distant future, I suspect, in this country, pragmatically.
No, it makes sense.
Just trying to get an idea of what you will and what you won't do.
But it's also a very interesting topic on what's happening around the world.
And you're mentioning renewable fuel sources.
And my thoughts on this, and yes, it's politicized, is essentially there's a game being played
at a very large level.
Yes, sometimes it's cash.
Sometimes it's power.
Sometimes it's leverage.
But when you have one country or four countries that control the gas supply and the oil supply
of a very large portion of the world and others don't, well, if you want to survive and a
war comes, it hasn't been one for a very long time, like a global one.
You need to wean yourself off particular resources and make yourself self-sufficient.
Not necessarily a problem Australia has.
I was just curious, considering you're looking at it not from a politicized lens, but from
a business side, as what will make us money and what is Australia backing?
I was just very curious.
And I appreciate your thoughts on that matter.
What asset haven't we discussed?
Here's a better question.
Since you've just sold an asset, is there anything you're looking at now?
What catches your eye in Opportunity Land?
Yeah.
Yep.
The team's pretty frazzled.
We worked pretty hard even through the Christmas break.
And often investment teams might get a bit of a break through Christmas, but it wasn't
us for us this time around, unfortunately.
So yeah, the team's running pretty hard at some of the things in front of us.
I would think we would be known as having skills in some of the sectors we've touched
on today, but there are other ones that we would be known for having skills in.
One of them is in financing businesses.
And we really like the idea of applying financing now to the aging population thematic.
We like the idea of businesses that allow retirement age Australians to access the latent
equity value in their home.
There's been a finite range of these products historically done in this market.
Things like reverse mortgages or things like Bendigo and Adelaide Bank's equity release
business, Home Safe, which takes upside in people's homes, basically buys a bit of the
future sale proceeds in them.
We like that sector.
We did that sector when we were at Macquarie and we think there's profound opportunities
to grow that sector in this country.
Australia relative to Canada, for example, we're well behind them in what we do there.
Australia relative to England, they've got their nuclear power industry.
They've also got a far bigger senior financing industry than we do here.
We like that area and we think that it's a direct area of service to a growing need with
aging population and we think we can do it well.
We've been in and around that space looking at all of the various ways to play it and
that would be, I think, at the right time and right terms and right price, something
that I think we'd be very interested to do.
We continue to grow what we're doing for our clients in real estate as well.
From scratch, we've built now Australia's third largest childcare rate and largest,
I guess, home builder for people with disability and the NDIS pays the rent there.
Both of those things are resilient through an economic cycle.
We mentioned COVID earlier.
Both of our rates got all of their rent on time and on budget through COVID.
No discounts, no delays.
That's not many people can say that and that's a good and rigid way that we can stand in
front of our investors and say, look, the growth trajectory of these things are good
and they're robust and they can weather the storm.
But on the childcare one, one of the other firms that I'm familiar with, they had a big
problem in New York.
I think they're the largest childcare in New York.
New York got shut down and it was to the point it was actually during COVID, it was their
main asset that had its head knocked off and they had to reach in their pockets, refund
it, boost it all up.
Now it's looking fine now.
But I just find that very interesting that that happened in New York and you're saying
that you're the largest in Australia.
Australia's fine.
New York had its head knocked off.
What was the main difference?
Third largest, we're the third largest.
Sorry, third largest.
Apologies.
The two bigger ones are listed.
There are a number of differences between the two markets, including the way that you're
paid.
So there's a degree of bipartisan governmental support for childcare, women in the workforce
kind of thematic in this country.
That's not necessarily true for other parts of the world.
And then just in the instance of COVID, the ability for people to leave their apartment
in New York versus and access services like childcare was different to experiences in
our market.
In any event, we are one step protected from this risk of whether kids will turn up or
not.
We're the operator, as your reference in New York might have been.
So we don't teach the kids how to count and feed them macaroni.
We're just the landlord and the operator pays us the rent.
So they're taking the first line of attack from whether 100 or 50 kids turn up on any
given day.
I don't care.
They're going to pay us the rent.
And the rent is backstopped by bank guarantees.
And those bank guarantees invariably are cash collateralized.
And this is a key reason why we want to be working with the big and good care groups.
So the major childcare brands that you would see in the market, not the mom and dad shops
who might have gone bankrupt if it was that we forced them to keep paying the rent.
The big companies that we were dealing with, look, that's why we wanted to deal with them.
They have the financial resources to weather that storm.
So why should we weather it for them was really the policy that we took.
Look, they explained probably some of our shortcomings to us around that policy, but
they missed most of them.
And they missed most of our shortcomings, but they paid the rent and they had to because
that was what they said they'd do.
So that's probably a key difference.
And so both of those real estate investment trusts are doing well for our investors.
Blackrock is our major investor in what we're doing in childcare.
They like it because they think it's a cheap version of the two bigger listed ones.
And they like that we're growing faster than those listed ones.
So hopefully if we keep going the way we're going, we'll catch up to those guys.
And Blackrock think it's great that they can access alongside our wealth management clients
while the same sort of thing that they can through an arena, but cheaper.
And similarly on our disability housing rate, KKR have recently signed on as an investor.
Goldman Sachs was an investor before them.
Hestar Suncorp, some of the major foundations and families in this country and our wealth
management clients are invested in that.
So I guess two data points again of people listening to your program and their ability
to access assets alongside in parallel, no fees on fees, same pro rata rights as the
world's biggest and best institutions.
Yeah, no, it's pretty interesting.
I could keep going this all day, just conscious of time.
One question I love finishing on is, what keeps you up at night and what gets you out
of bed in the morning?
Yeah, I think we think a lot about maintaining our settings and our footings and where we're
going as a business for our clients.
And at a business where I guess we've been blessed to be provided a little under $2 billion
of client money to date, that's more money than my personal balance sheet.
That's a lot of money.
But in the world of asset management, in the sectors that we're playing in, it means that
we're up and out of the ground and we're profitable, but we're at the stage where we need to be
a shark that keeps swimming to survive.
So continuing ability to find ideas and do good things prudently for clients, we think
heavily about.
The other thing with these firms, you're only as good as your people.
And so we think really heavily about making sure that we're an employer of choice and
a place where people are heard and valued.
We really try and have a culture that's got a flat structure and kind of a sense of we're
all in it for the right reasons and pulling in the same direction.
And I would give us a relatively high score out of 10 on how we think about both of those
things.
We try and be thoughtful as a business.
In terms of things we're worried about from an investment perspective, if that's where
your question was coming from, I think where we're-
It could just be kids, mate.
It could just be not sleeping.
I think about my kids all the time.
My children are 17, 15, 13 and 11.
I have two boys and two girls and they're all different people and they all have different
interests and different things they're into.
The 15-year-old girls going through things that 15-year-old girls go through and all
sorts of things.
So that's a topic for another day but they're all good people and I love them dearly.
Fantastic.
If anyone wants to learn more about Federation, how can they find you or reach out?
So the Federation website is FederationAM.com.
We would certainly welcome the opportunity to meet with those of interest and if we can
be helpful, please do reach out.
There's contact details available through the website.
Cameron, I really enjoyed this conversation and I appreciate you giving me a lot more
insight into what you're doing in private equity land.
I really appreciate it.
My great pleasure.
Thanks for spending time with me today and have a good rest of your day.
Take it easy.
See you, Cameron.
Bye.