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

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As advisors to some of the wealthiest families in the country, The Rate of Change is a podcast

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designed to help you in the pursuit of building long-term wealth through the insights of some

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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 Russell Pilema,

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CEO of Pengana Capital Group.

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Russell brings extensive experience from his time as an investment banker at Goldman Sachs

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and shares his journey of founding and growing Pengana, which now manages $3.5 billion across

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12 strategies ranging from domestic and global equities to domestic and global private credit.

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For me, I really enjoy delving into the how of the strategies, in particular, their innovative

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approach to listed private credit and trying to solve the problem of having unlisted assets

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inside a listed investment company or a trust vehicle trading at a discount to net asset

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value due to volatility from market uncertainty.

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If you're curious about how or why they've structured it this way, then join us and hear

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Russell unpack everything from their bottom-up investment philosophy to their pioneering

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work in attempting to smooth the volatility for unlisted private credit in exchange traded

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markets for retail clients.

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If you're like me, then I trust you'll be eager to see how the industry responds to

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this new approach and curious whether it may become the new normal.

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So before we get into this podcast, please remember this is intended for entertainment

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purposes only and should not be taken as any form of financial advice.

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Be sure to listen to the disclaimer at the end of this broadcast and to keep your feedback

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coming.

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You can reach me at mgatty at ywm.com.au or via York Wealth Management at yorkwealth.com.au.

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So with that being said, I hope you find this conversation as enjoyable as much as I did.

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So sit back, relax and enjoy it.

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Russell Pilamar, welcome to the Rate of Change with York Wealth Management.

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Thanks for having me.

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Well, great to be here in your offices.

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Nice view over the harbor.

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Why don't we begin things off as always, Russell?

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And why don't you tell everyone a little bit about yourself and how you got into this beautiful

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world of financial markets?

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Yeah.

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So my background is I'm not a fund manager.

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So I've never picked stocks before.

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So it's a bit unusual for people in my industry to come from outside of actual stock picking.

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And my background was that I was an investment banker at Goldman Sachs for many years, both

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in Australia and in New York.

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And the last several years I spent in New York and I specialized in doing M&A for funds

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management companies.

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And so I got into this, I got to understand what the best fund management companies looked

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like.

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Post 9-11, my wife and I decided with three kids already and another one on the way that

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we want to do, our kids to be brought up at home in Australia.

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And so we came back to Australia and I decided rather than go back into investment banking

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over here, I try my hand at funds management.

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And based upon what I knew from my clients in the US, I decided I'd build a business

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from scratch and that's how Pengana was born.

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Yeah, right.

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So when you say you build it from scratch, what does that mean?

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Does that mean you came in here and you surveyed who are incredibly bright managers, in particular

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asset classes, and then you bought a business?

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Or did you literally build it from scratch?

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So literally from scratch, I started with a clean sheet of paper.

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This is how I think a fund management business should be structured.

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And really the essence of it was that the services are all centralized and the brand

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is centralized, but different funds should be run by expert teams, do nothing but manage

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those funds.

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And so essentially almost a partnership type structure where we'd go out and find a really

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good funds management team, we'd bring them into Pengana and get them to run a specific

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strategy and in a sort of partnership type form where we share the economics with them.

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They would pick the stocks, build the portfolios and we'd do everything else for them.

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So that was the basic construct.

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And we put the construct together and then went out and started looking for teams.

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Who was the first team?

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So the first team and we still have them today is our Australian small cap fund.

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It's called the Pengana Emerging Companies Fund.

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They've been going for in excess of 20 years now, I think this is the 21st year, annualizing

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at about 12% per annum for 20 years, which is a fantastic amount of compound growth.

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And a larger part of our success is due to them because they really helped us establish

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the brand and the business.

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So Steve Black at the time was the small cap fund manager at Goldman Sachs, JB Weir in

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Australia and Ed Prenegost was an analyst at Citibank and the two of them were the initial

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team.

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And as I say, they're still with us today, which is fantastic.

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I love a good origin story.

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So how is Pengana blooming?

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Because I was just, if people are not familiar with Pengana, you have quite a number of strategies

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spreading across multiple assets.

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So look, there's a lot there.

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I'm not too sure if you want to rattle off the list at all.

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Yeah, so rather than rattle off the list, you can think of us as covering all our bases

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in equities, listed equities, and that's our origins.

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Listed equities started with Aussie small caps, went to Aussie multi caps, went to international

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equities, international small caps, and a range of different offerings around the marketplace.

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It could be impact investing.

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We have a really interesting fund which does Israeli technology stocks.

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So mainstream equity investing as well as some sort of more niche type spaces.

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And we have both unlisted unit trust and listed vehicles.

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So that's really very much in the listed equity space as we cover the whole range of mainstream

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listed equities as well as some esoteric asset classes.

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And then more recently, we've moved into private markets.

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And this is really where a lot of the growth from our business has been coming from.

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So initially, private equity was our first foray.

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And a number of years ago, five years ago, we launched the Pangana Private Equity Listed

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Investment Trust called P1.

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P1 is the ticker that everybody knows it by.

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And that was a successful launch.

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And it's been really helpful for investors in their portfolios to be able to access top

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tier global private equity.

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And doing it in a listed form so everybody can buy into it.

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It really democratized private equity for every investor now can get their hands on

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private equity.

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Whereas prior to P1, it was really only in the domain of wholesale investors or big institutional

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type investors.

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And we're doing the same at the moment with private credit.

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In the market at the moment with a vehicle that's the tickers PCX, it's the Pangana

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Private Credit Listed Investment Trust.

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And that will once again bring the best of top tier global private credit to Australian

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investors and irrespective of your size.

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So previously, just the same as with private equity, where it was only the domain of the

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large institutional investors and the big family offices.

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Now everybody can buy into it.

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So we'll unpack private credit because that's an entire topic in itself.

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And there's something specific that you've done which I find very, very interesting,

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which we should spend a lot of time on.

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But before we do, what is the investment with the equities?

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What is the investment philosophy?

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When your teams are looking at where to allocate capital, what is their process?

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How do they think about it?

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Do they chase the market?

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Do they wait for essentially they have a list of what they like and wait for it to collapse

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before buying it on the cheap to see who survives?

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What is actually the process of allocation?

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Yeah, that's a great question.

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So all of our funds are bottom up, which means that our fund managers look for great stocks

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and they build portfolios out of great stocks that work together well in unison in a portfolio.

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They're not macro directed.

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So we don't sit there and say, what are markets going to do?

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What's the economy going to do?

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We can build our portfolio based upon a prediction of the future.

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In fact, we feel that we have absolutely no ability to predict the future.

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And so we build our portfolios irrespective of the future.

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And how do we do that?

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Well, we find stocks that over the long term we think will do well.

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They usually are stocks which are quite resilient in various market conditions.

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And so you find that our portfolios are populated with the types of stocks that are on a good

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solid cash flow generating stocks by and large.

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So that's the thesis, if you like, throughout the business.

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As I said, each of our different funds are managed by different teams.

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So they all have their own peculiarities about how they manage money.

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But in general, as I said, the general concept is to build a bottom up resilient portfolios.

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So I understand that.

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But then, you know, I've had a number of conversations.

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And what's interesting as well is I think I saw a chart for the past couple of years

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since COVID that if you literally just made a call which way the US 10-year bond rate

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was going, you could essentially call the market.

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So I understand I'm all for growth through reasonable price, value investing.

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But a lot of value investing is quite difficult when a Fed announcement comes out.

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All they're looking at is did they raise rates?

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Did they hold it?

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And what's the outlook?

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And then essentially the market behaves.

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So I understand that you're looking bottom up.

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But surely when do any of the portfolio analysts or portfolio managers look at, you know, depending

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on what's happening with a 10-year bond rate, you know, are we going to be tightening or

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loosening, you know, at least as a subsector?

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Or do they consider, you know, where to allocate money based on that at all?

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Or is it purely just bottom up?

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Yes.

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I think that when you look at things with the benefit of hindsight, it always seems

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easy, right?

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And you always think, oh, yeah, I should have been able to predict that or I should have

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known or some people get it right frequently or infrequently.

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It's kind of like going to the casino, right?

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Just because you had a good night and you won money time and time again on one particular

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night doesn't mean you're going to go back the next night and have success.

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So I think the ability to predict markets is probably random.

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And so we just don't do that.

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We just don't believe there's any value in doing that.

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And by the way, if we had expertise in doing that, that's probably all we'd do because

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that would be a pretty easy game to play.

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So we don't have that ability.

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We don't feel that we have that ability or that anybody has that ability.

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We don't necessarily like the tags that people put on stocks, you know, are they value stocks,

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are they growth stocks, et cetera.

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We just look for stocks which are good stocks that will do well over time, that are somewhat

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resilient to different market conditions.

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And we'll think about market conditions.

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We'll think about in terms of how the actual economy is performing.

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So that's important to us.

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But really, whether equity markets by and large are going to go up or down based upon

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moving your predictions of rates or, you know, the latest inflation forecasts, et cetera,

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that just there's no value for us in doing that.

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So really, and the other thing which we've got to make sure we do is we focus on the

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medium or longer term with all of our stocks because it's quite possible that you can buy

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a great stock today that you think is going to do really well over the medium to long

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term.

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But you wake up tomorrow morning and the markets have moved and the stock is down.

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And so you've got to have patience and you've got to have the courage of your conviction

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to say, you know, I bought the stock.

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I still believe in it.

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And just because the markets moved against me doesn't mean I'm going to be selling it.

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Now there are plenty of people out there.

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They trade or film momentum trade, et cetera, and manage money in a different type of way.

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That's just not what we do.

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We're there to, as I say, build resilient portfolios which can stand the test of time.

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Doesn't mean that we're not going to trade in and out of stocks, but we'll trade in and

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out of stocks because the underlying conditions for that stock change, for that stock changes,

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not because of equity market movements, et cetera.

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We'll take global as an example.

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When you look at things, you're looking at a thesis of what companies you think sound

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the test of time.

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Do any of the studies look at, as an example, companies that have a structure which can't

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be easily removed from global economies?

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Today, I don't know, credit card payments.

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The facilitation of if that business was to be removed or a new technology would come

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in, it would take five years to essentially remove that particular space.

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Does that factor into consideration?

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I'm just trying to understand exactly what do you look at?

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The other question on that as well is, I know there's a number of strategies, but are they

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go anywhere strategies?

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If you're saying global or domestic, you can go resources, tech, or infrastructure, does

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it matter where they go or is there a fine particular mandate?

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Yes.

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Let me address both of those topics, which are quite different.

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On the first topic about, I guess, the strength of the business model, if you like, a common

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term that's used in the markets is looking for companies which have a moat around it.

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They protect the top businesses.

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Everybody likes those types of businesses.

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There's a whole bunch of reasons why businesses might have moats around them.

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Some might be technologically driven, others might be brand driven, et cetera, et cetera.

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Everybody likes those businesses, and we certainly look for those types of businesses and thinking

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about also thinking about it in a different type of way.

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Does the brand provide you with your moat?

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Do the locations of your stores give you a moat, et cetera?

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That's something that we're very keen on, if and when we can find.

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We also like businesses, as I said, which can perform well or hold their heads up in

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different market conditions, different economic conditions.

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If we go into a recession, what business is actually going to do okay out of that recession?

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We don't want to be in types of businesses that get smashed in a recession.

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We look for resilient businesses.

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Then finally, you really want to find businesses that have growth prospects.

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That goes back to the notion of, I don't like the tag value.

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GARP might be a reasonable type of term, although people have stopped using that more recently.

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I think to find businesses that have growth prospects, it's necessary for your portfolio.

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I think you just won't get the types of returns if you don't find growth businesses.

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There are managers out there who are deep value managers who try and buy cheap and sell

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at a better level at a certain point in time, not because the underlying business has necessarily

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done well, but just because valuation parameters have changed, et cetera.

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That can work.

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It's generally not the way that we manage money around here with those deep value type

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plays.

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The question about, can our portfolios go anywhere and everywhere?

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All the portfolios have parameters around which they build.

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This is really important because investors who are putting money with you want to know

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what you're doing.

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You can't say you're an Aussie equity manager and then you wake up one day and you decide,

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well, actually, I'm going to put half my portfolio into international equities.

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My investors expect it to be in Aussie equities.

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They put me into the underlying portfolios because I was the Aussie equity exposure.

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It's really important to be clear with your investors where you're going and where you

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can go and then manage within those parameters.

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A fund manager who steps outside of their parameters really risks their whole business

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and their relationships with their clients.

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Some of our portfolios are quite tight in that regard and some of them are looser.

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For instance, here's a good example in our original fund, our emerging companies fund,

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the Small Cap Aussie Fund, we don't do resources.

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Why don't we do resources?

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You don't do resources in Small Cap Emerging.

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That is interesting.

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You're about to say why, but sorry.

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Absolutely.

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I find that quite interesting since we're in Australia and whenever I hear Small Cap

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Emerging, I'm thinking resources.

267
00:18:03,400 --> 00:18:04,400
Absolutely.

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I thought you'd like that one.

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Why don't we do resources?

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When it comes to resources, you can't predict how that company is going to perform based

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upon the underlying dynamics of the company because usually a resources company, the revenues

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or the growth, etc., is driven by the underlying commodity.

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You might find the best management team, you might find the best assets in, I don't know,

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pick a sector gold or coal or something like that and the price of the underlying commodity

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changes and it just destroys the business.

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It might be the world's best pay.

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Some fund managers, especially fund managers who are looking for relative plays, so they're

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trying to beat an index, they'll say, well, we don't mind if that sector goes down because

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we'll find the best stock within the sector and so our stock will go down less than the

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rest of the sector and so we'll play that index game.

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We don't play the index game.

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We're not about trying to beat indexes in our portfolios.

283
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We're about trying to deliver real returns to our investors.

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That's also probably quite a big distinction.

285
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We also, in some of our portfolios, we'll have ethical portfolios where we can't invest

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00:19:22,840 --> 00:19:29,520
in a certain range of underlying investments that don't pass our ethical screens, things

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like that.

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Small caps versus large caps.

289
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If you're a small cap manager, you better stick to the small cap space, don't go into

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00:19:37,320 --> 00:19:39,060
the large space.

291
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If you're a large cap manager, don't go into small companies that are illiquid even though

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they might have higher returns when your investors expect you to be in more liquid larger stocks,

293
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et cetera.

294
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So it's really important to stick to what you've told investors you're going to do.

295
00:19:58,720 --> 00:20:02,680
It's just really interesting about the emerging companies fund you mentioned.

296
00:20:02,680 --> 00:20:06,000
It just made me think, you're right about resources.

297
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Resources are essentially like farmers.

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You can work so hard, do everything correct, try to cut the deals correctly, but at the

299
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end of the day, that business sector, you're a price taker.

300
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You don't control essentially the price which you can sell for.

301
00:20:17,680 --> 00:20:21,400
So what I'm hearing is essentially you look for businesses which can control the price

302
00:20:21,400 --> 00:20:25,640
which they can essentially sell for, which means potentially more stability with your

303
00:20:25,640 --> 00:20:26,640
funds.

304
00:20:26,640 --> 00:20:27,640
Is that what I'm hearing?

305
00:20:27,640 --> 00:20:28,640
Absolutely.

306
00:20:28,640 --> 00:20:33,960
So really they can take, you want to have as many knowns in the process as possible.

307
00:20:33,960 --> 00:20:39,660
And if you've got a big unknown there, which is the price of the commodity, and they can

308
00:20:39,660 --> 00:20:45,420
rarely move around their profitability hugely, that just doesn't work for us because we want

309
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to allow for investing is variable as it is.

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We want to try and reduce that sort of variability.

311
00:20:53,040 --> 00:20:54,040
Yeah.

312
00:20:54,040 --> 00:20:59,000
Look, I know you don't really focus on macro, but I really wanted to bring this up because

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00:20:59,000 --> 00:21:03,520
when people are looking, one thing, the other reason why I do this podcast is I find managed

314
00:21:03,520 --> 00:21:06,760
funds, I came from a stockbroking background when you get like a list.

315
00:21:06,760 --> 00:21:11,240
When you look at the ASX, you look at international markets, there's a list, there's the scoreboard,

316
00:21:11,240 --> 00:21:12,240
right?

317
00:21:12,240 --> 00:21:16,560
Everything's there nice and transparent, but I'm finding in managed fund land, having access

318
00:21:16,560 --> 00:21:21,040
to the entire scoreboard, looking at performance and understanding why these things occur,

319
00:21:21,040 --> 00:21:23,160
people can find quite challenging.

320
00:21:23,160 --> 00:21:28,240
And as an example, you mentioned the emerging funds is average 12% going back, but for the

321
00:21:28,240 --> 00:21:30,400
past year, it's gone 18%.

322
00:21:30,400 --> 00:21:34,640
I think one of your funds, the high-conditioned equities fund has done like 54% for the year.

323
00:21:34,640 --> 00:21:39,680
I don't think you've had a fund in the past year that hasn't done 10% or greater, with

324
00:21:39,680 --> 00:21:40,680
some of them doing like 30, 40%.

325
00:21:40,680 --> 00:21:43,720
It's been a very, very large movement from November.

326
00:21:43,720 --> 00:21:46,760
And why I want to bring this up, I'm finding some families are in the making a switch from

327
00:21:46,760 --> 00:21:48,280
direct equities to international.

328
00:21:48,280 --> 00:21:51,240
They look at the past 12 months ago, this fund did 30%.

329
00:21:51,240 --> 00:21:54,440
That doesn't guarantee, as we know, past performance doesn't guarantee, but I'm just trying to

330
00:21:54,440 --> 00:21:57,720
... Why essentially has that move happened?

331
00:21:57,720 --> 00:22:00,960
And where does Pangana think the markets are going to from here?

332
00:22:00,960 --> 00:22:07,960
Yeah, so by and large, a lot of the positive performance over the last six months or 12

333
00:22:07,960 --> 00:22:12,280
months has come from just a general upswing in equity markets.

334
00:22:12,280 --> 00:22:16,040
And we're subject to those movements like everybody else is.

335
00:22:16,040 --> 00:22:18,440
So we try not to focus on them too much.

336
00:22:18,440 --> 00:22:24,880
We try to keep our mind on the targets on the middle to medium to long term.

337
00:22:24,880 --> 00:22:30,000
But we absolutely get kicked around in the process like every manager does.

338
00:22:30,000 --> 00:22:34,360
I think it's also then important to think about when you look at the portfolio to what

339
00:22:34,360 --> 00:22:41,360
degree are your returns being driven just by market valuations improving versus your

340
00:22:41,360 --> 00:22:42,360
underlying companies.

341
00:22:42,360 --> 00:22:47,360
So a good way to think about that would be to see are your actual underlying companies

342
00:22:47,360 --> 00:22:52,200
improving or the cash flows of your underlying businesses improving.

343
00:22:52,200 --> 00:22:56,680
And really almost like you put your blinkers on, try not to look at the market, try not

344
00:22:56,680 --> 00:22:57,920
to worry about the market.

345
00:22:57,920 --> 00:23:01,800
You can't impact that.

346
00:23:01,800 --> 00:23:03,320
You can't predict where it's going to go.

347
00:23:03,320 --> 00:23:04,960
So just focus on your companies.

348
00:23:04,960 --> 00:23:08,920
And as I said, if your companies are improving in terms of their cash flows and the growth

349
00:23:08,920 --> 00:23:13,040
of their businesses and their revenues, et cetera, that sounds great.

350
00:23:13,040 --> 00:23:14,960
And that's really the true test.

351
00:23:14,960 --> 00:23:20,360
It's funny you bring up our high conviction fund, which has done fantastically.

352
00:23:20,360 --> 00:23:25,960
I think we're up certainly north of 50%, probably just over just since the beginning of the

353
00:23:25,960 --> 00:23:29,120
year, so the numbers are quite out there.

354
00:23:29,120 --> 00:23:32,200
I think the numbers are quite potentially from March or April.

355
00:23:32,200 --> 00:23:35,080
Yeah, so phenomenal performance.

356
00:23:35,080 --> 00:23:41,360
And that's actually a great example of a fund where these super returns are not being driven

357
00:23:41,360 --> 00:23:42,360
by the markets.

358
00:23:42,360 --> 00:23:44,720
They're actually being driven by the underlying stock.

359
00:23:44,720 --> 00:23:52,160
So a high conviction portfolio, which is investing in stocks that really have great potential

360
00:23:52,160 --> 00:23:54,360
associated with them.

361
00:23:54,360 --> 00:24:00,880
A lot of it is medical technology, some technology, some biotech, et cetera, and really trying

362
00:24:00,880 --> 00:24:05,920
to pick the eyes out of the market out of quite unusual types of stocks.

363
00:24:05,920 --> 00:24:10,560
And the performance has not come from the market at all.

364
00:24:10,560 --> 00:24:17,280
It's really been driven by the fantastic developments or progress that has been made in these underlying

365
00:24:17,280 --> 00:24:18,280
companies.

366
00:24:18,280 --> 00:24:23,360
So that's the type of thing you really want to look for when you're trying to evaluate

367
00:24:23,360 --> 00:24:25,160
the fund managers.

368
00:24:25,160 --> 00:24:28,920
I know your job is to essentially run everything, but now I'm curious if potentially one of

369
00:24:28,920 --> 00:24:34,000
those companies that have been invested, because you can't go anywhere down the street and

370
00:24:34,000 --> 00:24:38,720
not go to a barbecue without hearing someone has taken a Zempik or Transmet.

371
00:24:38,720 --> 00:24:45,240
There's all these fascinating businesses emerging that are having very large changes on social

372
00:24:45,240 --> 00:24:46,840
dynamics in the market.

373
00:24:46,840 --> 00:24:50,360
Is that the type of companies they're investing in?

374
00:24:50,360 --> 00:24:54,640
First of all, is that global or is it domestic?

375
00:24:54,640 --> 00:24:55,640
It's actually global.

376
00:24:55,640 --> 00:25:02,840
I mean, we have the ability to do Aussie stocks, but it's a truly global portfolio.

377
00:25:02,840 --> 00:25:04,000
And it's a fantastic...

378
00:25:04,000 --> 00:25:07,400
I don't run the actual portfolio, so I run the business.

379
00:25:07,400 --> 00:25:14,080
And you might want to have a separate podcast with our manager who runs the portfolio.

380
00:25:14,080 --> 00:25:25,880
So basically, you can invest into the larger pharmaceuticals or medical technology companies

381
00:25:25,880 --> 00:25:28,240
that have already established themselves.

382
00:25:28,240 --> 00:25:33,320
And yes, there might be fantastic growth in the market, like in the example of Zempik.

383
00:25:33,320 --> 00:25:39,840
But what we're trying to do in this portfolio is to find the future leaders.

384
00:25:39,840 --> 00:25:46,720
And so we're trying to get really early on into stocks that we think have this potential

385
00:25:46,720 --> 00:25:50,000
to make rapid developments over the coming years.

386
00:25:50,000 --> 00:25:54,600
So it's a real stock picker's heaven, if you like.

387
00:25:54,600 --> 00:25:59,040
And not only are we looking for those stocks and not only are some of them relatively early

388
00:25:59,040 --> 00:26:01,160
on in the process.

389
00:26:01,160 --> 00:26:06,280
Now they're all listed companies and they're not tiny companies, but they're certainly

390
00:26:06,280 --> 00:26:09,720
not household names yet.

391
00:26:09,720 --> 00:26:16,680
And a lot of them are like in relatively early R&D stage, or sorry, I should say actually

392
00:26:16,680 --> 00:26:22,160
R&D stage, relatively late R&D stage, but they might not have actually been producing

393
00:26:22,160 --> 00:26:24,800
the full range of their products just yet, etc.

394
00:26:24,800 --> 00:26:28,040
So it's relatively early on.

395
00:26:28,040 --> 00:26:31,680
So if you can find those types of stocks early on, you can do fantastically well.

396
00:26:31,680 --> 00:26:37,960
And that's what our fund managers in that strategy do.

397
00:26:37,960 --> 00:26:42,920
And I think at the moment, we've got half a dozen of those stocks in our portfolio that

398
00:26:42,920 --> 00:26:46,560
are just driving the portfolio to great lengths.

399
00:26:46,560 --> 00:26:48,880
And the portfolio only has a dozen stocks in it.

400
00:26:48,880 --> 00:26:50,880
So it's a highly concentrated portfolio.

401
00:26:50,880 --> 00:26:57,960
So we find this type of strategy is pretty suitable more to sort of family offices, really

402
00:26:57,960 --> 00:27:06,000
high net worths, who can take some volatility and who can take a bet on stocks, etc.

403
00:27:06,000 --> 00:27:11,440
But once again, if you believe in the abilities of the fund managers and put your head down

404
00:27:11,440 --> 00:27:15,680
and don't worry about where this thing goes on a day to day basis, hopefully over the

405
00:27:15,680 --> 00:27:19,840
long term, you do extraordinarily well out of this.

406
00:27:19,840 --> 00:27:24,880
Yeah, it's very, very interesting how it all works.

407
00:27:24,880 --> 00:27:28,000
But one thing I quite enjoy is speaking to people like yourself that actually run the

408
00:27:28,000 --> 00:27:29,000
business.

409
00:27:29,000 --> 00:27:36,880
I just want to remind before we get into the credit fund discussing, essentially, you're

410
00:27:36,880 --> 00:27:38,040
running a stable, right?

411
00:27:38,040 --> 00:27:39,360
It's a fund of fund stable.

412
00:27:39,360 --> 00:27:44,160
And what's beneficial here is assuming hypothetically, everyone just invested in Pangana, are you

413
00:27:44,160 --> 00:27:50,560
trying to create essentially an avenue of different portfolios or funds that if the

414
00:27:50,560 --> 00:27:55,920
market conditions do one particular thing, you have an option, which will do well, and

415
00:27:55,920 --> 00:27:57,320
then essentially one might trade lower.

416
00:27:57,320 --> 00:28:01,280
And you have the capacity, if that changes, to essentially allocate that particular asset

417
00:28:01,280 --> 00:28:03,080
class and then file with.

418
00:28:03,080 --> 00:28:06,360
Have you tried to create more stability in the portfolios?

419
00:28:06,360 --> 00:28:07,360
Yes.

420
00:28:07,360 --> 00:28:12,160
So it's interesting that you bring that up because I think that will hopefully be the

421
00:28:12,160 --> 00:28:17,860
case in our business going forward with sort of more breadth to our business.

422
00:28:17,860 --> 00:28:19,300
We don't set out to do that.

423
00:28:19,300 --> 00:28:20,760
So that's not our objective.

424
00:28:20,760 --> 00:28:23,800
Our objective is not to buffer our own business.

425
00:28:23,800 --> 00:28:28,760
Our objective is purely to create product that makes sense for our investors and can

426
00:28:28,760 --> 00:28:33,200
fit into our investors' portfolios and can do well for our investors in their portfolio

427
00:28:33,200 --> 00:28:34,560
construction.

428
00:28:34,560 --> 00:28:38,160
So are you quite different to other fund managers?

429
00:28:38,160 --> 00:28:42,760
Most fund managers will go and sit down with a client and our typical client might be a

430
00:28:42,760 --> 00:28:48,000
high net worth investor or a financial advisor or a family office, et cetera.

431
00:28:48,000 --> 00:28:53,080
And they'll go in and they'll say, we manage international equities and, wow, have we got

432
00:28:53,080 --> 00:28:56,440
the best international equity fund to show you in the market?

433
00:28:56,440 --> 00:28:59,160
Now, sometimes it might be top of the charts.

434
00:28:59,160 --> 00:29:00,440
Sometimes it might not be.

435
00:29:00,440 --> 00:29:02,000
Sometimes it might be bottom of the charts.

436
00:29:02,000 --> 00:29:05,060
But they're there to sell the product.

437
00:29:05,060 --> 00:29:11,840
When we walk into that same room, we never say, have we got the best fund to sell you?

438
00:29:11,840 --> 00:29:14,440
We say, tell us about your portfolio.

439
00:29:14,440 --> 00:29:15,440
What do you do?

440
00:29:15,440 --> 00:29:17,440
Where are you making money?

441
00:29:17,440 --> 00:29:18,440
Where are you happy?

442
00:29:18,440 --> 00:29:19,680
Where are you unhappy?

443
00:29:19,680 --> 00:29:21,360
Why don't you have private credit?

444
00:29:21,360 --> 00:29:23,240
Why don't you have private equity?

445
00:29:23,240 --> 00:29:25,600
Why don't you have impact investing?

446
00:29:25,600 --> 00:29:31,160
Why don't you have Aussie small caps, global small caps, et cetera?

447
00:29:31,160 --> 00:29:36,320
And we can help people improve their portfolios through our different solutions.

448
00:29:36,320 --> 00:29:39,960
And so it's a fundamentally different conversation that we can have with our investors.

449
00:29:39,960 --> 00:29:45,320
And I think our investors really like talking to us because we're so multifaceted.

450
00:29:45,320 --> 00:29:47,200
I couldn't agree more.

451
00:29:47,200 --> 00:29:52,280
Finding problems with solutions, finding where a weakness is and then providing a solution

452
00:29:52,280 --> 00:29:54,480
to that problem is substantially more helpful.

453
00:29:54,480 --> 00:29:56,920
Well, that's how I do it anyway.

454
00:29:56,920 --> 00:29:58,920
So very, very similar.

455
00:29:58,920 --> 00:30:05,300
So I should have asked before, how much money is currently Pingana overseeing?

456
00:30:05,300 --> 00:30:11,160
So we've got about $3.5 billion that we manage across the business.

457
00:30:11,160 --> 00:30:15,920
And so I think maybe one of your observations might be that well, if you've got a dozen

458
00:30:15,920 --> 00:30:21,280
different strategies, that's not a huge amount of money per strategy.

459
00:30:21,280 --> 00:30:24,400
But a lot of our strategies are capacity constraints.

460
00:30:24,400 --> 00:30:27,780
So we can't manage huge amounts of money in them.

461
00:30:27,780 --> 00:30:33,240
Good example would be our emerging companies fund, our original fund.

462
00:30:33,240 --> 00:30:39,960
So in small cap land, if you've got too much money, every time you buy and sell a stock,

463
00:30:39,960 --> 00:30:41,600
you move the markets.

464
00:30:41,600 --> 00:30:43,160
So you can't have too much money.

465
00:30:43,160 --> 00:30:46,840
So our fund managers, they cap the amount of money that they want to raise.

466
00:30:46,840 --> 00:30:52,360
We have about $3.25 billion that we manage in that strategy.

467
00:30:52,360 --> 00:30:55,400
And our fund managers don't want much more than that.

468
00:30:55,400 --> 00:30:56,680
They want to outperform.

469
00:30:56,680 --> 00:31:00,560
And the way they outperform is by they keep the funds relatively small.

470
00:31:00,560 --> 00:31:05,360
So a lot of our strategies are in the capacity constraint buckets.

471
00:31:05,360 --> 00:31:08,600
And that's one of the reasons why we don't have a lot more money.

472
00:31:08,600 --> 00:31:11,600
We do have other strategies that have got lots of growth potential.

473
00:31:11,600 --> 00:31:14,360
And hopefully, those will grow over time.

474
00:31:14,360 --> 00:31:19,720
But I'd say the reason why we've got so many strategies and not so much fun is probably

475
00:31:19,720 --> 00:31:23,320
just due to this capping notion.

476
00:31:23,320 --> 00:31:24,320
And I hear that all the time.

477
00:31:24,320 --> 00:31:27,320
You speak to a fund manager, oh, yeah, we can go to this particular amount.

478
00:31:27,320 --> 00:31:28,920
They say, oh, we can do $300 million.

479
00:31:28,920 --> 00:31:30,400
And then they raise a huge amount of money.

480
00:31:30,400 --> 00:31:32,640
And then all of a sudden, that just moves to $600 million.

481
00:31:32,640 --> 00:31:34,120
It moves to a billion dollar.

482
00:31:34,120 --> 00:31:38,440
Then you look at the returns which they've made, the years they got them there are phenomenal.

483
00:31:38,440 --> 00:31:42,080
But then all of a sudden, their return average starts to come off.

484
00:31:42,080 --> 00:31:43,080
Absolutely.

485
00:31:43,080 --> 00:31:44,960
Classic phenomena in this industry.

486
00:31:44,960 --> 00:31:45,960
Is that normal?

487
00:31:45,960 --> 00:31:46,960
Do you see that quite often?

488
00:31:46,960 --> 00:31:47,960
Absolutely.

489
00:31:47,960 --> 00:31:49,520
You see that all over the place.

490
00:31:49,520 --> 00:31:52,400
Now, it doesn't apply to all strategies.

491
00:31:52,400 --> 00:31:56,200
But it certainly applies to those strategies which have that dynamic.

492
00:31:56,200 --> 00:31:59,480
And so small companies could be a typical example of that.

493
00:31:59,480 --> 00:32:04,440
With the larger funds that can take larger caps, what's the cap on those?

494
00:32:04,440 --> 00:32:06,160
Sorry, Mr. Stapp?

495
00:32:06,160 --> 00:32:09,440
The funds that can do larger equities, not the small caps?

496
00:32:09,440 --> 00:32:10,440
What's the cap on?

497
00:32:10,440 --> 00:32:17,120
Oh, so look, if you're doing real large caps or mega caps, you can manage a huge amount

498
00:32:17,120 --> 00:32:20,000
of money, hundreds of billions of dollars of money.

499
00:32:20,000 --> 00:32:22,280
But you're doing a certain thing.

500
00:32:22,280 --> 00:32:28,200
And you're investing in big stocks that are poured over by the market, etc.

501
00:32:28,200 --> 00:32:33,120
It's a hard gig to try and outperform the market in mega caps.

502
00:32:33,120 --> 00:32:37,280
What do you know that somebody else doesn't know about Netflix?

503
00:32:37,280 --> 00:32:40,200
Wow, that's going to be a hard thing.

504
00:32:40,200 --> 00:32:46,200
But what do you know that somebody else doesn't know about a small little small cap stock

505
00:32:46,200 --> 00:32:49,840
based in Western Australia?

506
00:32:49,840 --> 00:32:52,400
Well, you could really know things.

507
00:32:52,400 --> 00:32:56,080
And so that's the difference between the two.

508
00:32:56,080 --> 00:33:01,320
And I think it doesn't necessarily mean that investors can't do well investing in mega

509
00:33:01,320 --> 00:33:03,520
cap stocks and large cap stocks.

510
00:33:03,520 --> 00:33:08,400
But it's probably a, you know, it's a tougher game.

511
00:33:08,400 --> 00:33:11,040
And outperformance is tougher.

512
00:33:11,040 --> 00:33:14,800
But there's still ways of managing money that can do really well for investors, which is

513
00:33:14,800 --> 00:33:16,280
what we try and do in those spaces.

514
00:33:16,280 --> 00:33:17,280
Yeah.

515
00:33:17,280 --> 00:33:20,120
And have you ever noticed that it's more of a case of not what they're picking, but what

516
00:33:20,120 --> 00:33:21,360
they didn't pick.

517
00:33:21,360 --> 00:33:24,240
And then a portfolio manager has a reason not for picking that.

518
00:33:24,240 --> 00:33:26,720
But those are the seven companies, mixers of seven.

519
00:33:26,720 --> 00:33:29,000
I can't buy it because the value is not there.

520
00:33:29,000 --> 00:33:32,920
But if you're not in them, and essentially you're running behind the pack.

521
00:33:32,920 --> 00:33:39,600
Yeah, I would actually think that's substantially more difficult, like, you know, from a behavioral

522
00:33:39,600 --> 00:33:40,600
standpoint, would you agree?

523
00:33:40,600 --> 00:33:43,400
Like, you have your mind, no, no, this is how it's going to go.

524
00:33:43,400 --> 00:33:44,400
This is how we're doing things.

525
00:33:44,400 --> 00:33:45,400
And one thing starts going.

526
00:33:45,400 --> 00:33:46,920
It's like, well, I've missed it.

527
00:33:46,920 --> 00:33:47,920
What do I do?

528
00:33:47,920 --> 00:33:48,920
Yeah.

529
00:33:48,920 --> 00:33:52,240
So I think it's really all what you promised investors.

530
00:33:52,240 --> 00:33:57,640
And if you're promising your investors that you're going to outperform the equity index,

531
00:33:57,640 --> 00:33:58,880
then that's a tough.

532
00:33:58,880 --> 00:33:59,960
That's a tough call.

533
00:33:59,960 --> 00:34:04,480
And to do that on a consistent basis now over the long term, you might very possibly be

534
00:34:04,480 --> 00:34:05,480
able to do that.

535
00:34:05,480 --> 00:34:10,680
And you should be able to do it with some smarts because the index should be somewhat

536
00:34:10,680 --> 00:34:12,040
inefficient.

537
00:34:12,040 --> 00:34:18,720
But if you somehow have given the impression to your investors that you're going to beat

538
00:34:18,720 --> 00:34:25,360
the markets and you might not be in those stocks for very valid reasons, you're going

539
00:34:25,360 --> 00:34:27,800
to fall short from time to time.

540
00:34:27,800 --> 00:34:31,160
And so I think it's all about the communication piece and about what you're promising your

541
00:34:31,160 --> 00:34:33,440
investors so they understand where you're at.

542
00:34:33,440 --> 00:34:38,880
So if you go out, for instance, and say, look, we don't like investing in those magnificent

543
00:34:38,880 --> 00:34:44,320
seven stocks because we think they are overvalued, we think it's too risky.

544
00:34:44,320 --> 00:34:45,880
And so we're out of that.

545
00:34:45,880 --> 00:34:47,800
We don't do that type of investing.

546
00:34:47,800 --> 00:34:50,000
And people understand that that's what you do.

547
00:34:50,000 --> 00:34:54,960
And if those stocks run, they understand that you're going to underperform.

548
00:34:54,960 --> 00:34:58,520
But that shouldn't matter to them because everything's easy in hindsight.

549
00:34:58,520 --> 00:35:02,960
But we're setting up portfolios for the future where we're worrying about not only returns,

550
00:35:02,960 --> 00:35:06,880
but we're also worrying about volatility and about risk of loss, et cetera.

551
00:35:06,880 --> 00:35:10,720
So yes, those stocks, after the fact, might have run really hard.

552
00:35:10,720 --> 00:35:14,440
But the reverse could have happened as well with highly valued high growth stocks.

553
00:35:14,440 --> 00:35:18,840
So I think it's all about the communication piece and providing people know what you're

554
00:35:18,840 --> 00:35:21,320
doing and you stick to what you're doing.

555
00:35:21,320 --> 00:35:24,760
Hopefully, they're happy with that over time.

556
00:35:24,760 --> 00:35:25,760
I'm going to agree more.

557
00:35:25,760 --> 00:35:30,880
So since we're talking about communication, you communicated before about the second fund

558
00:35:30,880 --> 00:35:35,120
in private credit.

559
00:35:35,120 --> 00:35:36,120
This is very interesting.

560
00:35:36,120 --> 00:35:40,880
So before I bring up something in particular, do you want to give everyone a bit of understanding

561
00:35:40,880 --> 00:35:44,800
what the new fund is and how it works?

562
00:35:44,800 --> 00:35:48,520
So private credit is a really interesting space.

563
00:35:48,520 --> 00:35:51,360
So this is global private credit.

564
00:35:51,360 --> 00:35:54,880
It's probably the hottest space in the market at the moment.

565
00:35:54,880 --> 00:36:00,760
Private credit can generally be defined as anything which is non-bank lending.

566
00:36:00,760 --> 00:36:05,400
So it's a really, really big space, anything outside of bank lending.

567
00:36:05,400 --> 00:36:11,560
What we focus on and what we like specifically is what we call bilateral loans, which means

568
00:36:11,560 --> 00:36:12,560
one-on-one lending.

569
00:36:12,560 --> 00:36:20,000
So like a bank lends on a bilateral basis, bilateral loan to mid-market companies.

570
00:36:20,000 --> 00:36:26,480
Like companies we define as companies with pre-tax earnings of 50 to 250 million US dollars.

571
00:36:26,480 --> 00:36:30,260
So by and large, think of them as billion-dollar type companies.

572
00:36:30,260 --> 00:36:32,280
So we like this space a lot.

573
00:36:32,280 --> 00:36:38,680
And the reason why we like this space a lot is because you can get fantastic risk-return

574
00:36:38,680 --> 00:36:40,100
dynamics in this market.

575
00:36:40,100 --> 00:36:46,560
So I'll wind back, indulge me for a second, just the history of this and why this opportunity

576
00:36:46,560 --> 00:36:47,800
exists.

577
00:36:47,800 --> 00:36:54,960
So post the GFC, the banking regulators offshore decided they were really worried about the

578
00:36:54,960 --> 00:37:00,360
banks running liquidity mismatches in their businesses.

579
00:37:00,360 --> 00:37:06,520
So basically, corporate lending, you lend out to a corporate for five or seven years.

580
00:37:06,520 --> 00:37:10,600
On the other side of the ledger, you've got investors or you've got depositors who can

581
00:37:10,600 --> 00:37:14,200
come into the bank on any given day and withdraw their money.

582
00:37:14,200 --> 00:37:18,240
And so that's a really dangerous dynamic, we call it a liquidity mismatch.

583
00:37:18,240 --> 00:37:24,360
So the regulators said, look, if you want to, to the banks, if you want to lend to corporates,

584
00:37:24,360 --> 00:37:26,680
you have to hold extra amounts of equity.

585
00:37:26,680 --> 00:37:30,000
So you've got more liquidity in your book.

586
00:37:30,000 --> 00:37:36,520
That meant that lending to corporates became an unprofitable, less profitable activity

587
00:37:36,520 --> 00:37:40,640
for return on equity because you have to hold more equity, went down.

588
00:37:40,640 --> 00:37:45,680
And so the bank stopped, basically, by not stop lending to the corporates.

589
00:37:45,680 --> 00:37:52,500
We have a situation today, 85% of lending that goes to corporates comes from private

590
00:37:52,500 --> 00:37:55,960
credit providers, not from banks because of that dynamic.

591
00:37:55,960 --> 00:37:59,560
And so what that meant is as the bank sucked all their capital out of the market, they

592
00:37:59,560 --> 00:38:03,240
stopped lending to corporates, corporates didn't have anywhere to go.

593
00:38:03,240 --> 00:38:07,960
The really smart people on Wall Street saw this opportunity, and then they went and put

594
00:38:07,960 --> 00:38:12,320
these private credit funds together, that really you can think of them as the new age

595
00:38:12,320 --> 00:38:16,320
banks, they lend to the corporates, just like the banks used to lend to the corporates.

596
00:38:16,320 --> 00:38:21,760
But whereas a bank might lend to a nice big billion dollar corporate that is a good business

597
00:38:21,760 --> 00:38:27,040
model and a moat, etc. around them, while the banks might lend to that type of business

598
00:38:27,040 --> 00:38:33,600
at say 200 basis points spread to 200 basis points over the base rate, the private credit

599
00:38:33,600 --> 00:38:37,960
provider lends at 550 or 600 basis points over.

600
00:38:37,960 --> 00:38:42,720
So if you think where rates are today, a private credit provider is getting a double digit

601
00:38:42,720 --> 00:38:48,560
return from lending to a billion dollar corporate in a really safe and secure market.

602
00:38:48,560 --> 00:38:50,640
That is fantastic, right?

603
00:38:50,640 --> 00:38:54,120
Especially when you think about the risk, and we think about risk in two forms.

604
00:38:54,120 --> 00:38:59,080
The first way we think about risk is what is the risk that that loan is going to fall

605
00:38:59,080 --> 00:39:00,080
over?

606
00:39:00,080 --> 00:39:04,160
Well, the answer to that is if you're a good private credit firm, and you've been doing

607
00:39:04,160 --> 00:39:07,880
this for a lot of years, and you know how to structure your loans, the risk of a billion

608
00:39:07,880 --> 00:39:12,480
dollar corporate, and that's nice and safe and secure, of them falling over, provided

609
00:39:12,480 --> 00:39:16,680
you don't gear them up too much, is tiny.

610
00:39:16,680 --> 00:39:19,200
Because billion dollar companies don't fall over.

611
00:39:19,200 --> 00:39:23,320
They're too big to fall over, unless something untoward happens.

612
00:39:23,320 --> 00:39:28,800
So maybe COVID hits and they're in the entertainment industry, yes, they can fall over.

613
00:39:28,800 --> 00:39:30,760
Or maybe there's a fraud or something.

614
00:39:30,760 --> 00:39:36,320
But by and large, it's highly, highly unusual for these companies to go bust.

615
00:39:36,320 --> 00:39:40,320
So that's why the risk of loss is really small.

616
00:39:40,320 --> 00:39:44,640
And then what's the other way to measure risk is volatility.

617
00:39:44,640 --> 00:39:47,440
So what's the volatility of the underlying asset?

618
00:39:47,440 --> 00:39:53,120
Well, when you're doing one on one lending, so this isn't buying and selling tradable

619
00:39:53,120 --> 00:39:56,640
securities, this is just lending like a bank lends.

620
00:39:56,640 --> 00:40:02,720
You lend out $100, that stays in your books of the private credit fund manager at $100

621
00:40:02,720 --> 00:40:09,320
and you're clipping your 10 or 12% interest rate every year.

622
00:40:09,320 --> 00:40:10,800
But it stays in the book at $100.

623
00:40:10,800 --> 00:40:16,280
It doesn't matter, Russia invades the Ukraine, it doesn't matter to that loan.

624
00:40:16,280 --> 00:40:20,400
It's not going to go up or down that $100 stays at $100.

625
00:40:20,400 --> 00:40:25,080
If you were in tradable securities, they might collapse.

626
00:40:25,080 --> 00:40:30,080
So the volatility, which as I said is the other way of measuring risk, is really low

627
00:40:30,080 --> 00:40:31,720
on these assets as well.

628
00:40:31,720 --> 00:40:36,680
So you get this double digit return, which we know is an equity like return with extremely

629
00:40:36,680 --> 00:40:42,240
low volatility and extremely low risk of loss.

630
00:40:42,240 --> 00:40:44,720
And that's why it's such a good asset class.

631
00:40:44,720 --> 00:40:48,360
And that's why it's so keenly sought after by investors.

632
00:40:48,360 --> 00:40:53,280
So if you look at the big institutional investors in the US market, the sovereign wealth funds,

633
00:40:53,280 --> 00:40:59,480
the pension funds, the big family offices, they're investing a lot of money in this

634
00:40:59,480 --> 00:41:00,480
space.

635
00:41:00,480 --> 00:41:04,720
It's probably the favorite space for them to be investing in at the moment.

636
00:41:04,720 --> 00:41:08,080
And so that's where we play.

637
00:41:08,080 --> 00:41:09,440
This is very different to Australia.

638
00:41:09,440 --> 00:41:12,320
So this opportunity does not exist in Australia.

639
00:41:12,320 --> 00:41:13,320
And why not?

640
00:41:13,320 --> 00:41:18,640
Well, the US regulators really worried about the US banking sector because there's 5,000

641
00:41:18,640 --> 00:41:19,920
banks there, right?

642
00:41:19,920 --> 00:41:24,360
And they worried about a bank falling over and then there being a contagion effect, right?

643
00:41:24,360 --> 00:41:28,440
Like we saw last year with Silicon Valley Bank, they fell over and then the next bank

644
00:41:28,440 --> 00:41:29,960
looks like it's going to fall over, et cetera.

645
00:41:29,960 --> 00:41:32,040
It can have that real domino effect.

646
00:41:32,040 --> 00:41:34,880
In Australia, our regulators don't have those concerns.

647
00:41:34,880 --> 00:41:35,880
Why?

648
00:41:35,880 --> 00:41:40,000
You've got four banks or five banks, if you include Maury.

649
00:41:40,000 --> 00:41:41,440
There's no contagion effect here.

650
00:41:41,440 --> 00:41:44,120
They were well capitalized, et cetera, et cetera.

651
00:41:44,120 --> 00:41:47,920
Our banks have no problems lending to BDN and dollar corporates.

652
00:41:47,920 --> 00:41:51,300
And in fact, that's probably bread and butter for them.

653
00:41:51,300 --> 00:41:57,000
So if you want to get these big spreads in the Australian marketplace, can you do lending

654
00:41:57,000 --> 00:41:58,000
to the mid-market?

655
00:41:58,000 --> 00:42:02,840
No, because the banks are there and they're probably lending at, I don't know, 150 or

656
00:42:02,840 --> 00:42:05,320
200 or 250 over for various corporates.

657
00:42:05,320 --> 00:42:11,120
So the opportunity in mid-market lending to earn these widespread is not there.

658
00:42:11,120 --> 00:42:14,320
So where do Australian private credit providers go to get the high margins?

659
00:42:14,320 --> 00:42:18,080
Well, they go to places where the banks don't like to go.

660
00:42:18,080 --> 00:42:20,520
Number one is property.

661
00:42:20,520 --> 00:42:25,280
Whether it's highly geared property, property development risks, the banks don't like that

662
00:42:25,280 --> 00:42:28,320
and they don't like it because of the underlying risk.

663
00:42:28,320 --> 00:42:34,720
But also because of the consolidated nature of that risk.

664
00:42:34,720 --> 00:42:37,160
Property markets are correlated to each other.

665
00:42:37,160 --> 00:42:40,640
So you don't want to do a lot of that stuff because if one of them falls over, there's

666
00:42:40,640 --> 00:42:47,120
a chance that the whole market might fall over, et cetera.

667
00:42:47,120 --> 00:42:48,760
So they don't like those risks of banks.

668
00:42:48,760 --> 00:42:53,640
And so the non-bank lenders or the private credit providers are very much in that space.

669
00:42:53,640 --> 00:42:55,960
And that's where they can earn those high yields.

670
00:42:55,960 --> 00:42:58,800
The other place that they can earn them is small situations.

671
00:42:58,800 --> 00:43:04,600
So they can go and lend to a $50 million company and you can get a nice high spread because

672
00:43:04,600 --> 00:43:07,680
the banks don't like the risk of smaller companies.

673
00:43:07,680 --> 00:43:15,880
But the mid-market, bilateral loan markets where we make so much money off shore doesn't

674
00:43:15,880 --> 00:43:18,720
exist in the Australian marketplace.

675
00:43:18,720 --> 00:43:19,720
Very different.

676
00:43:19,720 --> 00:43:22,720
Now that's not to say that what we've got here is bad and I think people have done really

677
00:43:22,720 --> 00:43:27,440
well out of it and we've got really good fund managers in the property space and the small

678
00:43:27,440 --> 00:43:29,720
ticket lending space, et cetera.

679
00:43:29,720 --> 00:43:35,680
But this risk return that we see in the US markets and in Western Europe, I'd say it's

680
00:43:35,680 --> 00:43:40,520
an anomaly where you're just getting overcompensated for being in this marketplace.

681
00:43:40,520 --> 00:43:44,960
And that's purely driven by the regulator coming in and playing around in the market.

682
00:43:44,960 --> 00:43:49,560
So regulators have created an inefficient market and we're able to take advantage of

683
00:43:49,560 --> 00:43:50,560
that inefficiency.

684
00:43:50,560 --> 00:43:59,200
Yeah, I was just digesting what you're saying because we're very, very familiar with the

685
00:43:59,200 --> 00:44:01,080
money that can be made in property lending.

686
00:44:01,080 --> 00:44:03,600
Like you can't walk down the street without someone going, hey, I've got a property lender

687
00:44:03,600 --> 00:44:06,240
for you, you can make good money.

688
00:44:06,240 --> 00:44:09,240
You make anywhere from 10 to 15%.

689
00:44:09,240 --> 00:44:10,240
It's fantastic.

690
00:44:10,240 --> 00:44:11,240
Clients are very happy with it.

691
00:44:11,240 --> 00:44:16,600
But it's interesting in discussing and as you mentioned as well, there's a number of

692
00:44:16,600 --> 00:44:20,360
other fund managers, very great people, great operators.

693
00:44:20,360 --> 00:44:25,920
They do, as you said, participate in that 10 to $60 million bracket.

694
00:44:25,920 --> 00:44:28,360
But yes, the risk increases.

695
00:44:28,360 --> 00:44:35,960
Are there any other players or any other funds available?

696
00:44:35,960 --> 00:44:37,960
What's the competition for what you're doing in Australia?

697
00:44:37,960 --> 00:44:42,200
Like I spoke to a fund manager the other day that's in Southeast Asia.

698
00:44:42,200 --> 00:44:48,000
They're doing exactly the same thing, exactly the same thing, but they have the capacity

699
00:44:48,000 --> 00:44:49,120
to do venture debt.

700
00:44:49,120 --> 00:44:52,800
So they attach a warrant to it to participate in the equity upside with the land.

701
00:44:52,800 --> 00:44:57,440
And they said there was only three other players like that currently in Australia.

702
00:44:57,440 --> 00:45:02,560
As you mentioned, for the exact same reason, if you're dealing with upper echelon businesses

703
00:45:02,560 --> 00:45:06,040
and something happens to the business, you only need to sell like 3% or 5% of the business

704
00:45:06,040 --> 00:45:07,760
to essentially call back your capital.

705
00:45:07,760 --> 00:45:10,160
So the risk substantially drops off.

706
00:45:10,160 --> 00:45:14,400
So I think they're really interesting niche spaces and we do cover some of these niche

707
00:45:14,400 --> 00:45:15,960
spaces in our portfolio.

708
00:45:15,960 --> 00:45:18,680
So we're not just totally doing stock standard lending.

709
00:45:18,680 --> 00:45:23,840
We've got a small piece of our portfolio, which also does some interesting things like

710
00:45:23,840 --> 00:45:26,200
we've got a little bit of an exposure to venture debt.

711
00:45:26,200 --> 00:45:28,640
So you do venture debt in this as well?

712
00:45:28,640 --> 00:45:29,640
It's tiny in our portfolio.

713
00:45:29,640 --> 00:45:30,640
What percentage of the portfolio?

714
00:45:30,640 --> 00:45:32,840
It's probably about 2% of our portfolio.

715
00:45:32,840 --> 00:45:36,360
Would you potentially look to increase that if it goes well?

716
00:45:36,360 --> 00:45:38,960
No, I think that's enough.

717
00:45:38,960 --> 00:45:44,640
We've got 10% of our portfolio is earmarked for more innovative type of things like venture

718
00:45:44,640 --> 00:45:47,560
debt and we've also got some distress debt in there.

719
00:45:47,560 --> 00:45:50,000
These strategies can be fantastic.

720
00:45:50,000 --> 00:45:55,040
We've given our investors in PCX just a little taste of that.

721
00:45:55,040 --> 00:46:00,280
But our portfolio on PCX, so what we've actually got, I should have actually mentioned this,

722
00:46:00,280 --> 00:46:04,000
is we decided on pursuing a fund to fund strategy.

723
00:46:04,000 --> 00:46:08,600
So fund to fund strategy, usually people say fund to funds isn't a good idea because you're

724
00:46:08,600 --> 00:46:11,580
just giving money out to other people, et cetera.

725
00:46:11,580 --> 00:46:15,480
But fund to fund strategy is necessary in this space and why?

726
00:46:15,480 --> 00:46:16,480
Well twofold.

727
00:46:16,480 --> 00:46:21,720
Firstly, I spoke about these great returns with these really low risks, but not everybody

728
00:46:21,720 --> 00:46:22,720
gets them.

729
00:46:22,720 --> 00:46:24,440
Only the better fund managers get that.

730
00:46:24,440 --> 00:46:28,560
So you want to put your money with the best of the best.

731
00:46:28,560 --> 00:46:30,360
And these are quite big, powerful businesses.

732
00:46:30,360 --> 00:46:33,720
Remember, we talk about companies who are lending to the mid-market.

733
00:46:33,720 --> 00:46:37,040
Average corporate that they're lending to is a billion-dollar corporate.

734
00:46:37,040 --> 00:46:39,880
Average loan size is probably a 35% LVR.

735
00:46:39,880 --> 00:46:42,600
So you're lending $300, $400 million a piece.

736
00:46:42,600 --> 00:46:46,880
So these are big lenders.

737
00:46:46,880 --> 00:46:47,880
That's where you want to be.

738
00:46:47,880 --> 00:46:52,440
Big lenders, big teams, lots of experience, been doing this for many, many years.

739
00:46:52,440 --> 00:46:55,880
And as I said, they're the ones who've got the great track records in this mid-market

740
00:46:55,880 --> 00:46:56,880
lending space.

741
00:46:56,880 --> 00:46:58,240
They know what they're doing.

742
00:46:58,240 --> 00:47:00,040
So we want to give them our money to manage.

743
00:47:00,040 --> 00:47:01,720
So that's really important to us.

744
00:47:01,720 --> 00:47:08,040
The next thing about private credit is that you want to have diversification.

745
00:47:08,040 --> 00:47:10,020
Diversification is absolutely your friend.

746
00:47:10,020 --> 00:47:14,800
So if you're doing equity investing, you might not want diversification because you, the

747
00:47:14,800 --> 00:47:17,480
equity holder, you're going to get all the upside.

748
00:47:17,480 --> 00:47:22,800
When you say if something really does well, the equity holder makes money off that.

749
00:47:22,800 --> 00:47:28,480
If you're in private credit and you're lending to companies, if that company does extraordinarily

750
00:47:28,480 --> 00:47:31,640
well or modestly, it doesn't matter to you.

751
00:47:31,640 --> 00:47:33,760
You're only worried about the downside.

752
00:47:33,760 --> 00:47:38,080
And so when you're worried about downside, you want to diversify as much as possible

753
00:47:38,080 --> 00:47:42,920
because if you have an accident in the portfolio, you do not want that to impact the whole portfolio

754
00:47:42,920 --> 00:47:44,640
in any meaningful way.

755
00:47:44,640 --> 00:47:50,120
So what we have done, we have invested in 20 different managers.

756
00:47:50,120 --> 00:47:56,080
And if you look through all of our managers to the underlying loans that we provide out

757
00:47:56,080 --> 00:48:01,400
in the marketplace, or our managers do, there is more than 2,000 loans.

758
00:48:01,400 --> 00:48:10,520
So by buying one unit in PCX, your one unit is split essentially 2,000 times amongst 2,000

759
00:48:10,520 --> 00:48:13,440
different loans to billion-dollar type companies.

760
00:48:13,440 --> 00:48:16,320
So huge amount of diversification.

761
00:48:16,320 --> 00:48:21,640
So we think that that really helps control the risk, as you can imagine, and get that

762
00:48:21,640 --> 00:48:25,960
general dynamic where we're getting these high returns with these really low loss of

763
00:48:25,960 --> 00:48:26,960
loss rates.

764
00:48:26,960 --> 00:48:31,560
There might be a couple of companies that fall over because, as I said, for any sort

765
00:48:31,560 --> 00:48:38,560
of specific reasons, but a couple of out of 2,000 isn't going to impact our portfolio.

766
00:48:38,560 --> 00:48:42,680
Let's really, really, really dig into this because this is quite interesting.

767
00:48:42,680 --> 00:48:48,960
Basically in, what was it, 2020, we had three lenders hit the market.

768
00:48:48,960 --> 00:48:51,000
And I think they're fantastic fund managers.

769
00:48:51,000 --> 00:48:55,200
They came on, unfortunately COVID happened.

770
00:48:55,200 --> 00:48:59,120
And then one of them, in particular, as an example, went from $2 down to like 90 cents

771
00:48:59,120 --> 00:49:00,920
and has taken a while to recover.

772
00:49:00,920 --> 00:49:05,320
But then you look at their unlisted managed funds, they barely even got hit because, again,

773
00:49:05,320 --> 00:49:08,280
exactly the same reasons which you're mentioning, the product is good.

774
00:49:08,280 --> 00:49:13,640
It's just, I don't know if it's the Australian mindset or Australian investors don't understand

775
00:49:13,640 --> 00:49:21,080
exchange, trade or listed investment trusts that do illiquid assets, so to speak.

776
00:49:21,080 --> 00:49:25,520
But apparently you were telling me the other day that you found a solution to this problem

777
00:49:25,520 --> 00:49:30,960
to kind of deal potentially with the liquidity and the level of volatility so Australians

778
00:49:30,960 --> 00:49:37,440
can get access to this level of asset class without that whip, to put it nicely.

779
00:49:37,440 --> 00:49:38,840
Yeah, absolutely.

780
00:49:38,840 --> 00:49:44,080
So I think there are a couple of other listed vehicles in the marketplace and some of them

781
00:49:44,080 --> 00:49:47,280
have delisted or in the process of delisting.

782
00:49:47,280 --> 00:49:49,680
By and large, they don't do what we do.

783
00:49:49,680 --> 00:49:56,240
So what we do is, as I said, bilateral lending to mid-market companies, no volatility in

784
00:49:56,240 --> 00:50:00,560
the underlying Nassau returns.

785
00:50:00,560 --> 00:50:05,440
Some of the other vehicles actually invest quite a meaningful amount of their portfolios

786
00:50:05,440 --> 00:50:07,360
into traded credit.

787
00:50:07,360 --> 00:50:14,520
And so what you find in traded credit markets, when things go badly, the spreads widen and

788
00:50:14,520 --> 00:50:20,040
the traded value of these assets can plummet.

789
00:50:20,040 --> 00:50:22,880
And so that can be highly volatile.

790
00:50:22,880 --> 00:50:27,640
So I think some of those vehicles were overexposed to traded credit.

791
00:50:27,640 --> 00:50:32,560
The markets hit a wall and you had some write downs in the portfolio.

792
00:50:32,560 --> 00:50:34,880
So there was one issue.

793
00:50:34,880 --> 00:50:38,560
Now it's easy to build traded credit portfolios.

794
00:50:38,560 --> 00:50:42,400
If you gave me half a billion dollars today and you said, can I invest in traded credit?

795
00:50:42,400 --> 00:50:46,080
I'll do that portfolio tonight or this afternoon.

796
00:50:46,080 --> 00:50:48,000
I'd hand it over to you.

797
00:50:48,000 --> 00:50:51,820
In bilateral lending, it's going to take a long time because these are one-on-one loans.

798
00:50:51,820 --> 00:50:57,600
So that's why a lot of fund managers go to the traded side because it's easy to do.

799
00:50:57,600 --> 00:51:01,320
We've taken the hard path going on the bilateral lending side.

800
00:51:01,320 --> 00:51:05,080
So that's sort of the underlying assets in our portfolio.

801
00:51:05,080 --> 00:51:06,340
I think that's an important distinction.

802
00:51:06,340 --> 00:51:10,320
But the other thing which we've noticed, and I think this applies to everyone, is that

803
00:51:10,320 --> 00:51:17,320
whilst listed vehicles are fantastic for investors from a ease of functionality, so it's listed,

804
00:51:17,320 --> 00:51:20,240
which means you can buy it and sell it on the market any single day.

805
00:51:20,240 --> 00:51:21,920
If you need cash, go and sell it.

806
00:51:21,920 --> 00:51:25,600
If you want to rebalance your portfolio, buy some, sell some, et cetera.

807
00:51:25,600 --> 00:51:30,240
So really easy to use and there's a daily price for that.

808
00:51:30,240 --> 00:51:34,480
The problem with listed vehicles is that they can trade at a discount to their net asset

809
00:51:34,480 --> 00:51:38,040
values and that can happen from time to time.

810
00:51:38,040 --> 00:51:41,960
Sometimes you get into a bit of a rut where it trades down and people aren't going to

811
00:51:41,960 --> 00:51:45,880
buy it higher than the traded down price because they don't believe it will go back up to the

812
00:51:45,880 --> 00:51:46,880
net asset value.

813
00:51:46,880 --> 00:51:50,460
So it has been a problematic part of the market.

814
00:51:50,460 --> 00:51:55,220
Maybe it might be cyclical and we might be, well, the lows were several months ago when

815
00:51:55,220 --> 00:51:59,000
these things were trading at very large discounts, the market as a whole.

816
00:51:59,000 --> 00:52:03,640
It's probably narrowed now and less so of an issue, but there's still some issues in

817
00:52:03,640 --> 00:52:09,240
general with regards to discounts across the listed markets.

818
00:52:09,240 --> 00:52:15,040
So we sought to correct this problem or put in place a mechanism to ensure that our vehicle

819
00:52:15,040 --> 00:52:17,840
won't trade at a discount to net asset value.

820
00:52:17,840 --> 00:52:23,520
And what we've done is we've given investors an option to liquidate, not just through the

821
00:52:23,520 --> 00:52:27,760
market, and obviously they can go and sell their shares on any given day because PCX

822
00:52:27,760 --> 00:52:29,120
is a listed vehicle.

823
00:52:29,120 --> 00:52:35,320
But if you do not like the return that you're getting on market, then you have an ability

824
00:52:35,320 --> 00:52:41,440
to actually put your units or sell your units back to the fund at the net asset value.

825
00:52:41,440 --> 00:52:45,360
So you can essentially get redeemed right at the net asset.

826
00:52:45,360 --> 00:52:47,560
We really need to shine a light on this.

827
00:52:47,560 --> 00:52:50,920
Like as an example, what's the current, is it trading right now?

828
00:52:50,920 --> 00:52:53,400
It's only listing in two weeks time.

829
00:52:53,400 --> 00:52:54,560
And what's the listing price?

830
00:52:54,560 --> 00:52:55,560
So it's $2.

831
00:52:55,560 --> 00:52:56,560
$2.

832
00:52:56,560 --> 00:52:57,560
Okay.

833
00:52:57,560 --> 00:53:00,480
So technically world collapses, fingers crossed it doesn't.

834
00:53:00,480 --> 00:53:02,400
And then this hits $1.60.

835
00:53:02,400 --> 00:53:07,240
But the net asset value of the fund is $2, which is a 20% discount.

836
00:53:07,240 --> 00:53:12,640
There is actually an arbitrage there to potentially as a trader to go in and buy a $1.60 and then

837
00:53:12,640 --> 00:53:14,880
go straight back to you and sell it to the house.

838
00:53:14,880 --> 00:53:15,880
Yes.

839
00:53:15,880 --> 00:53:17,880
Now you have to sell it back on a quarterly basis.

840
00:53:17,880 --> 00:53:23,880
So you'd have to wait at least three and a half months to get your money back because

841
00:53:23,880 --> 00:53:28,960
you only do this on a quarterly basis and you get your money back straight away.

842
00:53:28,960 --> 00:53:34,160
But if you think about it, like using round terms, say this was doing to pick a round

843
00:53:34,160 --> 00:53:42,200
number, say the portfolio is doing 10% per annum and so two and a half cents a quarter.

844
00:53:42,200 --> 00:53:47,360
So when I put in my redemption notice, I get the net asset value at the time or at the

845
00:53:47,360 --> 00:53:50,560
beginning of the period plus the two and a half cents for the quarter.

846
00:53:50,560 --> 00:53:51,560
That's how I get out.

847
00:53:51,560 --> 00:53:57,000
So I'm getting out at net asset value plus the growth for the quarter.

848
00:53:57,000 --> 00:54:06,800
If I'm desperate to sell and so I need my cash, I can't wait to get it out at net asset

849
00:54:06,800 --> 00:54:15,560
value, I might go and sell it on market at say $1.99, but I'll use $1 just easier with

850
00:54:15,560 --> 00:54:16,560
the maths.

851
00:54:16,560 --> 00:54:22,960
So if I sold that $0.99, somebody else comes in and buys it from me at $0.99 and they arbitrage

852
00:54:22,960 --> 00:54:30,000
the price, which what they mean is they buy it at $0.99, they put in the redemption notice.

853
00:54:30,000 --> 00:54:31,160
What's their return for the quarter?

854
00:54:31,160 --> 00:54:34,800
Well, they'll get the two and a half cents plus they'll also get the one cent discount

855
00:54:34,800 --> 00:54:36,040
that they bought it at.

856
00:54:36,040 --> 00:54:39,000
So they'll earn three and a half cents for the quarter.

857
00:54:39,000 --> 00:54:42,680
And your last three and a half cents for the quarter, 14% per annum.

858
00:54:42,680 --> 00:54:45,180
We'll all do that trade any single day.

859
00:54:45,180 --> 00:54:51,720
So should a trade less than $0.99 in the dollar, we would hope not.

860
00:54:51,720 --> 00:54:55,640
So we think that this will really keep the discount very narrow.

861
00:54:55,640 --> 00:55:05,040
We have said that the total amount that we will be looking to buy back in any one quarter

862
00:55:05,040 --> 00:55:09,500
is 5% of the total stock that's out in the marketplace.

863
00:55:09,500 --> 00:55:13,400
So it's possible that if there's a real rush for the exits, you won't be able to get out

864
00:55:13,400 --> 00:55:16,280
in one quarter, you might need to get out in two or three quarters.

865
00:55:16,280 --> 00:55:22,280
But nevertheless, you will still be able to get out at the net asset value plus the returns

866
00:55:22,280 --> 00:55:24,000
for the period.

867
00:55:24,000 --> 00:55:28,000
And we think that the 5% is sufficient in any event.

868
00:55:28,000 --> 00:55:31,480
So this is, you're talking about the psychology of investing.

869
00:55:31,480 --> 00:55:37,160
This kind of is solidifying the notion that this thing should trade at the NAV.

870
00:55:37,160 --> 00:55:42,280
And why would I sell out at anything less than NAV if I can redeem at NAV?

871
00:55:42,280 --> 00:55:44,840
And so therefore, it should trade at the NAV.

872
00:55:44,840 --> 00:55:48,560
So maybe a premium, but I'd be happy for trades at the NAV.

873
00:55:48,560 --> 00:55:50,600
It's such a, hats off to you.

874
00:55:50,600 --> 00:55:56,160
It's such a clever little system because you're essentially using the behavior of the markets

875
00:55:56,160 --> 00:55:58,560
to be able to deal with everything.

876
00:55:58,560 --> 00:56:02,640
You're essentially using other people and other traders there to essentially, it's like

877
00:56:02,640 --> 00:56:04,880
doing a buyback.

878
00:56:04,880 --> 00:56:10,280
You're essentially offering people, smart enough people that can see the opportunity

879
00:56:10,280 --> 00:56:16,720
to essentially buy back, buy it up and create essentially the volume, which as a byproduct

880
00:56:16,720 --> 00:56:18,240
gives you the stability.

881
00:56:18,240 --> 00:56:21,280
And you don't have to do anything except for providing the mechanism available for it to

882
00:56:21,280 --> 00:56:23,000
occur and then it takes care of itself.

883
00:56:23,000 --> 00:56:24,000
Correct.

884
00:56:24,000 --> 00:56:26,400
And I'm not sure that people actually land up putting in there.

885
00:56:26,400 --> 00:56:29,440
Is this the first one of this in its kind in Australia?

886
00:56:29,440 --> 00:56:30,440
Is this happening in Australia?

887
00:56:30,440 --> 00:56:32,200
Did you nick the idea from someone else like university?

888
00:56:32,200 --> 00:56:35,880
Best advice we've got for universities, look left, look right.

889
00:56:35,880 --> 00:56:39,560
If someone's got an idea, realize someone else has had that idea originally, steal it.

890
00:56:39,560 --> 00:56:41,840
Build a product and then buy it.

891
00:56:41,840 --> 00:56:46,560
So unfortunately, I think other people will be stealing it from us going forward.

892
00:56:46,560 --> 00:56:47,560
That's right.

893
00:56:47,560 --> 00:56:53,600
So where we got it from is this quarterly redemption structure is a structure that's

894
00:56:53,600 --> 00:56:58,600
very, very common in markets, but they're unlisted structures.

895
00:56:58,600 --> 00:57:02,640
So to give liquidity to investors, it's very common in the US.

896
00:57:02,640 --> 00:57:04,320
They call them interval funds.

897
00:57:04,320 --> 00:57:09,780
So to give a liquidity mechanism to investors, they say, look, every quarter we'll buy back

898
00:57:09,780 --> 00:57:14,360
people who want to sell, we will buy back their stock at the net asset value subject

899
00:57:14,360 --> 00:57:17,360
to maximum amount.

900
00:57:17,360 --> 00:57:20,960
And so that mechanism, this is very, very common in markets.

901
00:57:20,960 --> 00:57:22,520
And people by and large are happy with that.

902
00:57:22,520 --> 00:57:24,940
Oh, I can get in and out at the NAV.

903
00:57:24,940 --> 00:57:30,040
And all we've done is we've taken that mechanism and we've just overlaid it onto the listed

904
00:57:30,040 --> 00:57:31,040
structure.

905
00:57:31,040 --> 00:57:35,000
So essentially, have the benefits of that unlisted vehicle where you can get in and

906
00:57:35,000 --> 00:57:40,000
out at NAV, as well as the benefits of a listed structure where you trade on a daily basis

907
00:57:40,000 --> 00:57:42,160
and you've got a daily price.

908
00:57:42,160 --> 00:57:45,680
So in hindsight, I don't think it's rocket science.

909
00:57:45,680 --> 00:57:46,680
I think it's kind of-

910
00:57:46,680 --> 00:57:49,440
No, it's like anything simple that makes sense.

911
00:57:49,440 --> 00:57:52,000
When you explain it after it's been done, it's like, how the hell didn't you think

912
00:57:52,000 --> 00:57:53,000
about that before?

913
00:57:53,000 --> 00:57:55,880
It just makes so much sense.

914
00:57:55,880 --> 00:57:59,800
But I'll be remiss to ask, with the numbers, is it fun to find this fees coming out of

915
00:57:59,800 --> 00:58:05,840
fees, which is fine for this ability, and plus the access to retail makes sense.

916
00:58:05,840 --> 00:58:08,520
But what would someone be expecting to return?

917
00:58:08,520 --> 00:58:09,640
I think you mentioned it before.

918
00:58:09,640 --> 00:58:12,520
What's the targeted return for this strategy?

919
00:58:12,520 --> 00:58:23,000
So we have not set out a target return because I think about with the general rule and what

920
00:58:23,000 --> 00:58:27,760
ASIC likes you to do with new vehicles is not to tell investors what the target return

921
00:58:27,760 --> 00:58:28,760
is.

922
00:58:28,760 --> 00:58:31,360
We don't have an actual target return in our PDS.

923
00:58:31,360 --> 00:58:36,400
We do have a minimum yield of 7%.

924
00:58:36,400 --> 00:58:41,920
We have a performance fee hurdle that we've put into the vehicle, which says we will only

925
00:58:41,920 --> 00:58:51,960
get paid a performance fee in the event that returns are 6% above the RBA cash rate.

926
00:58:51,960 --> 00:58:55,560
So 60% above RBA cash rate.

927
00:58:55,560 --> 00:58:58,480
So we will only get paid a performance fee if we generate-

928
00:58:58,480 --> 00:59:00,440
Is there any administration fees?

929
00:59:00,440 --> 00:59:01,440
10.35%.

930
00:59:01,440 --> 00:59:03,240
Everything's net of fees.

931
00:59:03,240 --> 00:59:05,760
Is there any administration fees?

932
00:59:05,760 --> 00:59:09,440
The fees built into the vehicle and into the structure.

933
00:59:09,440 --> 00:59:13,640
But when I talk about returns, these are net of all fees.

934
00:59:13,640 --> 00:59:15,320
We only ever talk net of fees.

935
00:59:15,320 --> 00:59:17,200
So RBA cash rate plus 6.

936
00:59:17,200 --> 00:59:22,560
Plus 6 is where we get paid a performance fee.

937
00:59:22,560 --> 00:59:25,880
So we would obviously hope to generate performance fees.

938
00:59:25,880 --> 00:59:33,880
The only way to control the company is to control how people get remunerated.

939
00:59:33,880 --> 00:59:36,720
So that's how we have set it up.

940
00:59:36,720 --> 00:59:42,160
And we've also set a minimum 7% yield, which we pay on a monthly basis.

941
00:59:42,160 --> 00:59:49,360
So I think if we perform better than that, then the 7%, then maybe we top the yield up

942
00:59:49,360 --> 00:59:50,360
somewhat.

943
00:59:50,360 --> 00:59:56,800
And we've said as a minimum, there's a 7% yield.

944
00:59:56,800 --> 01:00:02,040
It's set on a monthly basis and that will begin from month one of the trust being listed.

945
01:00:02,040 --> 01:00:07,080
We offer closes on the 6th of this month, 6th of June.

946
01:00:07,080 --> 01:00:11,400
And we'll start trading towards the end of the month.

947
01:00:11,400 --> 01:00:18,000
And so from July, from 1 July, we'll be fully invested across the portfolio.

948
01:00:18,000 --> 01:00:22,360
Because amongst our 20 different managers, we've got space to allocate everything out.

949
01:00:22,360 --> 01:00:30,680
And so in the month of August, 1 12th of 7% will be paid to our investors in our first

950
01:00:30,680 --> 01:00:31,680
yield payment.

951
01:00:31,680 --> 01:00:34,680
If anyone wants to learn more about this, because this is quite interesting, how can

952
01:00:34,680 --> 01:00:36,760
they get more information?

953
01:00:36,760 --> 01:00:37,760
Yes.

954
01:00:37,760 --> 01:00:40,000
So our website is pretty full.

955
01:00:40,000 --> 01:00:43,120
It's pengona.com.

956
01:00:43,120 --> 01:00:45,360
It's got a lot of information about PCX.

957
01:00:45,360 --> 01:00:53,640
I think otherwise, if you probably Google PCX, Pengona PCX, etc., you'll get all the

958
01:00:53,640 --> 01:00:54,640
information.

959
01:00:54,640 --> 01:01:00,280
There's lots of videos and I think we've got great materials out there for investors to

960
01:01:00,280 --> 01:01:01,880
get familiar with it.

961
01:01:01,880 --> 01:01:09,400
There's also a lot of brokers out in the marketplace who are representing us in the raising.

962
01:01:09,400 --> 01:01:16,160
We have Taylor Collins and Morgan's, Shores and Canaccord.

963
01:01:16,160 --> 01:01:21,280
So there's brokers who people can speak to and also a lot of financial advisors know

964
01:01:21,280 --> 01:01:23,880
the product and we've spoken to them.

965
01:01:23,880 --> 01:01:26,760
It's in a lot of portfolios, going to a lot of portfolios.

966
01:01:26,760 --> 01:01:34,360
So speak to your financial advisor, get the information, read the documentation, obviously

967
01:01:34,360 --> 01:01:36,160
read the offer document.

968
01:01:36,160 --> 01:01:40,680
If your financial advisor is not aware of the product, maybe you can encourage them

969
01:01:40,680 --> 01:01:47,240
to go and make themselves familiar with the product and hopefully we can get you invested.

970
01:01:47,240 --> 01:01:50,560
Last question, there's probably a lot of youth listening to this, a couple of six-year-old

971
01:01:50,560 --> 01:01:52,760
hopefully that want to get into this space.

972
01:01:52,760 --> 01:01:56,520
Since you've been here, started at Runnit and very happy doing what you're doing, is

973
01:01:56,520 --> 01:02:01,440
there any wisdom you want to impart on potentially young listeners looking to get into other

974
01:02:01,440 --> 01:02:04,160
run a stable or become a fund manager?

975
01:02:04,160 --> 01:02:08,200
Yeah, so funds management is a great industry to be in and there's a lot of people who want

976
01:02:08,200 --> 01:02:09,200
to get into the industry.

977
01:02:09,200 --> 01:02:14,600
If you're a really young person, I'll tell you one thing, just work really hard, get

978
01:02:14,600 --> 01:02:16,440
good results.

979
01:02:16,440 --> 01:02:19,760
If you're going to get hired into this industry and as I say, it's hard to get hired into

980
01:02:19,760 --> 01:02:20,920
this industry.

981
01:02:20,920 --> 01:02:27,600
The first thing people will look at is how have you done in your university, have you

982
01:02:27,600 --> 01:02:30,400
showed yourself, have you showed that you can apply yourself?

983
01:02:30,400 --> 01:02:33,960
Have you showed that you've got the smarts?

984
01:02:33,960 --> 01:02:40,200
So focus on your studies and also read, read a lot.

985
01:02:40,200 --> 01:02:46,040
Read the good books from the great investors, read about what's going on in the market,

986
01:02:46,040 --> 01:02:47,040
read articles.

987
01:02:47,040 --> 01:02:49,760
You really immerse yourself in this type of thing.

988
01:02:49,760 --> 01:02:53,920
So what do we like to see if we are interviewing somebody, somebody who's done really well

989
01:02:53,920 --> 01:02:55,600
so we can tell that they're smart?

990
01:02:55,600 --> 01:03:01,120
They've obviously got really good presentable type people, so make sure you've got confidence

991
01:03:01,120 --> 01:03:03,240
and you can talk to what you do.

992
01:03:03,240 --> 01:03:09,040
But we also want people who are well read and who understand things and have shown initiative

993
01:03:09,040 --> 01:03:11,280
and have got a passion for markets.

994
01:03:11,280 --> 01:03:16,040
So do all that and hopefully you can find your way into the industry.

995
01:03:16,040 --> 01:03:18,480
Russell, it's been a pleasure having you on.

996
01:03:18,480 --> 01:03:19,480
Thanks.

997
01:03:19,480 --> 01:03:20,480
Great to chat.

998
01:03:20,480 --> 01:03:21,480
All right.

999
01:03:21,480 --> 01:03:22,480
Speak to you soon.

1000
01:03:22,480 --> 01:03:33,800
Thanks.

1001
01:03:33,800 --> 01:03:37,760
Any views expressed in this recording do not represent the view of any other third party

1002
01:03:37,760 --> 01:03:40,440
and other sole personal opinions of the speaker.

1003
01:03:40,440 --> 01:03:44,440
Any reference to financial product does not constitute advice or recommendation and before

1004
01:03:44,440 --> 01:03:48,440
any action, you should seek proper advice from your financial professional.

1005
01:03:48,440 --> 01:03:55,240
Australian listeners should head to www.moneysmart.gov.au to find more information on obtaining financial

1006
01:03:55,240 --> 01:03:56,240
advice.

1007
01:03:56,240 --> 01:04:18,960
To get in touch with York, head to our website www.yorkwealth.com.au.