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Welcome back to The Rate of Change with York Wealth Management.

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As advised, it's the summer wealthiest families in the country.

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The Rate of Change is a podcast designed to help you in the pursuit of building long-term

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wealth through the insights of some of the brightest minds in asset management.

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I'm your host Murdoch Gaddi and in today's broadcast, we're speaking with Vince Bezullo,

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Head of Australian Equities at Perpetual about his outlook for Aussie equities, gearing and

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activist ownership investing.

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Was founded in 1886 and is one of Australia's oldest financial services and asset managers.

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The Aussie equities part of the business manages roughly $12 billion and today we are discussing

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the Australian share fund, the geared Australian share fund, which mimics the previously mentioned

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Aussie shares fund and is leveraged at two to one and their strategic capital fund, which

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was launched back end of last year.

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For me, I really enjoyed hearing Vince discuss the activist investment fund, the new fund

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which they have and in particular, how they go in, speak with these businesses, purchase

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up, purchase a percentage of the company and then go to improve the business inside out

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to improve shareholder value.

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And one thing I found very interesting was how he mentions that aligning the right remuneration

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packages in the business is probably one of the easiest ways to create this long lasting

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positive change and shareholder return.

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So if you're wondering how the new weight loss drug like ozempic, Novonautist, Eli Lilly

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may impact Australia's healthcare sector or you just keep hearing about it being discussed

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at the barbecue, then I think you're going to enjoy Vince's insights on what has happened

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in this space and the impact on various Australian companies in the healthcare sector such as

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Red, Smed, Sears Cell and more.

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Today we discussed many companies, Vincent Pax, Blue Scope Steel, Aluka, Woolworths,

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Flutter Entertainment, Goodman Group, a French company which I can't pronounce but it's brilliant,

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IAG, Sears Cell, ResMed, Novonautist, Eli Lilly and more.

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Before we get into the conversation, please remember this podcast is made for entertainment

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purposes only and not to be construed as any form of advice.

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I encourage you to listen to this claim at the end of this broadcast and to keep your

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feedback coming.

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You can reach me at mganney at ywm.com.au.

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So with that being said, I hope you enjoy this conversation as much as I did so sit

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back, relax and enjoy it.

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Vince Bezullo, welcome to the rate of change with York Wealth Management.

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Is that okay going?

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Good.

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Really, really well thanks.

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So Vince, you've been in the market a long time.

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How did you get into the market?

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It's not really getting into the market.

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You sort of almost buy osmosis.

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When I was about 13, 14, you know the newspaper section where they had all the stock prices,

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I was just saying seeing all these letters and numbers after them, what the hell were

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they?

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So I started reading those every day, having a look, trying to understand what that all

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meant, then started trying to pick up as much information as I can, go to the library, get

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some annual reports out of the library, have a look at those.

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I don't know what that meant either.

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So you start to develop a bit of an information, the information starts to build, your interest

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starts to peak and it's just a constant sloth of trying to work out where you're going to

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go.

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When you're that young, you're trying to work out what career you want to have.

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Maybe it's at 15, 16, most people don't have that yet, but I was pretty clear I wanted

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to go work in investing somehow or in the markets and investing.

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I don't know which part though.

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I didn't know where I was going.

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So it's still an untrodden path I was going to go down for me personally.

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And I come from a different background.

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My family are not in the financial markets or any of that.

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They're all in building trade as you would expect.

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So I was going down all on my own and trying to have it a crack that way.

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And then you just meet a few people, they help you out sometimes.

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They give you, you should probably do this first and then that, etc.

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And you get a lot of help if you really show a bit of interest in something and you put

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the effort in.

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And people will always recognise that and they'll give you a helping hand occasionally.

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So then I got into economics and finance at uni and I was on my way then.

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But I was working at the same time.

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So I was working at night and I was doing some currency trading at night.

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And that was very different.

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And then in the mid 90s I answered an ad about this big in the city morning herald.

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There was no such thing as Seek back then.

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Seek does a job to go to work for State Superannuation Board of New South Wales.

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State Super, that's cool.

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Because they had an internalised, I'll tell you how this is full circle, an internalised

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management team, portfolio management team.

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So they had a full team internally and I worked in the global team first.

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I was covering UK and continental Europe sectors.

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I knew absolutely nothing.

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So I was 100% vertical learning curve.

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And I had a good boss there at the time, his name was Rob Prugay and there was a good team

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of international investors.

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Tom Codden was the chief investment officer at the time.

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And he modernised the team there, brought it up to the 20th century, no 21st century.

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But that was an interesting period to go through that where they changed the philosophy that

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actually was developed at State Super.

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And they had an Aussie equity team as well at the time.

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But I was in the global team at the time.

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So it took that period, that was like six or seven years.

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State Super eventually corporatised their investment management business and sold it

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to Deutsche Bank actually.

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It was Morgan Grenfell at the time, but Deutsche Morgan Grenfell, which is an offshore fund

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manager.

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And they took that money overseas to their teams overseas.

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And I moved over to the Australian equity team in small caps.

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And then I was there for about 11 years at that time.

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And then basically in 2007, the Australian equity business was sold to Aberdeen Asset

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Management in Australia.

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Deutsche sold it.

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And I took the opportunity to take a redundancy at the time, particularly because the tax

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rates were really good.

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So I left not knowing where I was going to go, but within a fortnight, I got contacted

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from someone at Perpetual that I'd met 12 months earlier.

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Emilio Gonzalez was there at the time, was chief investment officer.

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And wanted to buy me some of the analysts and the PMs at Perpetual at the time.

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Because you see them in the markets, you go to meetings, et cetera.

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And they offered me a role in the Australian equity team.

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And I started in basically May, June 2007, just before the GFC.

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And I was covering the banks.

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And I was managing money at State Super.

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But you've got to go back two steps sometimes to go forward.

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And I didn't consider to go backwards because Perpetual is a recognised business.

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And they've got a great track record in asset management.

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So to get into the Perpetual business, I took it as this is a great opportunity.

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And you're going to have to prove yourself again.

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And that's what life's about, continually trying to prove yourself.

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And I covered the banks.

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Banks, some industrials, REITs, et cetera.

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And I was looking at some of those non-banks, some of the high and mighty type stocks like

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Babcock and Brown and Alco and all these things that basically went to God after the GFC.

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That was an exciting period going through that.

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But I learned a lot.

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Again, you get these moments, you know, tech rec, you get these moments in markets where

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their signposts tell you, be ready to learn something because things are about to change.

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And these are the errors that everyone's making.

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This group think that you've seen is actually you've got to be very wary of it.

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And just try and recognise the symbols if you can.

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It's hard when you're in it to spot those signals.

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But yeah, so then I started managing money at Perpetual in about 2014, Industrial Share

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Fund.

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Started running that.

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Then moved through the business, launched the PIC as well, Perpetual Equity Investment

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Company, it's an LIC.

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And today I run a few funds.

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Now I'm the head of equities at Perpetual and the philosophy, more importantly, the

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philosophy and the process from when I started, the people I knew before Perpetual, it's very

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consistent.

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The reason you joined Perpetual is that the culture is well defined, the philosophy is

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well defined and it doesn't flex.

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The philosophy is what it is.

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The way we invest is very strict.

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What is the philosophy?

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So we're like, we focus on quality envy.

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So there'll be times in the cycle where you'll probably be a little bit more exposed to quality

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businesses where you know typically the cycle is very extended.

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You feel like you're getting close to the peaks, the economy is probably running a little

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hot and you're going to start to see some weakness or policy response to slow things

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down etc.

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Those are the sort of things, those markers you look for.

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And at that point the quality part of the market will typically hold up better, typically.

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But then there'll be a point where you know you'll get your curves start to steepen etc.

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You want to be exposed to value.

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Right.

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And you want to be a little bit concerned in that point because you need to move into

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value well before the market recognises that you need to be in value.

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So we have this element of trying to pay the right price for quality when it's available.

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When you get a really great company, occasionally and I think the COVID sort of fleshed that

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out a bit, you had really good companies like trade down 50% and on a look through basis

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start trading on very low multiples.

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And that was an opportunity to really high grade your portfolio and take some risk in

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really good companies that you couldn't buy before because they're just trading to expenses.

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The valuations were way up there.

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But at that time, if I was to focus on COVID a bit, you did see these hugely contrarian

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opportunities in the market.

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You saw access to trade below replacement value, businesses to trade below replacement

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value during COVID, which was as long as their balance sheets are okay.

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And going through that period, you sort of sat there and went, there's probably going

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to be a capital raising for some of these companies.

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You want to be around to participate because it'll be done in a very, very cheap multiple.

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And it's hard to do because you don't want, things are looking ugly at the time.

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But that these are, as I said, through that period, I've been through a few cycles in

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that period.

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You try and recognise, you try and keep your alerts to some of the signals, but every cycle

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is completely different.

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The main year is exactly the same though.

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What do you start to say?

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Well it's good that we started off straight into it.

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I love it.

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Yeah.

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Well, normally there's a process about how we do these conversations, but I just love

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the fact of what you were saying.

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And Manzler will just jump right into it.

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And what I mean by this is I've had a number of conversations with very high end asset

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managers like yourself, Vince.

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And what I'm starting to see is a pattern forming where, as you mentioned, funny money

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were pushed everything up, valuations did make sense, huge amount of money went in,

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everyone felt rich at the wrong time at the wrong prices, just makes no sense.

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We've seen that shake out.

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And what's really interesting, when you agree, is now assets potentially look better than

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they've ever looked, but people are feeling poor and are finding it very, very difficult

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to justify going and supporting company, which they've done a fundraise around previously.

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Even when the asset prices are potentially half or even lower than what they went into

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before, people should be greedy when others are fearful to an extent.

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And the other thing which I'm hearing a lot is a number of these excellent small or value

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businesses can barely catch a bit.

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And why this is quite topical, I believe last night in the US, this is recorded on the 28th

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of March, we just hit all time highs.

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It broke out what?

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40,000.

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And then today, then the market set to open in 12 minutes, that's potentially going to

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set another all time high.

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So the question, which is, I suppose, is on everyone's mind is we're literally at all

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time highs.

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And whenever you're looking at a technical chart, you know, is it a situation where we

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should be considering taking profit here, like you're talking about before?

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Or is this just some companies that have driven this up, like the magnificent seven, meanwhile,

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the underbelly, all these companies are looking potentially healthier than ever, and barely

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even moved.

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So I'd love to hear your thoughts on this, because it looks like a two spared economy,

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but I'd love to hear what you're saying.

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Well, if you look at the US, the actual Magnuson seven hasn't done too much in the last few

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months.

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They've actually been pretty stagnant, if not down a little bit.

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So you have seen a bit of rotation, as into a broader part of the market.

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I guess there is this expectation of going from a soft hard landing, soft landing to

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now the market sort of probably trying to deal with a no landing situation.

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So the things just muddled through in the economy and you don't see much slowdown.

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But then people have to sort of the market has baked in two to three toughs this year.

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You could be look, you've also got to throw in the fact that we're going to be in an election

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cycle in the US as well.

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And that sort of throw things around as well.

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You'll get quite a few policy statements.

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You know, we're in an age of fiscal dominance at the moment.

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So running significant deficit financing.

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You know, when governments run deficits, they're basically dis-saving and they're giving the

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money to the private sector to go spend and use as they see fit.

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That tends to get things going.

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I think the US government and Biden administration is now after a pretty significant fiscal expansion

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again.

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So, you know, they've got central banks sitting there trying to keep a lid on inflation.

232
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And the problem we've got by the time we get to the end of this, let's say the end of this

233
00:15:53,120 --> 00:15:56,360
year, the inflation will start comping weaker numbers.

234
00:15:56,360 --> 00:16:00,360
So you could actually see inflation start stabilising and go back up.

235
00:16:00,360 --> 00:16:05,360
If you don't see more prevalent softness in the broader economy.

236
00:16:05,360 --> 00:16:08,360
There's pockets of weakness in the economy.

237
00:16:08,360 --> 00:16:09,920
Like Australia's obvious, right?

238
00:16:09,920 --> 00:16:19,160
You've got housing constructions weakening, but rents are going up at twice inflation.

239
00:16:19,160 --> 00:16:23,680
So that's the simple thing of supply versus stock.

240
00:16:23,680 --> 00:16:29,080
There is no stock being built because rates are high and developers can't get lending

241
00:16:29,080 --> 00:16:31,720
and banks are tightening lending standards for developers.

242
00:16:31,720 --> 00:16:35,000
And you get this cycle spinning through the economy.

243
00:16:35,000 --> 00:16:40,440
And it's incongruous to think that things are strong, but housing's weak.

244
00:16:40,440 --> 00:16:42,280
Housing activity is weak.

245
00:16:42,280 --> 00:16:46,400
And then you've got the reserve banks sitting there going, we're not ruling anything in

246
00:16:46,400 --> 00:16:47,400
or out.

247
00:16:47,400 --> 00:16:49,400
So they could raise and they make up.

248
00:16:49,400 --> 00:16:51,360
It's a fascinating period, right?

249
00:16:51,360 --> 00:16:52,520
It's hard to think about it.

250
00:16:52,520 --> 00:16:56,520
So what the markets do is they will go the path of least resistance.

251
00:16:56,520 --> 00:16:59,680
And you've seen financial conditions.

252
00:16:59,680 --> 00:17:08,000
So effectively, ease to access to money has improved since November last year.

253
00:17:08,000 --> 00:17:10,480
You can basically track that to the movement in the market.

254
00:17:10,480 --> 00:17:16,640
It's had a pretty significant easing of financial conditions and that's filtered its way through

255
00:17:16,640 --> 00:17:22,160
to assets, financial assets.

256
00:17:22,160 --> 00:17:28,400
But it does feel like because none of us has experienced a blow off in inflation, that

257
00:17:28,400 --> 00:17:32,320
everyone's assuming we're going to go back to pre-19, pre-cub, sorry.

258
00:17:32,320 --> 00:17:34,920
Maybe that's the case.

259
00:17:34,920 --> 00:17:40,440
But I think there's significant amounts of price power still in the corporate sector.

260
00:17:40,440 --> 00:17:42,200
And commodities have rolled us a little bit.

261
00:17:42,200 --> 00:17:43,200
That helps.

262
00:17:43,200 --> 00:17:46,520
Labor's had a pretty strong year last year.

263
00:17:46,520 --> 00:17:49,680
Labor rates going up, wage rates.

264
00:17:49,680 --> 00:17:51,640
And they need to start rolling off.

265
00:17:51,640 --> 00:17:55,760
That will provide, I think they'll provide a bit of benefit in the next 12 to 18 months.

266
00:17:55,760 --> 00:17:59,680
But you still have this issue of marrying that up again to what you're paying for the

267
00:17:59,680 --> 00:18:02,680
day of the company.

268
00:18:02,680 --> 00:18:09,240
And I still think you've got to be a little bit more conservative now because there is

269
00:18:09,240 --> 00:18:11,760
a sense of somo right now.

270
00:18:11,760 --> 00:18:16,200
And you want to be a bit more, have a bit of patience.

271
00:18:16,200 --> 00:18:17,200
And just wait.

272
00:18:17,200 --> 00:18:18,200
You will get an opportunity.

273
00:18:18,200 --> 00:18:23,960
So there are pockets in the market now where there's smaller companies, no one's interested

274
00:18:23,960 --> 00:18:24,960
in them.

275
00:18:24,960 --> 00:18:29,440
The earnings have gone probably backwards for good reason.

276
00:18:29,440 --> 00:18:32,960
And they're trading pretty cheaply.

277
00:18:32,960 --> 00:18:36,440
Some have had already one or two capital raisings.

278
00:18:36,440 --> 00:18:40,400
That's a bit of the catching the falling knife sort of attitude.

279
00:18:40,400 --> 00:18:43,080
But if you're buying those things today, they're the ones that are going to probably deliver

280
00:18:43,080 --> 00:18:49,680
you alpha in the next 12 to 18 months rather than buy the high flies today, I think.

281
00:18:49,680 --> 00:18:52,360
Yeah, I'm seeing that quite a bit.

282
00:18:52,360 --> 00:18:59,000
Well, why don't we just unpack the three funds which you operate in?

283
00:18:59,000 --> 00:19:01,840
So you've got the Australian fund, which isn't geared.

284
00:19:01,840 --> 00:19:04,840
And then you've got the perpetual Australian geared funds.

285
00:19:04,840 --> 00:19:07,320
So why don't we begin there?

286
00:19:07,320 --> 00:19:13,040
Do you mind giving a bit of colour around what's in the portfolios, how they operate

287
00:19:13,040 --> 00:19:16,440
and how the gearing works with one of the funds?

288
00:19:16,440 --> 00:19:17,440
That'd be great.

289
00:19:17,440 --> 00:19:21,160
So the geared fund basically mimics the Australian shares.

290
00:19:21,160 --> 00:19:26,480
So the Australian shares has been around for 21 plus years.

291
00:19:26,480 --> 00:19:33,720
And that's basically a portfolio between 40 to 55 stocks.

292
00:19:33,720 --> 00:19:43,280
Also though, that fund can go up to 20% offshore, that product.

293
00:19:43,280 --> 00:19:49,160
And we started that, I think that was done in 06, 07, I think, to give a bit more flexibility

294
00:19:49,160 --> 00:19:51,160
to the portfolio managers.

295
00:19:51,160 --> 00:19:53,160
And we do use that occasionally.

296
00:19:53,160 --> 00:19:58,160
As you know, what's in the fund, what's in the positions and to the biggest positions

297
00:19:58,160 --> 00:20:00,000
are offshore.

298
00:20:00,000 --> 00:20:02,000
People unfortunately don't have a PDF in front of them.

299
00:20:02,000 --> 00:20:07,080
So do you want to give it a bit of colour around what's in the portfolio and specifically

300
00:20:07,080 --> 00:20:09,560
what comprises that 20% international?

301
00:20:09,560 --> 00:20:17,680
Yeah, so we don't use, I've traditionally not gone above about 10% in this strategy.

302
00:20:17,680 --> 00:20:25,640
Because it gives you just enough extra, you're taking more risk, obviously.

303
00:20:25,640 --> 00:20:29,360
It is a benchmark quasi-aware product, but not really.

304
00:20:29,360 --> 00:20:33,440
We don't run looking at the benchmark and saying, oh, I want to own that because I have

305
00:20:33,440 --> 00:20:37,840
to because VHB's 10% of the index, I have to own it.

306
00:20:37,840 --> 00:20:38,840
We try not to do that.

307
00:20:38,840 --> 00:20:44,160
Try to get people to get, have a lot of idiosyncratic risk, have a lot of stock risk in the portfolio

308
00:20:44,160 --> 00:20:49,640
rather than, so have our ideas in the portfolio rather than, oh, the benchmark's got 25% in

309
00:20:49,640 --> 00:20:53,600
banks, so we're going to make sure we have enough banks so we don't take any risk, real

310
00:20:53,600 --> 00:20:54,600
risk.

311
00:20:54,600 --> 00:20:58,680
But in this one, we've got Flutter, we've done that for a while.

312
00:20:58,680 --> 00:20:59,680
We've done quite well for us.

313
00:20:59,680 --> 00:21:03,880
That's the global online sports maker.

314
00:21:03,880 --> 00:21:10,680
They own Sportsbet in Australia, Patty Power in the UK, et cetera, and they own Sanduil

315
00:21:10,680 --> 00:21:11,680
in the US and they're in India.

316
00:21:11,680 --> 00:21:12,680
They're a bit everywhere, right?

317
00:21:12,680 --> 00:21:14,280
Do you mind fleshing that out a bit?

318
00:21:14,280 --> 00:21:18,760
Because a lot of people I'm finding are starting to start hearing about Flutter and a lot of

319
00:21:18,760 --> 00:21:20,240
people just aren't aware of it.

320
00:21:20,240 --> 00:21:23,440
But my understanding, Flutter just don't own some of it.

321
00:21:23,440 --> 00:21:26,800
They practically nearly dominate half the entire global market.

322
00:21:26,800 --> 00:21:28,880
Is that right?

323
00:21:28,880 --> 00:21:30,720
Yeah, they're pretty dominant in Australia.

324
00:21:30,720 --> 00:21:33,720
I think they're close to 50% share here.

325
00:21:33,720 --> 00:21:39,320
They bought one or two businesses and they're very good at what they do.

326
00:21:39,320 --> 00:21:40,320
That's all they do.

327
00:21:40,320 --> 00:21:46,240
They haven't moved across from any other businesses in their DNA.

328
00:21:46,240 --> 00:21:48,840
When you speak to management, it's in their DNA.

329
00:21:48,840 --> 00:21:50,400
They think that way.

330
00:21:50,400 --> 00:21:56,640
So they're a point I feel that because it's a global business, pricing risk, they're

331
00:21:56,640 --> 00:22:03,160
basically pricing risk and putting odds out there and trying to understand how the market's

332
00:22:03,160 --> 00:22:10,160
reacting to every minute that time passes and again, odds are changing, they're pricing

333
00:22:10,160 --> 00:22:11,160
that, et cetera.

334
00:22:11,160 --> 00:22:13,640
And they've got a global business to be able to do that.

335
00:22:13,640 --> 00:22:19,520
If you're just one business in Australia trying to do that, good luck.

336
00:22:19,520 --> 00:22:26,800
They've got multiple markets in multiple countries to be able to develop that intelligence.

337
00:22:26,800 --> 00:22:32,320
So they have invested quite a bit in their tech stack.

338
00:22:32,320 --> 00:22:34,280
It's not about tech though.

339
00:22:34,280 --> 00:22:39,440
It's about how you run the business and their attitude towards their customers.

340
00:22:39,440 --> 00:22:42,960
They don't try to go after the big VIP customer.

341
00:22:42,960 --> 00:22:43,960
That's not their game.

342
00:22:43,960 --> 00:22:47,320
They leave that to others.

343
00:22:47,320 --> 00:22:54,400
But every time they go into a market, they invest a lot into that market.

344
00:22:54,400 --> 00:23:00,200
They have a basic way they approach their market development and product development

345
00:23:00,200 --> 00:23:02,880
and they are the same game parlays.

346
00:23:02,880 --> 00:23:06,800
It's then they come up with that product actually in Australia, I think.

347
00:23:06,800 --> 00:23:10,720
So they've got great product development as well.

348
00:23:10,720 --> 00:23:12,640
So they've moved into the US.

349
00:23:12,640 --> 00:23:19,560
They bought a business of basically a private equity group several years ago called FanDuel,

350
00:23:19,560 --> 00:23:21,280
which is a fantasy football business.

351
00:23:21,280 --> 00:23:22,760
No gambling, obviously.

352
00:23:22,760 --> 00:23:26,480
It's just me versus you.

353
00:23:26,480 --> 00:23:28,080
And a bit of ego.

354
00:23:28,080 --> 00:23:34,680
So they lucked out there because online you could only really put a bet on in Vegas on

355
00:23:34,680 --> 00:23:35,680
sports.

356
00:23:35,680 --> 00:23:38,320
The rest is technically illegal.

357
00:23:38,320 --> 00:23:44,800
But they changed the law so you could have online bookmaking in the US.

358
00:23:44,800 --> 00:23:45,800
And that changed everything.

359
00:23:45,800 --> 00:23:48,560
And then it's basically a state by state proposition in the US.

360
00:23:48,560 --> 00:23:52,640
Every state has their own sports betting laws.

361
00:23:52,640 --> 00:23:54,640
And they're slowly opening up.

362
00:23:54,640 --> 00:23:59,880
They've been opening up for the last two years, two and a half years.

363
00:23:59,880 --> 00:24:04,440
And they're there with a great brand, FanDuel, with some customers already in it.

364
00:24:04,440 --> 00:24:08,160
Once they turn 18, they can gamble.

365
00:24:08,160 --> 00:24:10,840
And they've just executed flawlessly on that.

366
00:24:10,840 --> 00:24:13,840
And they're the base number one sports book in the US now.

367
00:24:13,840 --> 00:24:16,240
The base is between 40% and 50% share, I believe.

368
00:24:16,240 --> 00:24:18,280
So in some, mostly markers.

369
00:24:18,280 --> 00:24:25,720
And it's very effective at developing their business.

370
00:24:25,720 --> 00:24:26,720
And they play the long game.

371
00:24:26,720 --> 00:24:27,720
Too many companies.

372
00:24:27,720 --> 00:24:28,720
It's a good business model.

373
00:24:28,720 --> 00:24:29,720
I play fantasy.

374
00:24:29,720 --> 00:24:30,720
You're premier league.

375
00:24:30,720 --> 00:24:33,440
We're about to finish the season.

376
00:24:33,440 --> 00:24:34,440
That thing is addictive.

377
00:24:34,440 --> 00:24:39,680
But I've read the articles because we've seen a lot of this space with a number of other

378
00:24:39,680 --> 00:24:42,960
companies because there's a consolidation play happening in the gambling space.

379
00:24:42,960 --> 00:24:48,560
I've read a couple of the articles that the probability that if a kid or someone under

380
00:24:48,560 --> 00:24:55,040
age starts playing fantasy, there's a high probability they're going to potentially gamble

381
00:24:55,040 --> 00:25:00,200
on the football games in later stage of life at least once or twice.

382
00:25:00,200 --> 00:25:01,800
So it's just essentially vertical integration.

383
00:25:01,800 --> 00:25:06,200
Look, I think you've got to also pull apart that Aussies tend to gamble anyway.

384
00:25:06,200 --> 00:25:12,120
Two flies walking up a wall, that's just Aussies, right?

385
00:25:12,120 --> 00:25:14,020
That's the way we are.

386
00:25:14,020 --> 00:25:16,020
We enjoy doing that.

387
00:25:16,020 --> 00:25:18,760
As long as it's done responsibly.

388
00:25:18,760 --> 00:25:22,240
And look, Flutter spent quite a bit on the RG on responsible gambling.

389
00:25:22,240 --> 00:25:26,080
They don't want the top player that could get in trouble because that's not going to

390
00:25:26,080 --> 00:25:27,080
help anyone.

391
00:25:27,080 --> 00:25:28,420
And they don't want to help the player.

392
00:25:28,420 --> 00:25:32,880
So you don't want them in the book, really, and you want to understand.

393
00:25:32,880 --> 00:25:37,520
And they do spend quite a bit of money trying to make sure that is not occurring.

394
00:25:37,520 --> 00:25:43,640
Like the UK last year, they handed down a white paper on trying to change gambling in

395
00:25:43,640 --> 00:25:46,520
general to make it a little bit more responsible.

396
00:25:46,520 --> 00:25:50,440
And Flutter implemented it before anyone else, even before the white paper was handed down.

397
00:25:50,440 --> 00:25:54,800
They basically got a sense, we're going to move to here in responsible gambling.

398
00:25:54,800 --> 00:25:55,800
Let's do it now.

399
00:25:55,800 --> 00:25:56,800
Why are we waiting?

400
00:25:56,800 --> 00:25:59,440
Because they moved well ahead of everyone else and they were ready to when the white

401
00:25:59,440 --> 00:26:03,240
paper was handed, their competitors are now trying to implement it, but they've already

402
00:26:03,240 --> 00:26:06,160
got the business model ready to go in that market.

403
00:26:06,160 --> 00:26:08,920
So they're actually taking quite a bit of share in the UK because of it.

404
00:26:08,920 --> 00:26:14,520
That's that sort of, as I said, playing the long game, like looking at longer term investing

405
00:26:14,520 --> 00:26:19,200
for years out to where the market's going, where the business will be, rather than what

406
00:26:19,200 --> 00:26:22,600
you get in certain companies is a very two to three years, that's what we're managing

407
00:26:22,600 --> 00:26:30,560
it for, I'd say I'd get his EPS so that he can get paid his long term incentives, rather

408
00:26:30,560 --> 00:26:33,840
setting the business up for years ahead.

409
00:26:33,840 --> 00:26:36,240
That's rare to get management that can do that.

410
00:26:36,240 --> 00:26:41,280
Yeah, I'm finding that that's very much a European or Southeast Asian way of thinking

411
00:26:41,280 --> 00:26:47,280
about looking at a business in reverse over 30 years instead of the quarter by quarter

412
00:26:47,280 --> 00:26:51,720
or three years, rip your business apart, I get my paycheck, but then you leave it, the

413
00:26:51,720 --> 00:26:53,760
company worse than when you arrived.

414
00:26:53,760 --> 00:26:55,600
I'm all for that.

415
00:26:55,600 --> 00:27:00,080
So the top 10 holdings in the portfolio, I've just got it here, please come if I'm wrong,

416
00:27:00,080 --> 00:27:09,600
it's BHP, CBA, Flutter, NAB, Goodman Group, Origin, CSL, IAG, I can't pronounce it, La

417
00:27:09,600 --> 00:27:16,600
Francaise, some French person is going to shoot me for my pronunciation, I apologize,

418
00:27:16,600 --> 00:27:17,600
and Westpac, right?

419
00:27:17,600 --> 00:27:18,600
Is that roughly it?

420
00:27:18,600 --> 00:27:22,800
Yeah, the biggest sized weights in the fund.

421
00:27:22,800 --> 00:27:28,360
Is there anything else interesting in there that's not in the top 10 that I can see?

422
00:27:28,360 --> 00:27:30,640
Not really.

423
00:27:30,640 --> 00:27:34,480
The active weights, we've got IAG in there as well.

424
00:27:34,480 --> 00:27:37,480
That's a pretty big position as well.

425
00:27:37,480 --> 00:27:39,560
That's done quite well for us.

426
00:27:39,560 --> 00:27:45,360
We'll talk about, I think we'll discuss it maybe later, but active ownership.

427
00:27:45,360 --> 00:27:51,040
We'll definitely get into that, where I was kind of going with this question is, if I'm

428
00:27:51,040 --> 00:27:56,080
understanding correctly, you said it's a benchmark product to an extent, but you can pick and

429
00:27:56,080 --> 00:27:59,920
choose when you're getting in if something runs up, it's looking a bit expensive, you

430
00:27:59,920 --> 00:28:02,000
take some off the table and you look for value, right?

431
00:28:02,000 --> 00:28:04,520
I do understand that.

432
00:28:04,520 --> 00:28:08,800
And where I wanted to go back to is back to the two funds and how they're structured,

433
00:28:08,800 --> 00:28:14,880
because you've got one where you can participate, just one for one, and then try to beat the

434
00:28:14,880 --> 00:28:20,600
index and then you've got the fun one, which is, speak to your advisor.

435
00:28:20,600 --> 00:28:22,600
Speak to your advisor.

436
00:28:22,600 --> 00:28:28,480
You've got the fun one, the geared one, which I should disclose personally used and had

437
00:28:28,480 --> 00:28:30,680
a very fun couple of months recently.

438
00:28:30,680 --> 00:28:36,680
So do you mind giving a bit of color around how the gearing works?

439
00:28:36,680 --> 00:28:37,680
What is the gearing?

440
00:28:37,680 --> 00:28:39,640
Because that'd be great.

441
00:28:39,640 --> 00:28:47,120
So at the corporate level, we basically borrow money from an external bank.

442
00:28:47,120 --> 00:28:52,720
So we can get some pretty competitive rates on the borrowing rates on that capital.

443
00:28:52,720 --> 00:28:55,280
And we basically gross up every position two to one.

444
00:28:55,280 --> 00:29:01,480
So if you had a million dollars in BHP, then also you got two million and half that's been

445
00:29:01,480 --> 00:29:03,480
funded by the debt.

446
00:29:03,480 --> 00:29:07,160
So as you said, you're leveraging up the portfolio.

447
00:29:07,160 --> 00:29:12,520
So if the market goes up 20% and hopefully we're outperforming, we're doing our job

448
00:29:12,520 --> 00:29:16,440
and we're beating the market anyway, you're going to get a great, at least 2X that number

449
00:29:16,440 --> 00:29:17,960
all the time.

450
00:29:17,960 --> 00:29:19,760
But it works in reverse as well.

451
00:29:19,760 --> 00:29:24,240
When the market goes down, you'll get the same impact.

452
00:29:24,240 --> 00:29:25,880
It'll be a 2X sort of downward.

453
00:29:25,880 --> 00:29:33,000
But I use the geared fund personally, myself, because over the long run, if you can actually,

454
00:29:33,000 --> 00:29:38,320
I don't say you don't want to do market timing, but if you think the market's going up on

455
00:29:38,320 --> 00:29:42,160
average 8% to 10% a year, that's what it typically does.

456
00:29:42,160 --> 00:29:45,280
You're doubling that exposure over time.

457
00:29:45,280 --> 00:29:50,200
So for superannuation, it's fantastic for them because you can jump years ahead in your

458
00:29:50,200 --> 00:29:51,960
savings goals in superannuation.

459
00:29:51,960 --> 00:29:59,360
But as I said, go your advisor and get personal advice on that because it can be a rocky ride.

460
00:29:59,360 --> 00:30:04,680
I'm speaking from experience here because just disclosing, it was March 2020 when everything

461
00:30:04,680 --> 00:30:09,720
collapsed and I think the platform which I had was Generation Life.

462
00:30:09,720 --> 00:30:12,240
There's a number of good options there, but I was looking for something that can give

463
00:30:12,240 --> 00:30:13,240
me more oomph.

464
00:30:13,240 --> 00:30:16,160
It wasn't that much of a menu and we bought it.

465
00:30:16,160 --> 00:30:22,760
I knew through a bit at it for a couple of clients and I blinked and that thing was up

466
00:30:22,760 --> 00:30:25,400
like 90% or whatever it was.

467
00:30:25,400 --> 00:30:26,760
It was outrageous.

468
00:30:26,760 --> 00:30:32,240
And then recently before Christmas, they're looking at the lows coming to the election

469
00:30:32,240 --> 00:30:33,680
time coming into the announcement.

470
00:30:33,680 --> 00:30:34,680
Hold on a second.

471
00:30:34,680 --> 00:30:36,680
I just mean if this is seven is dragging everything up.

472
00:30:36,680 --> 00:30:39,240
So look, again, speak to your advisor.

473
00:30:39,240 --> 00:30:45,200
Some people asset allocate to diversify, et cetera, but this is a conversation for people

474
00:30:45,200 --> 00:30:48,560
that live a bit more active that like to have a look at timing.

475
00:30:48,560 --> 00:30:56,840
I found it quite a useful fund to be able to get something that doesn't have much of

476
00:30:56,840 --> 00:31:03,280
a delay on it and then to not just participate in the small upside based on the benchmark,

477
00:31:03,280 --> 00:31:05,800
but potentially to go over if you're right.

478
00:31:05,800 --> 00:31:06,800
Yeah.

479
00:31:06,800 --> 00:31:12,680
Look, I noticed that period during COVID, March, April, that's when the market was on

480
00:31:12,680 --> 00:31:13,680
its lows.

481
00:31:13,680 --> 00:31:17,360
A lot of the advisors, we had influence into that product.

482
00:31:17,360 --> 00:31:18,640
It's an old product, right?

483
00:31:18,640 --> 00:31:20,440
So it's been around a while.

484
00:31:20,440 --> 00:31:25,080
There's one or two other competitors in the market, but it's been around a while.

485
00:31:25,080 --> 00:31:29,880
And given our style, because we're, look, Perpetual is known for having lower beta than

486
00:31:29,880 --> 00:31:32,400
the market, but still being able to outperform the market.

487
00:31:32,400 --> 00:31:38,600
So we are a lot more conservative in the way we invest, but it doesn't mean that we can't

488
00:31:38,600 --> 00:31:40,600
beat the market, even though we're more conservative.

489
00:31:40,600 --> 00:31:45,320
As I said, we run a lower beta than the market most of the time.

490
00:31:45,320 --> 00:31:46,320
So I'm drawn.

491
00:31:46,320 --> 00:31:49,320
They're just implied volatility of the market.

492
00:31:49,320 --> 00:31:50,320
I know, so apologies.

493
00:31:50,320 --> 00:31:51,320
I know what the beta is.

494
00:31:51,320 --> 00:31:53,320
I'm just saying, what is the beta of the fund?

495
00:31:53,320 --> 00:31:58,320
It runs at 0.8 to most sometimes can drop even lower than that during past year, so up

496
00:31:58,320 --> 00:31:59,320
to 0.9.

497
00:31:59,320 --> 00:32:02,320
So we're going to be a lot lower typically.

498
00:32:02,320 --> 00:32:07,320
So every unit of risk you're taking, you're getting an outsized return typically to that

499
00:32:07,320 --> 00:32:08,320
unit.

500
00:32:08,320 --> 00:32:12,520
And that's just our style, because we pay attention to what you pay for something, like

501
00:32:12,520 --> 00:32:17,520
the valuations, sort of struggle paying stupid multiples of things.

502
00:32:17,520 --> 00:32:25,520
But sometimes, full disclosure, from 18 to 19, it was tough for value managers, because

503
00:32:25,520 --> 00:32:30,120
you were at the right at the end of the basic 10-year bond yield going down where money

504
00:32:30,120 --> 00:32:31,120
was free.

505
00:32:31,120 --> 00:32:36,240
When money is free, you can justify pretty much any investment, and most people did.

506
00:32:36,240 --> 00:32:42,600
So when COVID hit and you had, we went from, as I said to you before, an age of austerity,

507
00:32:42,600 --> 00:32:47,520
really, to 10 years, into an age of fiscal dominance, where because of COVID, governments

508
00:32:47,520 --> 00:32:48,520
just opened the checkbooks.

509
00:32:48,520 --> 00:32:51,520
People were getting money sitting at home, remember.

510
00:32:51,520 --> 00:32:53,000
So that was spent.

511
00:32:53,000 --> 00:32:55,520
It was partly saved, but it was spent.

512
00:32:55,520 --> 00:32:59,240
And it got the asset markets flying, and money started moving.

513
00:32:59,240 --> 00:33:04,840
And then we had to add to that a bit of a trade war, and supply chain disruptions, and

514
00:33:04,840 --> 00:33:10,720
that was brought about this really fast inventory cycle up and down really quickly.

515
00:33:10,720 --> 00:33:15,080
So from being very short product to being market venture caught up.

516
00:33:15,080 --> 00:33:18,680
But prices adjusted up materially.

517
00:33:18,680 --> 00:33:23,720
And I don't have to tell you on the podcast, inflation was pretty severe.

518
00:33:23,720 --> 00:33:26,160
And we are definitely in a cost of living problem.

519
00:33:26,160 --> 00:33:31,920
There's a cost of living problem, because we're sort of rewiring the global economy

520
00:33:31,920 --> 00:33:34,040
at the moment.

521
00:33:34,040 --> 00:33:36,200
And we're reversing.

522
00:33:36,200 --> 00:33:40,600
So that's going to have outsized impacts on the way things work going forward.

523
00:33:40,600 --> 00:33:44,440
But with this one, you're sitting here, right?

524
00:33:44,440 --> 00:33:49,900
I put money into the counter round about the same time.

525
00:33:49,900 --> 00:33:50,900
Because that's what you're trying to do.

526
00:33:50,900 --> 00:33:55,640
You're trying to find those periods where things are so extreme that people say you

527
00:33:55,640 --> 00:33:56,640
shouldn't be buying equities.

528
00:33:56,640 --> 00:33:58,360
Well, that's probably the best time to buy them.

529
00:33:58,360 --> 00:34:01,720
You said to be greedy when everyone's here for.

530
00:34:01,720 --> 00:34:07,440
I use my favorite theoretical thing to lean on is the elastic band.

531
00:34:07,440 --> 00:34:14,240
I find when I find when work politics or your people's agendas, say you can't invest in

532
00:34:14,240 --> 00:34:20,280
coal or whatever it is, and it pushes asset classes to the end down a particular way.

533
00:34:20,280 --> 00:34:21,840
Life's a cycle.

534
00:34:21,840 --> 00:34:22,840
It's all going to come back.

535
00:34:22,840 --> 00:34:29,400
But the other thing as well is you have to being again, speech advisor, because the geared

536
00:34:29,400 --> 00:34:34,880
fund can be incredibly volatile.

537
00:34:34,880 --> 00:34:37,520
But it's also the exact same thing on the other side.

538
00:34:37,520 --> 00:34:43,640
When people are way too optimistic, FOMO kicks in, this is never going to stop.

539
00:34:43,640 --> 00:34:50,480
It can be volatile, which is why I was very interested to begin the conversation at the

540
00:34:50,480 --> 00:34:54,480
beginning of this on the basis it feels like it's a two-stage economy.

541
00:34:54,480 --> 00:35:01,760
You have one side where FOMO is ripping at the other stage.

542
00:35:01,760 --> 00:35:07,440
It's just starting to get started or it looks healthier than ever, but can't catch a bid.

543
00:35:07,440 --> 00:35:08,440
It's very interesting.

544
00:35:08,440 --> 00:35:09,440
What do you say?

545
00:35:09,440 --> 00:35:12,440
Yeah, I don't know.

546
00:35:12,440 --> 00:35:15,200
I find it all quite fascinating.

547
00:35:15,200 --> 00:35:20,000
So with the third fund, the strategic capital fund, how does that work?

548
00:35:20,000 --> 00:35:24,680
So if you take a step back, Gimper Petrel's been around a while.

549
00:35:24,680 --> 00:35:28,960
It's 130-odd plus new company.

550
00:35:28,960 --> 00:35:33,160
The oldest fund in Australia is a fund called the Industrial Share Fund.

551
00:35:33,160 --> 00:35:37,040
It's over 60 years old, the oldest equity fund.

552
00:35:37,040 --> 00:35:40,640
That was originally called the Widows and Orphans Fund.

553
00:35:40,640 --> 00:35:46,200
So as a trust business, they decided there's money sitting here that we should do something

554
00:35:46,200 --> 00:35:52,440
about it and try to invest it for the benefit of the widows and orphans of these trusts,

555
00:35:52,440 --> 00:35:53,440
et cetera.

556
00:35:53,440 --> 00:35:59,200
And they've used a very, you can imagine because it's inheritance or money passed down to someone,

557
00:35:59,200 --> 00:36:03,080
et cetera, they tended to take quite a conservative view on things.

558
00:36:03,080 --> 00:36:06,800
And that's ingrained into place.

559
00:36:06,800 --> 00:36:14,920
But what we've been through is we tend to get involved when we don't like what we're

560
00:36:14,920 --> 00:36:15,920
seeing.

561
00:36:15,920 --> 00:36:20,000
So we were doing the G part of ESG.

562
00:36:20,000 --> 00:36:23,080
Well before ESG, it was considered a thing.

563
00:36:23,080 --> 00:36:30,720
We always didn't like, companies with CEOs, if you can determine what the rent package,

564
00:36:30,720 --> 00:36:37,320
if the rent package is in favour of all shareholders, you'll get a behavioural response from the

565
00:36:37,320 --> 00:36:38,320
management team.

566
00:36:38,320 --> 00:36:44,600
Basically, if they're incentivised correctly, that will benefit the shareholders.

567
00:36:44,600 --> 00:36:47,520
That's the first thing you can do and it's the easiest thing to do.

568
00:36:47,520 --> 00:36:51,160
But perpetual has always been getting their hands a little bit dirty, what we call like

569
00:36:51,160 --> 00:36:52,160
it's active ownership.

570
00:36:52,160 --> 00:36:55,640
We don't want to get in there and run the companies like private equity, et cetera.

571
00:36:55,640 --> 00:36:58,040
That's not our deal.

572
00:36:58,040 --> 00:37:05,080
But we know when we try to recognise and sometimes it does slip by when the wrong behaviour is

573
00:37:05,080 --> 00:37:11,200
starting to creep in, whether it's at the board level or in the executive team.

574
00:37:11,200 --> 00:37:14,680
So we will try to nip it in the bud early.

575
00:37:14,680 --> 00:37:17,960
So we've been doing that for a long time.

576
00:37:17,960 --> 00:37:20,880
And it's ingrained in everyone in the team.

577
00:37:20,880 --> 00:37:24,720
So what we've done is we thought, okay, we've been practising for 40 years.

578
00:37:24,720 --> 00:37:30,080
So now we're ready to launch a product which focuses more on that.

579
00:37:30,080 --> 00:37:32,200
So our portfolios used to get a little bit of that.

580
00:37:32,200 --> 00:37:38,720
You'd get a couple, 5 to 10% of the portfolio would be more of an activist style leaning

581
00:37:38,720 --> 00:37:44,400
in to corporates and trying to change the direction of them a little bit because you

582
00:37:44,400 --> 00:37:48,920
can get significantly outsized returns when you do that.

583
00:37:48,920 --> 00:37:50,600
We always start with it's got to be a quality business, right?

584
00:37:50,600 --> 00:37:53,240
It has to be a decent enough business.

585
00:37:53,240 --> 00:37:56,240
You don't want to buy something that's in a bad industry and it's a bad operator.

586
00:37:56,240 --> 00:38:00,560
Can you give an example of a business that you've done it with?

587
00:38:00,560 --> 00:38:03,200
Well look, I've got to be very careful what I say.

588
00:38:03,200 --> 00:38:06,200
Oh, fair point.

589
00:38:06,200 --> 00:38:11,480
It ranges from the top 20 all the way down to small caps.

590
00:38:11,480 --> 00:38:16,440
You'd think that the large caps would be run extremely well.

591
00:38:16,440 --> 00:38:18,240
They are mostly.

592
00:38:18,240 --> 00:38:23,280
But occasionally you get the aligning of the planets there where you'll get sometimes a

593
00:38:23,280 --> 00:38:28,720
chairman that's probably not as acting in the best interests of shareholders or a board

594
00:38:28,720 --> 00:38:35,960
which is very complicit or a CEO who's an imagine team that sort of don't know what

595
00:38:35,960 --> 00:38:39,760
they are as a business and think they're trying to change into something they're not.

596
00:38:39,760 --> 00:38:43,080
That's very dangerous typically.

597
00:38:43,080 --> 00:38:47,920
So the strategic capital fund is basically, I talked about the Australian share fund geared

598
00:38:47,920 --> 00:38:49,920
funds like 40 odd stocks.

599
00:38:49,920 --> 00:38:51,600
This is basically 10 to 20 stocks.

600
00:38:51,600 --> 00:38:54,320
So it's very punchy.

601
00:38:54,320 --> 00:38:59,080
But pardon me, sorry mate.

602
00:38:59,080 --> 00:39:14,360
But they have, these are activist style positions where each position can go up to 15 odd percent

603
00:39:14,360 --> 00:39:18,120
plus in the fund.

604
00:39:18,120 --> 00:39:24,520
So the top three positions would be something we're probably working on actively right now.

605
00:39:24,520 --> 00:39:31,760
So we're either engaging the board, sending letters, trying to change the rent package

606
00:39:31,760 --> 00:39:35,880
or asking for a strategic review of the business because they've underperformed for a while

607
00:39:35,880 --> 00:39:40,320
and we've noticed there's a behavioural problem in the business.

608
00:39:40,320 --> 00:39:43,040
Or there's a recapitalisation that can occur.

609
00:39:43,040 --> 00:39:49,200
So all that's a menu of things that can occur that you need to apply to a business and management

610
00:39:49,200 --> 00:39:53,960
and it requires early engagement with the board.

611
00:39:53,960 --> 00:39:55,680
You want to be collaborative if you can.

612
00:39:55,680 --> 00:40:00,720
Like if you're going to the board and say, right, this is what's going on with the business,

613
00:40:00,720 --> 00:40:01,720
this is the work we've done.

614
00:40:01,720 --> 00:40:08,440
We feel like this is another path, course of action you should be taking or we feel

615
00:40:08,440 --> 00:40:13,240
that the CEO's time is pretty much up and there's no succession planning.

616
00:40:13,240 --> 00:40:15,440
We want something to be done about it.

617
00:40:15,440 --> 00:40:17,760
These are all discussions that happen behind closed doors.

618
00:40:17,760 --> 00:40:23,880
So 99% of the time you won't even know what we're doing because it's just quiet engagement.

619
00:40:23,880 --> 00:40:24,880
And that's the way to do it.

620
00:40:24,880 --> 00:40:29,800
You want to do engagement and try and get a conversation with the board.

621
00:40:29,800 --> 00:40:34,480
And sometimes you can reach out to other shareholders to talk about things, about trying to put

622
00:40:34,480 --> 00:40:36,760
a bit more of a united front out there.

623
00:40:36,760 --> 00:40:41,360
So the Strategic Capital Fund is a bit more very stock specific.

624
00:40:41,360 --> 00:40:43,360
It's purely almost idiosyncratic.

625
00:40:43,360 --> 00:40:48,320
It's sort of a focus on absolute returns rather than just the benchmark.

626
00:40:48,320 --> 00:40:53,920
And it's got, as I said, two reasonably concentrated positions.

627
00:40:53,920 --> 00:40:59,440
But we've done a body of work where when we've done this and we've gotten the necessary changes

628
00:40:59,440 --> 00:41:05,120
and response from the company, the returns are significant.

629
00:41:05,120 --> 00:41:09,360
And more importantly, rather than have a fund where you get that catalyst, that type of

630
00:41:09,360 --> 00:41:15,800
catalyst and then you get this 30 to 40% rerating and then you move on, what we've found is

631
00:41:15,800 --> 00:41:19,880
you want to hold those businesses for two to three years after that because they actually

632
00:41:19,880 --> 00:41:20,880
compound out.

633
00:41:20,880 --> 00:41:23,320
They do those returns more frequently actually.

634
00:41:23,320 --> 00:41:28,200
Because if you can change the culture in a place and improve it, it's the multiplier

635
00:41:28,200 --> 00:41:29,960
effect through the business.

636
00:41:29,960 --> 00:41:35,680
And some of the ones where we've done like ILUCA where we sort of engaged ILUCA to try

637
00:41:35,680 --> 00:41:41,000
and split the business up into Deterra, which is the I know royalty business and the Middle

638
00:41:41,000 --> 00:41:43,720
Sands which is ILUCA today, they'll together.

639
00:41:43,720 --> 00:41:46,960
So it was like a two year campaign.

640
00:41:46,960 --> 00:41:51,320
There was a good business and they'll run well and they had a good balance sheet, which

641
00:41:51,320 --> 00:41:52,600
is all things we're looking for.

642
00:41:52,600 --> 00:41:57,960
But we felt that the value wasn't being fully recognised in the share price in the market

643
00:41:57,960 --> 00:41:58,960
cap of the company.

644
00:41:58,960 --> 00:42:05,160
So we engaged them early, took a bit of time, but eventually they agreed and they split

645
00:42:05,160 --> 00:42:06,160
the business into two.

646
00:42:06,160 --> 00:42:10,400
That was almost like a 100% return when that happened on a combined basis.

647
00:42:10,400 --> 00:42:16,600
So you can get outsized returns when you sort of take this activist approach.

648
00:42:16,600 --> 00:42:23,760
So that fund is, we only launched late last year and we're going out now and raising

649
00:42:23,760 --> 00:42:25,800
some money in it now.

650
00:42:25,800 --> 00:42:28,040
It's very different to like you said, the Australian share fund.

651
00:42:28,040 --> 00:42:33,480
How much is in the fund now and how much, what's your max?

652
00:42:33,480 --> 00:42:35,080
We haven't disclosed it yet.

653
00:42:35,080 --> 00:42:38,320
So we're not trying to disclose how much is in it now.

654
00:42:38,320 --> 00:42:43,920
Well what I'm trying to work out by that question is for people that are unfamiliar with the

655
00:42:43,920 --> 00:42:50,360
strategy that you have, you need a particular percentage of shares in order to sit on the

656
00:42:50,360 --> 00:42:55,440
board and have enough of a vote to essentially have any sway.

657
00:42:55,440 --> 00:43:01,680
So what percentages are you, high, middle, low, what percentages are you buying of these

658
00:43:01,680 --> 00:43:06,360
companies to essentially get enough oomph to have these conversations?

659
00:43:06,360 --> 00:43:09,600
And as an example, how big's that check?

660
00:43:09,600 --> 00:43:13,960
I suppose that will give an understanding of what you're trying to build in this fund.

661
00:43:13,960 --> 00:43:18,560
Well firstly, I have literally no interest in sitting on boards.

662
00:43:18,560 --> 00:43:23,440
That's more a private equity style of doing things where they take business and not stick

663
00:43:23,440 --> 00:43:26,200
a couple of people on the board, et cetera.

664
00:43:26,200 --> 00:43:29,080
But we'll suggest directors to go on the board though.

665
00:43:29,080 --> 00:43:35,480
We'll try and change the director mix if we can and improve the director mix with relevant

666
00:43:35,480 --> 00:43:39,440
industry experience, et cetera.

667
00:43:39,440 --> 00:43:43,720
So we're not going down that road because I'd rather have a bit more of an arm's length

668
00:43:43,720 --> 00:43:44,720
to that point.

669
00:43:44,720 --> 00:43:49,080
But if you put enough smart people in a situation, they will work it out as a group.

670
00:43:49,080 --> 00:43:53,880
So don't forget we also manage $12.5 billion across the other funds.

671
00:43:53,880 --> 00:43:55,920
There's another nine other strategies.

672
00:43:55,920 --> 00:44:00,960
And typically some of the active strategies we have are already owned across the group,

673
00:44:00,960 --> 00:44:01,960
perpetual group.

674
00:44:01,960 --> 00:44:05,760
I'm sorry, perpetual asset management, our business, Perpetual Australia.

675
00:44:05,760 --> 00:44:07,520
So we'll have those positions anyway.

676
00:44:07,520 --> 00:44:12,400
We'll own between in large caps a couple of per cent, which doesn't sound like a lot.

677
00:44:12,400 --> 00:44:15,800
But what I find is the large caps are actually quite responsive.

678
00:44:15,800 --> 00:44:23,080
They don't want to have the 25 per cent no rule on the rent package.

679
00:44:23,080 --> 00:44:27,560
So if the remuneration package gets two strikes against, so it gets voted against by the shareholders

680
00:44:27,560 --> 00:44:31,000
once and then the second time, there's a board spill.

681
00:44:31,000 --> 00:44:33,880
But no one wants to go down that path as in large companies.

682
00:44:33,880 --> 00:44:38,600
And even if it's a high vote, not 25, but it gets up there to 12, they will tend to

683
00:44:38,600 --> 00:44:43,760
not that's something they should recognise something's wrong if you're getting that.

684
00:44:43,760 --> 00:44:47,360
But we'll own up to 15 per cent of companies typically.

685
00:44:47,360 --> 00:44:54,200
So we do have a bit of weight when we need to.

686
00:44:54,200 --> 00:44:58,160
And you will need to get at least 5 per cent plus, I feel, typically in companies to have

687
00:44:58,160 --> 00:44:59,160
a bit of an impact.

688
00:44:59,160 --> 00:45:03,280
And that's why sometimes even with the large caps, we reach out to other shareholders.

689
00:45:03,280 --> 00:45:08,880
You might have a similar belief to what we believe, which is there's problems in the

690
00:45:08,880 --> 00:45:11,960
business, we need to change it.

691
00:45:11,960 --> 00:45:16,400
And that can be again, you're multiplying your outcome then.

692
00:45:16,400 --> 00:45:18,280
And that happens.

693
00:45:18,280 --> 00:45:19,280
All right.

694
00:45:19,280 --> 00:45:24,320
So the fund itself will own a particular amount, then you pull together what's all in perpetual

695
00:45:24,320 --> 00:45:28,360
coffers and then you seek allies to build your position.

696
00:45:28,360 --> 00:45:30,240
We can go on our own a lot of times.

697
00:45:30,240 --> 00:45:34,840
If you have a plus 10 per cent or 7 to 10 per cent, you're going to have five to 10

698
00:45:34,840 --> 00:45:35,840
per cent.

699
00:45:35,840 --> 00:45:38,600
You're going to get a hearing from the board, definitely.

700
00:45:38,600 --> 00:45:43,040
Well, and for us also, with respect, it has to be done in a certain way.

701
00:45:43,040 --> 00:45:46,680
You've got to approach them and suggest, look, we've done the work.

702
00:45:46,680 --> 00:45:47,680
This is what we think.

703
00:45:47,680 --> 00:45:51,760
Set us right if we're incorrect.

704
00:45:51,760 --> 00:45:53,880
It's interesting you're discussing remuneration.

705
00:45:53,880 --> 00:45:58,960
Would you say that to change the behaviour and the direction of a company besides doing

706
00:45:58,960 --> 00:46:04,960
an asset split, like the other scenario, is determining how people get remunerated, in

707
00:46:04,960 --> 00:46:11,320
your opinion, probably one of the best ways to make change in a company?

708
00:46:11,320 --> 00:46:13,520
It's probably the only way to make change in a company.

709
00:46:13,520 --> 00:46:18,280
Because let's face it, look, people get to that position, the senior management are pretty

710
00:46:18,280 --> 00:46:19,280
smart operators.

711
00:46:19,280 --> 00:46:22,280
Typically, they're quite good at what they do.

712
00:46:22,280 --> 00:46:29,120
And if you put the right incentive package in front of them, they'll typically try and

713
00:46:29,120 --> 00:46:31,840
achieve it, which is good for shareholders, right?

714
00:46:31,840 --> 00:46:37,160
So all you've got to make sure is that that remuneration package correlates with shareholders

715
00:46:37,160 --> 00:46:43,240
winning out of their behaviour, like making, improving the returns of the business or whatever.

716
00:46:43,240 --> 00:46:47,760
If you have to ask them to do a strategic review, they get paid to do that, if it's

717
00:46:47,760 --> 00:46:49,760
in the best interest of shareholders.

718
00:46:49,760 --> 00:46:54,000
It is the easiest way to get return out of the business.

719
00:46:54,000 --> 00:46:58,840
And look, we've looked at rem packages and we look, we rate all of them.

720
00:46:58,840 --> 00:47:03,280
So we look at all the companies in our universe, quality universe, and we rate the remuneration

721
00:47:03,280 --> 00:47:06,920
packages and there's some absolute hells out there.

722
00:47:06,920 --> 00:47:09,920
It's just funny we're having this conversation, and I'll give you a bit of context.

723
00:47:09,920 --> 00:47:13,360
Like I have this conversation practically on a weekly basis or a monthly basis with

724
00:47:13,360 --> 00:47:14,540
my sister.

725
00:47:14,540 --> 00:47:17,480
My sister's head of remuneration for Sydney Water.

726
00:47:17,480 --> 00:47:24,880
Yeah, so it's just funny you're talking about how dictating behaviours and the other thing

727
00:47:24,880 --> 00:47:29,000
which she says is quite interesting is you might make a change at a board level or at

728
00:47:29,000 --> 00:47:30,000
the management level.

729
00:47:30,000 --> 00:47:35,040
But then what happens when you have parts of the business that are kind of like isolated

730
00:47:35,040 --> 00:47:38,040
and then you have a manager thinks that they can make a change and then dictate in their

731
00:47:38,040 --> 00:47:41,480
own terms and then the backlash from that.

732
00:47:41,480 --> 00:47:46,000
It's just, it's an entire little ecosystem that you can drive change from one particular

733
00:47:46,000 --> 00:47:48,280
source and nudge behaviours.

734
00:47:48,280 --> 00:47:51,840
And yeah, I think it's very, I hear it all the time, but I'm having, I'm asking these

735
00:47:51,840 --> 00:47:57,200
questions because a lot of people might not be familiar with, you know, how remuneration

736
00:47:57,200 --> 00:48:02,360
can really drive behaviours and then essentially dictate how the company is going to perform.

737
00:48:02,360 --> 00:48:06,440
There is, if you can get it down to the shop floor, but you have to make it, what we've

738
00:48:06,440 --> 00:48:10,640
noticed is make it really transparent to the people in the shop floor that if you do X,

739
00:48:10,640 --> 00:48:13,280
you will get paid extra, right?

740
00:48:13,280 --> 00:48:16,360
And people are aspirational at heart.

741
00:48:16,360 --> 00:48:18,720
They want to do well for themselves and their family.

742
00:48:18,720 --> 00:48:23,000
So if you can get it down to the shop floor, whether they can, you know, it's going to

743
00:48:23,000 --> 00:48:24,000
be tied to productivity, right?

744
00:48:24,000 --> 00:48:25,680
In the end of the day, that's what we need.

745
00:48:25,680 --> 00:48:30,600
There's been, we're in a negative productivity sort of situation for years now.

746
00:48:30,600 --> 00:48:35,360
So there are plenty of companies I know of that have driven that change through the shop

747
00:48:35,360 --> 00:48:38,360
floor and they've got outsized benefits out of it.

748
00:48:38,360 --> 00:48:42,520
The shop has done extremely well and so have the people in the shop floor that's got paid

749
00:48:42,520 --> 00:48:46,160
you know, one to two X's, what they traditionally would have made.

750
00:48:46,160 --> 00:48:49,800
One of the other interesting things she always says is that if you can't write someone's

751
00:48:49,800 --> 00:48:53,880
remuneration on the back of a napkin, then it's just way too complicated.

752
00:48:53,880 --> 00:48:58,560
If they can't understand it and they can't tell it in an elevator, then why would they

753
00:48:58,560 --> 00:49:00,560
potentially go for it?

754
00:49:00,560 --> 00:49:06,000
It's crazy, but people just kind of get confused and lose sight of it and they just kind of

755
00:49:06,000 --> 00:49:10,480
forget and then it becomes a bureaucracy and I'm just happy to turn up every single day

756
00:49:10,480 --> 00:49:11,480
to get my check.

757
00:49:11,480 --> 00:49:18,240
Well, the dangerous part is where they add these intangible aspects to a remuneration

758
00:49:18,240 --> 00:49:19,240
package.

759
00:49:19,240 --> 00:49:21,240
I think most people respond to numbers.

760
00:49:21,240 --> 00:49:25,960
They just say if we can get output up by X, you will get Y.

761
00:49:25,960 --> 00:49:26,960
Simple.

762
00:49:26,960 --> 00:49:30,240
Not, then you must behave a certain way.

763
00:49:30,240 --> 00:49:33,920
Like people that should behave correctly in the workplace, right?

764
00:49:33,920 --> 00:49:39,720
But where you're trying to change, when we talk behaviour, not that behaviour, we want

765
00:49:39,720 --> 00:49:44,120
them to act professionally in their job and really care about the quality of the work

766
00:49:44,120 --> 00:49:45,120
they do.

767
00:49:45,120 --> 00:49:49,440
If they do that and they hit the numbers that we require, they'll do okay.

768
00:49:49,440 --> 00:49:52,120
And they have to stream through the...like the best companies we've ever invested in

769
00:49:52,120 --> 00:49:59,720
have, from the shop floor up, they all benefit from the improved economics of the business,

770
00:49:59,720 --> 00:50:01,200
right?

771
00:50:01,200 --> 00:50:06,280
And they are the ones that tend to compound returns for decades.

772
00:50:06,280 --> 00:50:12,520
And it's like a...it's a culture in the business where they...the man on the shop floor and

773
00:50:12,520 --> 00:50:18,200
the woman on the shop floor, they know they'll get paid an extra $2,000 for the six months,

774
00:50:18,200 --> 00:50:22,000
which can make a difference to someone, right?

775
00:50:22,000 --> 00:50:23,000
Or more than that.

776
00:50:23,000 --> 00:50:27,960
If they achieve their objectives, and more importantly, that no matter what else happens

777
00:50:27,960 --> 00:50:30,200
at the corporate level, they get paid that number.

778
00:50:30,200 --> 00:50:35,040
They can't just call back stuff because the senior managers have done a bad job somewhere

779
00:50:35,040 --> 00:50:37,960
else, you can't allow that to affect the man on the shop floor.

780
00:50:37,960 --> 00:50:39,960
You've got to pay for excellence.

781
00:50:39,960 --> 00:50:44,160
I know this is quite sensitive, but you say you've done this a number of times in the

782
00:50:44,160 --> 00:50:45,160
past.

783
00:50:45,160 --> 00:50:50,760
Is there any companies where you can give examples that you can discuss or...?

784
00:50:50,760 --> 00:50:53,440
We've talked about one or two in the past.

785
00:50:53,440 --> 00:51:01,440
Back in the day, we had a pretty large position, Blue Scope Steel, and they had a decade of...the

786
00:51:01,440 --> 00:51:04,760
steel industry is not an easy industry, it's quite a tough business.

787
00:51:04,760 --> 00:51:08,480
You think about who you're competing with, you've got a billion tonnes of steel capacity

788
00:51:08,480 --> 00:51:12,360
in China, in North Asia.

789
00:51:12,360 --> 00:51:15,720
So that's being exported and depressing prices, etc.

790
00:51:15,720 --> 00:51:20,200
Now we've got tariffs on everything, so it's a lot harder to do that.

791
00:51:20,200 --> 00:51:25,360
But Port Kemblah, which is one of their biggest assets, Blue Scope, it's a blast furnace,

792
00:51:25,360 --> 00:51:28,240
over two million tonnes of steel, etc.

793
00:51:28,240 --> 00:51:33,760
They own the Colobon business, a great business in Australia.

794
00:51:33,760 --> 00:51:38,960
But the workflow and the work, the productivity in that plant was quite poor.

795
00:51:38,960 --> 00:51:44,400
It was based on very old work conditions, like ages old, and they're losing $200 million

796
00:51:44,400 --> 00:51:50,320
a year making steel, which is not the best outcomes for shareholders, or the employees,

797
00:51:50,320 --> 00:51:51,320
really.

798
00:51:51,320 --> 00:51:55,360
You don't want to run a business which is losing money because your job's at risk the

799
00:51:55,360 --> 00:51:56,760
whole time.

800
00:51:56,760 --> 00:52:03,560
And we...look, I don't think it was our idea because we sort of thought, you've got to

801
00:52:03,560 --> 00:52:04,560
change that.

802
00:52:04,560 --> 00:52:10,560
And obviously you've got to either restructure the business or shut it down.

803
00:52:10,560 --> 00:52:11,560
It's dangerous talk, right?

804
00:52:11,560 --> 00:52:16,680
You're talking about this fourth significant amount of people working in that plant, but

805
00:52:16,680 --> 00:52:20,840
you can't keep writing checks, losing money.

806
00:52:20,840 --> 00:52:24,200
But the way that we had was we were fortunate that at that time, when we approached the

807
00:52:24,200 --> 00:52:27,040
board, we said, look, let's change the rem structure.

808
00:52:27,040 --> 00:52:31,320
The rem structure for the management team make it longer term rather than short term

809
00:52:31,320 --> 00:52:34,040
incentive, make it a proper long term incentive.

810
00:52:34,040 --> 00:52:39,400
If they do X and Y, the shareholders are going to benefit, the employees will definitely

811
00:52:39,400 --> 00:52:40,400
benefit, right?

812
00:52:40,400 --> 00:52:44,520
This is going to be a more profitable business, okay?

813
00:52:44,520 --> 00:52:48,080
You'll get this enormous outsize return and we're happy to write a check to the management

814
00:52:48,080 --> 00:52:49,680
team to that.

815
00:52:49,680 --> 00:52:50,680
No problem.

816
00:52:50,680 --> 00:52:52,720
Fortunately, we had a good board there.

817
00:52:52,720 --> 00:52:55,240
They recognised that and they were well down the path of doing it.

818
00:52:55,240 --> 00:53:00,240
They wanted to support his shareholders, I suspect, but...and we had a good CEO and

819
00:53:00,240 --> 00:53:01,240
management team.

820
00:53:01,240 --> 00:53:03,280
Paul O'Malley was the CEO at the time.

821
00:53:03,280 --> 00:53:09,880
He had some good deputies in there like Tanya and Mark LaCella, who's now the CEO.

822
00:53:09,880 --> 00:53:16,680
And they just modernised the work practices down the plant and they went from losing 200

823
00:53:16,680 --> 00:53:19,000
to making 200 plus.

824
00:53:19,000 --> 00:53:20,000
In what time frame?

825
00:53:20,000 --> 00:53:21,640
A couple of years.

826
00:53:21,640 --> 00:53:24,080
That's a material day of addition to the business.

827
00:53:24,080 --> 00:53:25,080
That's huge.

828
00:53:25,080 --> 00:53:27,840
The stock tripled on the back of it.

829
00:53:27,840 --> 00:53:31,400
So as a shareholder, you should be more than happy to write a check for that behaviour,

830
00:53:31,400 --> 00:53:32,400
that performance.

831
00:53:32,400 --> 00:53:36,720
More importantly, though, the management team made sure that the people in the shop floor

832
00:53:36,720 --> 00:53:40,200
got paid to a productivity, right?

833
00:53:40,200 --> 00:53:41,680
So now it's a fantastic business.

834
00:53:41,680 --> 00:53:44,240
It's a great asset down there, right?

835
00:53:44,240 --> 00:53:46,320
And that's changed the very nature of that business.

836
00:53:46,320 --> 00:53:49,480
So I'd say it's not all us.

837
00:53:49,480 --> 00:53:53,440
I'd definitely say it's not all us, but you had a compliant, like a board that was willing

838
00:53:53,440 --> 00:53:56,320
to take the risk, because you are taking a risk there, right?

839
00:53:56,320 --> 00:53:59,880
You're basically saying, well, we can't operate like this, we might have to shut the plant

840
00:53:59,880 --> 00:54:04,320
and just import hot roll cords, basically, HRC, and all those to make Taliban, because

841
00:54:04,320 --> 00:54:08,400
you can't lose that much money for that long.

842
00:54:08,400 --> 00:54:13,600
And then had a management team that was actually willing to execute on the plan and to look

843
00:54:13,600 --> 00:54:17,260
longer term to make those changes.

844
00:54:17,260 --> 00:54:20,360
And they had a decent balance sheet as well at the time, because it was going to be rocky

845
00:54:20,360 --> 00:54:21,360
to do that.

846
00:54:21,360 --> 00:54:23,160
You were going to have some mistakes.

847
00:54:23,160 --> 00:54:29,520
So it was the best example, I feel, of a changing culture at the top, they're willing to make

848
00:54:29,520 --> 00:54:33,880
that change, to make a structural change to the business.

849
00:54:33,880 --> 00:54:39,080
And you got a, again, it proved up the case, it was a three times top outcome on the share

850
00:54:39,080 --> 00:54:43,800
price because of it over a few years.

851
00:54:43,800 --> 00:54:46,240
That's a steel company, right?

852
00:54:46,240 --> 00:54:47,720
Not a tech company, nothing like that.

853
00:54:47,720 --> 00:54:48,720
It's a steel company.

854
00:54:48,720 --> 00:54:51,720
And today they're a fantastic business still.

855
00:54:51,720 --> 00:54:58,520
Yeah, yeah, no, I remember the story, I remember investing in it.

856
00:54:58,520 --> 00:55:04,280
I remember that entire thing play out, but I just didn't realize how effectively remuneration

857
00:55:04,280 --> 00:55:09,320
from the ground floor up played a part in that.

858
00:55:09,320 --> 00:55:12,320
You mentioned tech as well.

859
00:55:12,320 --> 00:55:16,400
Is there an example you have of like a SaaS business or tech business or service based

860
00:55:16,400 --> 00:55:22,160
business, because that's completely different to like a factory floor with?

861
00:55:22,160 --> 00:55:31,000
A bit harder with that, because the capital goes up and down the elevator every day to

862
00:55:31,000 --> 00:55:34,000
the people business.

863
00:55:34,000 --> 00:55:38,880
But it's usually, tech's a bit harder.

864
00:55:38,880 --> 00:55:40,360
It's an entangled business.

865
00:55:40,360 --> 00:55:41,360
It doesn't have to be tech.

866
00:55:41,360 --> 00:55:44,120
I'm just thinking like something that's not essentially like a factory, because a factory

867
00:55:44,120 --> 00:55:48,360
makes a lot of sense to myself, but probably to a lot of people that have had family members

868
00:55:48,360 --> 00:55:51,200
work at these places or something.

869
00:55:51,200 --> 00:55:57,760
Yeah, look, IAG is one that we've been involved in for a while, in the last few years.

870
00:55:57,760 --> 00:56:00,120
I see the insurance sector had a tough time with it.

871
00:56:00,120 --> 00:56:04,320
You had La Nina, you had significant water.

872
00:56:04,320 --> 00:56:09,000
Like insurance don't like rain, particularly in built up areas, because it tends to do

873
00:56:09,000 --> 00:56:12,680
more damage than, I hate to say it, but when it's dry.

874
00:56:12,680 --> 00:56:21,040
It's a lot better for clients, because they had to cope with that like significantly

875
00:56:21,040 --> 00:56:28,800
heavy rain events and catastrophes to the weather.

876
00:56:28,800 --> 00:56:31,560
Plus during COVID, remember we ran out of parts.

877
00:56:31,560 --> 00:56:34,280
You couldn't get a car, you couldn't buy a car.

878
00:56:34,280 --> 00:56:36,120
So the replacement cost went vertical.

879
00:56:36,120 --> 00:56:41,720
So isolation was like 3X in home and motor.

880
00:56:41,720 --> 00:56:46,880
So they had to deal with inflation and they had to, with premium pricing, it has to catch

881
00:56:46,880 --> 00:56:47,880
up.

882
00:56:47,880 --> 00:56:52,560
If they haven't priced for the risk initially, pricing is always catching up.

883
00:56:52,560 --> 00:56:58,600
And IAG is an excellent business in a very good industry where basically Suncorp and

884
00:56:58,600 --> 00:57:02,760
IAG, there's a couple of internationals there as well, short tail insurance.

885
00:57:02,760 --> 00:57:04,960
So it's basically home and motor policies.

886
00:57:04,960 --> 00:57:09,720
It's not life insurance and stuff like that, which is very long tail.

887
00:57:09,720 --> 00:57:16,600
And that's all about, it's an intangible service.

888
00:57:16,600 --> 00:57:19,160
They're selling a policy.

889
00:57:19,160 --> 00:57:20,160
What is it?

890
00:57:20,160 --> 00:57:24,480
You're not buying a piece of steel or whatever you're buying or a brick.

891
00:57:24,480 --> 00:57:31,440
You're buying a policy that's going to cover you in a downside scenario.

892
00:57:31,440 --> 00:57:35,080
So that's, and it's an older business.

893
00:57:35,080 --> 00:57:38,400
It's been around a long time.

894
00:57:38,400 --> 00:57:43,680
And sometimes capital allocation is quite poor in these sort of businesses.

895
00:57:43,680 --> 00:57:53,240
And for us, we engaged early with the board of IAG because we're fearful they're going

896
00:57:53,240 --> 00:57:56,200
to buy something.

897
00:57:56,200 --> 00:58:02,680
And you typically, most of these deals aren't great, not just insurance, but in general,

898
00:58:02,680 --> 00:58:06,920
any sort of deal to buy another business, you have to have flawless timing.

899
00:58:06,920 --> 00:58:11,480
You have to do it at the worst, like we talked about being greedy when everyone's fearful.

900
00:58:11,480 --> 00:58:12,480
Most companies don't do that.

901
00:58:12,480 --> 00:58:15,120
They do the reverse.

902
00:58:15,120 --> 00:58:18,000
So they get nervous at the bottom and they don't want to do anything.

903
00:58:18,000 --> 00:58:20,600
So the great companies always have great balance sheets.

904
00:58:20,600 --> 00:58:25,120
So when things are terrible, they can swing to the senses on something, take out a competitor,

905
00:58:25,120 --> 00:58:27,760
all that stuff, and then you know they're paying the lows.

906
00:58:27,760 --> 00:58:33,200
So IAG had just had to tighten up their capital allocation policy.

907
00:58:33,200 --> 00:58:39,240
So we engaged the board and fortunately the chairman of the board actually responded quite

908
00:58:39,240 --> 00:58:42,360
positively to what we were telling them.

909
00:58:42,360 --> 00:58:49,480
And they sort of walked away from the transaction, which is quite positive because I would have

910
00:58:49,480 --> 00:58:51,280
thought it destroyed value.

911
00:58:51,280 --> 00:58:54,280
And ever since that point where they're showing the market, this is a bit different, they're

912
00:58:54,280 --> 00:58:59,760
showing the market some discipline around capital allocation, how they spend, how they're

913
00:58:59,760 --> 00:59:02,480
going to invest the excess capital in the business.

914
00:59:02,480 --> 00:59:07,240
The market slowly rerated them and it's outperformed the market for the last 18 months.

915
00:59:07,240 --> 00:59:11,200
That's a bit different and a different approach because you're trying to tell them not to

916
00:59:11,200 --> 00:59:12,200
do something.

917
00:59:12,200 --> 00:59:16,120
Or if you're going to do something, make sure you're not paying that price.

918
00:59:16,120 --> 00:59:19,880
They'd be more friendly with the way you approach transactions.

919
00:59:19,880 --> 00:59:25,720
Look, 99% of most M&A doesn't really work.

920
00:59:25,720 --> 00:59:30,800
In those conversations, did you point out QBE's failures?

921
00:59:30,800 --> 00:59:33,320
This is exactly what QBE did and look where it is now.

922
00:59:33,320 --> 00:59:35,200
They're still suffering those legacy deals.

923
00:59:35,200 --> 00:59:39,560
They're suffering legacy whereas, but going forward, they're a much better business though

924
00:59:39,560 --> 00:59:41,520
because they have got that corporate memory.

925
00:59:41,520 --> 00:59:48,800
We don't own QBE, but they're on a journey to sort themselves out.

926
00:59:48,800 --> 00:59:50,960
And that's the thing is this corporate memory.

927
00:59:50,960 --> 00:59:58,720
When things are going well, what typically happens is our favourite people in the world,

928
00:59:58,720 --> 01:00:08,280
some bankers will show up at the door with a hot deal and if you don't have enough experience

929
01:00:08,280 --> 01:00:14,000
on the board, they've seen this before, they can say no, leave the room, type of thing,

930
01:00:14,000 --> 01:00:15,000
please.

931
01:00:15,000 --> 01:00:18,000
They will typically get out of path because most companies want to grow, right?

932
01:00:18,000 --> 01:00:20,280
They want to get bigger.

933
01:00:20,280 --> 01:00:21,960
But there's no point.

934
01:00:21,960 --> 01:00:28,840
The suffering that you can inflict on your basically your shareholders from a bad deal

935
01:00:28,840 --> 01:00:31,160
lasts for years.

936
01:00:31,160 --> 01:00:33,160
It lasts for years.

937
01:00:33,160 --> 01:00:41,080
I always tell people look at the share count of companies going through time.

938
01:00:41,080 --> 01:00:45,800
Because if they're willing to issue equity all the time, they're telling you what they

939
01:00:45,800 --> 01:00:50,520
think the value of the equity is because they're happy to just give it away.

940
01:00:50,520 --> 01:00:53,360
So that's a good rule to look at.

941
01:00:53,360 --> 01:00:56,760
Some of the best companies in the world have issued equity once and that's pretty much

942
01:00:56,760 --> 01:00:57,760
it.

943
01:00:57,760 --> 01:01:02,120
What they do is actually then spend the next 20 years shrinking the equity balance by shrinking

944
01:01:02,120 --> 01:01:04,040
the pairs on issue, right?

945
01:01:04,040 --> 01:01:09,920
And they're more focused on investing in the customer, the people in the business to get

946
01:01:09,920 --> 01:01:16,480
them better and make sure they're high service levels, et cetera, et cetera, and invest their

947
01:01:16,480 --> 01:01:22,600
capital internally, wisely, so that they're compounding the returns in the business over

948
01:01:22,600 --> 01:01:26,840
a very long period and allows you to buy back more stock.

949
01:01:26,840 --> 01:01:30,800
And then you look at some of these charts like Autozone in the US where the share counts

950
01:01:30,800 --> 01:01:32,600
have gone down the whole time.

951
01:01:32,600 --> 01:01:35,680
They're like seven baggers, those things.

952
01:01:35,680 --> 01:01:37,240
And that's AutoParts retailing.

953
01:01:37,240 --> 01:01:41,200
It doesn't have to be a tech company to get those returns.

954
01:01:41,200 --> 01:01:44,480
And that's again, that starts at the top.

955
01:01:44,480 --> 01:01:47,760
The management and the writing center structure.

956
01:01:47,760 --> 01:01:50,280
And people that actually get skin in the game as well.

957
01:01:50,280 --> 01:01:51,280
Sorry, they have to have skin in the game.

958
01:01:51,280 --> 01:01:54,280
Yeah, I was just going to say, yes, skin in the game.

959
01:01:54,280 --> 01:01:57,880
I was just going to say it is also the trend in the past number of years where companies

960
01:01:57,880 --> 01:02:02,680
have stayed private for longer for exactly this reason to essentially make themselves

961
01:02:02,680 --> 01:02:05,720
look better and not getting caught.

962
01:02:05,720 --> 01:02:06,720
Whole another conversation.

963
01:02:06,720 --> 01:02:11,320
But one question I do want to ask with Outlook, if this is something you're actually exploring

964
01:02:11,320 --> 01:02:12,320
right now, it's okay.

965
01:02:12,320 --> 01:02:13,320
We'd have to discuss it.

966
01:02:13,320 --> 01:02:15,600
You mentioned insurance.

967
01:02:15,600 --> 01:02:19,200
Do you have a lot of the portfolio that looks at health insurance?

968
01:02:19,200 --> 01:02:23,040
And where I'm going with this is I can't go to a barbecue these days.

969
01:02:23,040 --> 01:02:27,280
I even had a colleague use these weight loss drugs from Azempic.

970
01:02:27,280 --> 01:02:31,640
Novin Otis, Eli Lilly, people are losing substantially.

971
01:02:31,640 --> 01:02:33,520
It's just a diabetes drug.

972
01:02:33,520 --> 01:02:35,920
But now it's coming commonplace.

973
01:02:35,920 --> 01:02:39,880
And a comment which I heard yesterday was, sorry, don't quote him.

974
01:02:39,880 --> 01:02:43,160
I can't remember the number.

975
01:02:43,160 --> 01:02:52,040
But if the US or Australia allow these weight loss drugs to essentially become part of parcel

976
01:02:52,040 --> 01:02:58,120
in the health insurance, like they pay for it, potentially the US can go bankrupt.

977
01:02:58,120 --> 01:03:01,160
It's really something ridiculous.

978
01:03:01,160 --> 01:03:06,720
If the market picks up over in the States, it becomes like a $150 billion business.

979
01:03:06,720 --> 01:03:10,880
And what I'm also seeing the pattern is for the past 12 months, we've seen companies like

980
01:03:10,880 --> 01:03:17,120
ResMed, CSL, which is the portfolio, a number of these companies pull back because the people

981
01:03:17,120 --> 01:03:22,880
are saying that if this weight loss occurs, there might be 20% less obese people.

982
01:03:22,880 --> 01:03:27,320
And then those people might not be using other products down the journey.

983
01:03:27,320 --> 01:03:32,280
And since you mentioned insurance, it's just a question that's been running around in my

984
01:03:32,280 --> 01:03:36,940
mind, which is, is this entire industry going to change?

985
01:03:36,940 --> 01:03:42,160
And then again, with remuneration, how do you deal with the numbers on that?

986
01:03:42,160 --> 01:03:44,960
Yeah, it's interesting how we ended up here.

987
01:03:44,960 --> 01:03:47,160
But it was just, you said a number of things.

988
01:03:47,160 --> 01:03:50,640
It just made me curious if you knew the answer or you had an opinion on it.

989
01:03:50,640 --> 01:03:51,640
I don't know the answer.

990
01:03:51,640 --> 01:03:56,560
But I'm going to find an opinion on that.

991
01:03:56,560 --> 01:04:04,400
Yeah, look, I think with these weight loss drugs, they're used for, as I said, diabetes

992
01:04:04,400 --> 01:04:08,760
first.

993
01:04:08,760 --> 01:04:12,960
What happens if you're on them for a long time and you're doing this for weight loss

994
01:04:12,960 --> 01:04:16,560
and you're technically sort of, what happens then?

995
01:04:16,560 --> 01:04:18,760
Right, so you need some long term studies.

996
01:04:18,760 --> 01:04:21,880
And don't forget also that they'll probably get better.

997
01:04:21,880 --> 01:04:22,880
The drugs will get better.

998
01:04:22,880 --> 01:04:26,680
So the pharmaceutical companies will spend more on R&D to try and improve, less side

999
01:04:26,680 --> 01:04:27,680
effects.

1000
01:04:27,680 --> 01:04:31,840
But you're right, they've created a whole new industry.

1001
01:04:31,840 --> 01:04:38,320
And it does sort of, if people are healthier, it's not great for the drug industry itself

1002
01:04:38,320 --> 01:04:41,440
that sells products which are there once you get a problem.

1003
01:04:41,440 --> 01:04:48,040
If you sort of like, if this is a preventative sort of measure, it does change market dynamics.

1004
01:04:48,040 --> 01:04:53,240
So health insurance, initially it's probably pretty good actually, less claims.

1005
01:04:53,240 --> 01:05:01,320
So claims expenses are not high, not growing a lot, people are still paying their premiums.

1006
01:05:01,320 --> 01:05:04,080
I guess the problem in the long run though is if people are healthier, you need private

1007
01:05:04,080 --> 01:05:05,720
health insurance.

1008
01:05:05,720 --> 01:05:07,120
Just to put it out there.

1009
01:05:07,120 --> 01:05:10,920
Also the tax system forces you if you earn a certain amount.

1010
01:05:10,920 --> 01:05:13,840
I was just about to say, I had a friend that did that and it's like, hold on a second,

1011
01:05:13,840 --> 01:05:18,240
I'm still paying the 1% of my salary anyway.

1012
01:05:18,240 --> 01:05:21,520
And then if I had to go get my health insurance back, it's going to cost me more money.

1013
01:05:21,520 --> 01:05:24,920
Like the entire exercise was lost in money in the end.

1014
01:05:24,920 --> 01:05:29,680
So obviously there is that peace of mind when you're getting health insurance that if something

1015
01:05:29,680 --> 01:05:33,720
goes wrong, you can get treated pretty quickly.

1016
01:05:33,720 --> 01:05:40,080
But look, this epic thing swept through and it affected, you know, anything from QSR,

1017
01:05:40,080 --> 01:05:47,520
which is a restaurant style fast food to drug companies and...

1018
01:05:47,520 --> 01:05:48,520
Is it covered?

1019
01:05:48,520 --> 01:05:52,640
Is that covered by government rebates?

1020
01:05:52,640 --> 01:05:54,640
Or is it purely off the paper?

1021
01:05:54,640 --> 01:05:57,240
I think if you're a diabetic, it might be.

1022
01:05:57,240 --> 01:06:04,240
Don't quote me on that, but if you're being put on to diabetic, because you have a diabetic

1023
01:06:04,240 --> 01:06:07,680
condition, I think it might be covered, but I'm not too sure about weight loss.

1024
01:06:07,680 --> 01:06:09,680
Well, this is interesting, right?

1025
01:06:09,680 --> 01:06:13,920
And this is why it's so fascinating because a lot of the community these days, we're having

1026
01:06:13,920 --> 01:06:18,120
a lot of foods that essentially horrendous for you, you know, seed oils, all these things

1027
01:06:18,120 --> 01:06:19,120
that, you know, corn based.

1028
01:06:19,120 --> 01:06:23,640
Yeah, I don't want to get started, but there's all these things that are essentially creating

1029
01:06:23,640 --> 01:06:27,480
a dietary problem that are fine and allowed to happen because you're going to cover amper

1030
01:06:27,480 --> 01:06:28,480
by beware.

1031
01:06:28,480 --> 01:06:33,200
But then you have the launch of a product that genuinely knocks off 20 to 25% of people's

1032
01:06:33,200 --> 01:06:37,000
weight, makes them actually genuinely healthy.

1033
01:06:37,000 --> 01:06:43,160
And now there's an actual argument or a conversation happening on whether or not the government

1034
01:06:43,160 --> 01:06:48,920
should pay for a drug, which nearly so many people can use that could potentially drop

1035
01:06:48,920 --> 01:06:53,480
the entire obesity in Australia, but like, you know, in double percentages.

1036
01:06:53,480 --> 01:06:59,560
And the question is, if the government funds this, it will complete the amount of money

1037
01:06:59,560 --> 01:07:03,800
that they're going to spend on this is out is going to be huge.

1038
01:07:03,800 --> 01:07:05,480
And can they afford it?

1039
01:07:05,480 --> 01:07:09,340
But the thing is, if they don't do it, then what's the point of even having them existing?

1040
01:07:09,340 --> 01:07:11,760
Because isn't it for health?

1041
01:07:11,760 --> 01:07:16,720
Like they're talking about the knock ons effects, like, you know, there's less risk of heart

1042
01:07:16,720 --> 01:07:21,480
attacks of, you know, anyway, I just, I'm just curious, because you're closest to the

1043
01:07:21,480 --> 01:07:26,440
coal face on this particular, you know, in the insurance space, as you mentioned before,

1044
01:07:26,440 --> 01:07:29,440
I'm just curious to hear what you think.

1045
01:07:29,440 --> 01:07:33,440
That's what the market will give you part of the information and then they'll try and

1046
01:07:33,440 --> 01:07:34,440
extrapolate.

1047
01:07:34,440 --> 01:07:38,320
So you get part of the information looks straplight, you're trying to look the market, try and

1048
01:07:38,320 --> 01:07:39,320
look forward.

1049
01:07:39,320 --> 01:07:43,120
And I sort of did that with the equity of certain companies, right?

1050
01:07:43,120 --> 01:07:49,640
Like Resmin fell quite a bit, so it didn't move because of Osempi, but a lot of drug

1051
01:07:49,640 --> 01:07:53,680
companies that were selling statins and stuff like that, they moved because of it.

1052
01:07:53,680 --> 01:07:56,200
That's what the market does, it looks forwards and discounts.

1053
01:07:56,200 --> 01:07:59,360
And every time there's a piece of information that comes in, they'll make an assessment

1054
01:07:59,360 --> 01:08:00,360
of it, right?

1055
01:08:00,360 --> 01:08:03,520
Markets are reasonably efficient at doing that, most of the time.

1056
01:08:03,520 --> 01:08:05,520
Other times they lose their minds.

1057
01:08:05,520 --> 01:08:09,840
So it's hard to be very definitive about it.

1058
01:08:09,840 --> 01:08:13,440
I just tend to react to, look, I'll look at what the equity is pricing in.

1059
01:08:13,440 --> 01:08:16,520
I always bring it back to what the stock's worth.

1060
01:08:16,520 --> 01:08:18,440
What's the market paying for it?

1061
01:08:18,440 --> 01:08:21,760
Is it overly discounted, which can happen?

1062
01:08:21,760 --> 01:08:26,760
Like Markets are always overly, too much of a premium on things, always, and they'll

1063
01:08:26,760 --> 01:08:29,520
overly discount bad news, they're a string of bad news.

1064
01:08:29,520 --> 01:08:33,200
So I always work it back to, I don't have to worry about that sort of stuff.

1065
01:08:33,200 --> 01:08:36,040
I always back to what's the company worth?

1066
01:08:36,040 --> 01:08:38,080
Does it fundamentally change the value of this business?

1067
01:08:38,080 --> 01:08:42,480
If it's trading at a big enough discount, I should be buying it.

1068
01:08:42,480 --> 01:08:47,800
And sticking with that and trying not to worry about government policy and those things.

1069
01:08:47,800 --> 01:08:50,960
It's always in the mix.

1070
01:08:50,960 --> 01:08:53,120
That's all information that goes into the hopper, right?

1071
01:08:53,120 --> 01:08:54,600
So the market to work on.

1072
01:08:54,600 --> 01:09:01,200
And so all I have to do is work out, okay, what's the symmetry of that risk?

1073
01:09:01,200 --> 01:09:04,440
The probability of it having a significant impact on the business.

1074
01:09:04,440 --> 01:09:06,120
And what's my upside downside from here?

1075
01:09:06,120 --> 01:09:07,600
What am I paying for today?

1076
01:09:07,600 --> 01:09:10,760
Is there 30 to 50% upside versus 15% downside?

1077
01:09:10,760 --> 01:09:15,520
I should probably have a bit of this in the portfolio.

1078
01:09:15,520 --> 01:09:18,040
Yes, it's so interesting.

1079
01:09:18,040 --> 01:09:20,800
Yeah, and like you do have a point, right?

1080
01:09:20,800 --> 01:09:24,920
You know, pie in the sky, it's nice to chew the fat over this thing over a barbecue, but

1081
01:09:24,920 --> 01:09:27,920
in reality, you know, what are we dealing with today?

1082
01:09:27,920 --> 01:09:34,240
I believe, I think I put up a quote recently, I can't remember his name, but the comment

1083
01:09:34,240 --> 01:09:43,600
was investors sell to optimists and buy from pessimists.

1084
01:09:43,600 --> 01:09:47,200
So it's good to see a market where, you know, it's pessimistic because...

1085
01:09:47,200 --> 01:09:52,520
Well, that was March to April, it was just complete pessimism.

1086
01:09:52,520 --> 01:09:53,520
Like nothing was good.

1087
01:09:53,520 --> 01:09:54,520
The world was over.

1088
01:09:54,520 --> 01:09:59,600
And you could, everything, almost 95% of the market was on sale.

1089
01:09:59,600 --> 01:10:04,200
You had a couple of stocks that did well, like the Woolies and drug companies held up

1090
01:10:04,200 --> 01:10:08,640
quite well during that period, that initial period of COVID, for obvious reasons, but

1091
01:10:08,640 --> 01:10:11,240
everything else was on sale.

1092
01:10:11,240 --> 01:10:17,440
Like even REITs, which were, you know, had a tough time, post-GFC, were trading at such

1093
01:10:17,440 --> 01:10:20,680
material discounts and they still are, some are still today.

1094
01:10:20,680 --> 01:10:25,880
You mentioned Woolworths, I wouldn't mind just touching on this quickly.

1095
01:10:25,880 --> 01:10:32,280
The pricing situation with COVID, the so-called inflation, I saw a huge amount of price gouging.

1096
01:10:32,280 --> 01:10:39,560
Just from a valuation standpoint, do you think the Australians have a reason to be upset?

1097
01:10:39,560 --> 01:10:46,800
Was there actually price gouging or was that genuine, you know, inflation?

1098
01:10:46,800 --> 01:10:49,000
I'm just asking, you know, what happened there?

1099
01:10:49,000 --> 01:10:51,160
I don't want to bring him to the end.

1100
01:10:51,160 --> 01:10:54,120
I don't want to be called down to Canberra to be a witness or something.

1101
01:10:54,120 --> 01:10:55,120
Right, I understand.

1102
01:10:55,120 --> 01:10:56,120
No, I'm just joking.

1103
01:10:56,120 --> 01:11:01,120
Well, I look at what margins they get, the supermarkets.

1104
01:11:01,120 --> 01:11:06,800
They get between 5% and 6% either margins, not 50%.

1105
01:11:06,800 --> 01:11:07,800
Right.

1106
01:11:07,800 --> 01:11:13,440
So they are a pass-through business.

1107
01:11:13,440 --> 01:11:16,960
And it's a fine line, right, because they want to make sure the prices are good for

1108
01:11:16,960 --> 01:11:17,960
consumers.

1109
01:11:17,960 --> 01:11:18,960
Yeah.

1110
01:11:18,960 --> 01:11:24,400
But then they have to sort of negotiate hardness on the supply so that they can get that price.

1111
01:11:24,400 --> 01:11:25,400
Okay.

1112
01:11:25,400 --> 01:11:26,400
So they're in the middle.

1113
01:11:26,400 --> 01:11:27,400
They're a distributor effectively.

1114
01:11:27,400 --> 01:11:31,840
And it's a hard thing to balance.

1115
01:11:31,840 --> 01:11:34,840
But they're not making 30% even margins.

1116
01:11:34,840 --> 01:11:35,840
Right.

1117
01:11:35,840 --> 01:11:39,320
They're doing 5% to 6% on average.

1118
01:11:39,320 --> 01:11:42,120
And it's been like that for a long time.

1119
01:11:42,120 --> 01:11:46,240
And if it goes lower than that, these businesses will struggle to survive.

1120
01:11:46,240 --> 01:11:49,240
It's a tough business then.

1121
01:11:49,240 --> 01:11:53,880
Outside of the significant reinvestment they make in logistics to get, you know, through

1122
01:11:53,880 --> 01:11:58,400
from point A to point B, coal chain logistics, there's a lot of capital invested in these

1123
01:11:58,400 --> 01:11:59,400
businesses.

1124
01:11:59,400 --> 01:12:00,400
Right.

1125
01:12:00,400 --> 01:12:04,840
So whether they're price gouging, that's a very hard...

1126
01:12:04,840 --> 01:12:07,200
I think it'll be very hard to prove.

1127
01:12:07,200 --> 01:12:10,120
Maybe remove the word gouging from a political sense.

1128
01:12:10,120 --> 01:12:15,760
I was just more curious as in, do you think, as you said, the business, they have the cost,

1129
01:12:15,760 --> 01:12:19,960
they're just operating generally as a business or just wondering, do you think Australians

1130
01:12:19,960 --> 01:12:26,760
have a leg to stand on with how they feel when something used to cost 50 bucks now it's

1131
01:12:26,760 --> 01:12:29,160
120 for the same items?

1132
01:12:29,160 --> 01:12:32,720
I think you're going to step back and look at the picture in totality.

1133
01:12:32,720 --> 01:12:33,720
Things have changed globally.

1134
01:12:33,720 --> 01:12:38,040
Supply chains are very different.

1135
01:12:38,040 --> 01:12:41,560
The way things are moving from point A to point B is very different.

1136
01:12:41,560 --> 01:12:44,840
We're doing a lot more, you know, China was the base for everything.

1137
01:12:44,840 --> 01:12:45,840
Now it's not so.

1138
01:12:45,840 --> 01:12:51,000
A lot more Europeans are doing more on... they're trying to ensure so they're doing

1139
01:12:51,000 --> 01:12:54,960
more in Eastern Europe, which means if you were in Eastern Europe before COVID, because

1140
01:12:54,960 --> 01:12:58,360
it was cheaper, you're probably being forced out.

1141
01:12:58,360 --> 01:13:00,160
Excuse me.

1142
01:13:00,160 --> 01:13:03,800
So supply chains are changing.

1143
01:13:03,800 --> 01:13:07,400
When it becomes less efficient, it's more expensive.

1144
01:13:07,400 --> 01:13:12,080
That's going to get in the price somehow.

1145
01:13:12,080 --> 01:13:18,400
All other things, fuel, energy, you know, electricity prices are up to an half X compared

1146
01:13:18,400 --> 01:13:19,400
to pre-COVID.

1147
01:13:19,400 --> 01:13:26,520
So you think about that, you know, businesses need electricity as well.

1148
01:13:26,520 --> 01:13:28,880
That factors into their cost of business, doing business.

1149
01:13:28,880 --> 01:13:33,800
So all these things go in and then they charge... there's a margin on top of that.

1150
01:13:33,800 --> 01:13:38,440
If the government, you know, if people want to come out and say they can't make that margin,

1151
01:13:38,440 --> 01:13:43,000
well you'd be prepared for the consequences of that.

1152
01:13:43,000 --> 01:13:46,040
Is the capital withdrawn from the industry?

1153
01:13:46,040 --> 01:13:47,040
Right?

1154
01:13:47,040 --> 01:13:49,040
Well, speaking of...

1155
01:13:49,040 --> 01:13:51,040
Even less efficient.

1156
01:13:51,040 --> 01:13:54,440
So you're dealing with a proper Pandora's box.

1157
01:13:54,440 --> 01:13:55,440
It's hard to prove.

1158
01:13:55,440 --> 01:13:59,200
I don't know, I think it'll be difficult to prove gouging.

1159
01:13:59,200 --> 01:14:01,760
That's why I think probably best thing is to discuss the gouging.

1160
01:14:01,760 --> 01:14:05,640
So I was just curious, you know, people are feeling pressure at the checkout compared

1161
01:14:05,640 --> 01:14:07,640
to, you know, how well the companies are doing.

1162
01:14:07,640 --> 01:14:09,400
That is definitely the case though.

1163
01:14:09,400 --> 01:14:10,400
That is definitely the case.

1164
01:14:10,400 --> 01:14:13,640
So that's crossed a lot of things.

1165
01:14:13,640 --> 01:14:14,640
Right.

1166
01:14:14,640 --> 01:14:17,040
Well, that's what concerns Australians.

1167
01:14:17,040 --> 01:14:19,760
So what I'd like to finish on is what keeps you up at night and what gets you out of bed

1168
01:14:19,760 --> 01:14:20,760
in the morning?

1169
01:14:20,760 --> 01:14:23,760
Everything keeps me up at night.

1170
01:14:23,760 --> 01:14:26,080
You're an investor.

1171
01:14:26,080 --> 01:14:29,480
Equity investors worry about everything at all times.

1172
01:14:29,480 --> 01:14:34,080
So you're always thinking about your portfolio, right?

1173
01:14:34,080 --> 01:14:38,480
The risks inherent in your portfolio, you know, the 1% risks in the portfolio, which

1174
01:14:38,480 --> 01:14:42,200
are only 1%, but can they become worse?

1175
01:14:42,200 --> 01:14:48,280
And you're always constantly weighing up the perspective return versus the risk you're

1176
01:14:48,280 --> 01:14:52,480
taking today for that return.

1177
01:14:52,480 --> 01:14:56,520
You've got to take significant risks to make significant returns.

1178
01:14:56,520 --> 01:15:05,120
Sometimes you can lower the negative outcomes by doing some decent work, research, to really

1179
01:15:05,120 --> 01:15:09,440
understand the risks and actually lower the probability.

1180
01:15:09,440 --> 01:15:12,120
You'll have a better understanding of the probability to actually be a lot lower than

1181
01:15:12,120 --> 01:15:16,760
you think of that risk occurring, which means we're getting a very cheap, cheap company

1182
01:15:16,760 --> 01:15:17,760
with significant upside.

1183
01:15:17,760 --> 01:15:22,400
That's the whole game is to constantly just, the ones you're long, just make sure you're

1184
01:15:22,400 --> 01:15:24,960
sure you understand it.

1185
01:15:24,960 --> 01:15:30,760
And don't fall into the old traps of, you know, confirmation bias and, you know, recency

1186
01:15:30,760 --> 01:15:33,600
bias, all that sort of stuff where it can happen.

1187
01:15:33,600 --> 01:15:35,360
Everyone's a human being.

1188
01:15:35,360 --> 01:15:37,360
So you can always slip down that road occasionally.

1189
01:15:37,360 --> 01:15:41,360
You've got to put yourself out of occasion, step back and go, hang on a sec.

1190
01:15:41,360 --> 01:15:46,760
What's the antithesis to this thesis that we have?

1191
01:15:46,760 --> 01:15:50,120
Yeah, this conversation has been very fascinating.

1192
01:15:50,120 --> 01:15:54,840
If anyone wants to learn more about yourself or Perpetual or these particular funds, how

1193
01:15:54,840 --> 01:15:55,840
can they find you?

1194
01:15:55,840 --> 01:15:58,840
Go to the Perpetual website, so perpetual.com.au.

1195
01:15:58,840 --> 01:16:02,160
All our products are up there.

1196
01:16:02,160 --> 01:16:05,680
All the PDFs and PDFs are there.

1197
01:16:05,680 --> 01:16:06,680
Or speak to your advisor, actually.

1198
01:16:06,680 --> 01:16:07,680
We've been around long enough.

1199
01:16:07,680 --> 01:16:08,680
Most advisors know who we are.

1200
01:16:08,680 --> 01:16:09,680
That they do, that they do indeed.

1201
01:16:09,680 --> 01:16:18,240
Well, Vince, it's been brilliant having you on and I really appreciate your insights and,

1202
01:16:18,240 --> 01:16:19,920
you know, how you think about markets.

1203
01:16:19,920 --> 01:16:21,760
So I hope you have a great day.

1204
01:16:21,760 --> 01:16:22,760
Thanks, man.

1205
01:16:22,760 --> 01:16:25,760
I appreciate the opportunity to speak to you.

1206
01:16:25,760 --> 01:16:28,760
Take it easy.

1207
01:16:28,760 --> 01:16:38,320
Cheers, mate.

1208
01:16:38,320 --> 01:16:42,280
Any views expressed in this recording do not represent a view of any other third party

1209
01:16:42,280 --> 01:16:44,940
and other sole personal opinions of the speaker.

1210
01:16:44,940 --> 01:16:48,680
Any reference to financial product does not constitute advice or recommendation.

1211
01:16:48,680 --> 01:16:52,880
And before any action, you should seek proper advice from your financial professional.

1212
01:16:52,880 --> 01:16:59,720
Australian listeners should head to www.moneysmart.gov.au to find more information on obtaining financial

1213
01:16:59,720 --> 01:17:00,720
advice.

1214
01:17:00,720 --> 01:17:19,720
To get in touch with York, head to our website www.yorkwealth.com.au.