Welcome back to The Rate of Change with York
Wealth Management. As advisors to some of the
wealthiest families in the country, The Rate
of Change is a podcast designed to help you in
the pursuit of building long -term wealth through
the insights of some of the brightest minds in
asset management. I'm your host, Murdoch Gaddy,
and in today's broadcast, we're joined by Ben
Harrison, co -founder and chief investment officer
of Outdoor Capital, which as of February 2024
has been acquired by Prime Financial Group. Ben's
career began in engineering, project management
on major infrastructure projects across Australia
and Southeast Asia before moving into finance
with Wilson's, where he worked in equity research,
ECM and M &A. Nearly a decade ago, he co -founded
Outdoor, building it into a specialist alternative
asset manager with a focus on private credit
and growth equity. For me, what I found most
interesting about the conversation with Ben is
what they're looking to achieve. It's not just
another lending business. They want to get in
alongside the businesses they're working with
in both an equity facility and a debt facility
and work with the founders to help access the
capital they need to support the growth and trajectory
of where they want their business to go. Their
loans are senior secured, giving investors downside
protection, but Alto offers the equity stake
too. So it puts them on the same side of the
table as management, giving investors a share
in the potential upside. Their borrowers, the
businesses they work with, are typically operating
companies with 20 to 100 million in revenue.
$2 to $10 million in EBITDA, looking for capital
to expand, make acquisitions, or invest in growth.
So as mentioned, then Altor isn't a property
lender. They don't fund land, banking, or any
property development. In saying that... The businesses
which they lend to, they consider everything,
all our hard assets on the balance sheet. So
they will take in consideration property if it's
a hard asset of the business when looking at
the overall collateral of the business which
you're lending to. As of time recording, Outdoor's
flagship private credit fund had delivered just
under 12 % per annum net of fees. It has a seven
-year track record. It pays its... distributions
quarterly and has a target yield of 10%. We also
talk about Altor's decision to join Prime Financial
Group. Why Ben did it? What was the goal behind
it? So on a high level, Ben said it gave him
the ability to scale, gave him access to it.
to really accelerate what they're looking to
achieve. And he also really likes what Prime
does. Prime has a focus on sports and entertainment
advisory businesses. And we quickly unpack, and
it's going to be another podcast for sure, Prime
purchased the Tasmanian Jackjumpers basketball
team in the NBL. And this shows how sports franchises
can be treated as platform assets with strong
brands, loyal fans, and multiple streams of revenue.
So I'm really looking forward to that conversation.
In saying that, before we get into this conversation,
please remember this broadcast is made for entertainment
purposes only. I encourage you to do... to listen
to the disclaimer at the end of the broadcast
and keep your feedback coming. You can reach
me at mgatty at ywm .com .au. So with that being
said, I hope you enjoyed this conversation as
much as I did. So sit back, relax, and enjoy.
Ben Harrison, Altor Capital. Welcome to The Rate
of Change with York Wealth Management. Thanks,
Murdoch. Great to be here, mate. Good to have
you on, Ben. Why don't we begin like we always
do and tell everyone a little bit about yourself
and how you got into finance? Yeah, I started
my professional career as a consulting engineer
and ended up sort of moving quite gradually into
finance, went and did a master's degree. And
I think I realized actually quite early in my
engineering world that the money was made when
you were making money for your clients. And engineers
sometimes are considered as a cost base. So it
took me a couple of years. I went back and studied
that degree while I was still in engineering
and did some time with Wilson's. So interestingly,
saw them acquired last week by... So I did cut
my teeth at Wilson's and equities research and
M &A and ECM. And then ended up moving out into
the investment world as working for a small family
office and then ultimately established Altor
Capital about nine years ago. Yeah, right. Yeah,
Wilson's. I've got a lot of friends at Wilson's
and my wife's actually at Canaccord. Okay, great.
I mean, it's one of the great things I've found
is, that alumni network that's been created out
of Wilson. So still regularly speak to a number
of the people there. Small community there, that's
for sure. But that'd be very interesting, the
size of that transaction. But I'm wondering if
that AFR article was leaked. I don't know. We'll
find out what your numbers really look like.
Good old AFR. Yeah, very interesting. So engineering
background. Wait, did you end up doing any work
in engineering before you ended up at Wilson's
or did you just do the engineering degree and
then rotate into finance? Yeah, I actually did
a science degree in planning. And so I ended
up working in project management more so than
anything. So, yeah, I got an opportunity to work
on very large infrastructure sites, doing sort
of project delivery, project management. I spent
a lot of time. Working in coal mines as well.
So I did a big stint in Indonesia, working in,
at the time, largest coal mine in the world,
doing a large infrastructure delivery there.
So it was more infrastructure and planning that
I was doing more than the kind of mechanical
engineering side. But it was a very large multidisciplinary
engineering consulting firm. And I think that's
what got me the opportunity to think about, you
know, how things are working, I guess. Within
the operations, whether it's delivering on budgets
and on project management, which is really what
we do in finance, really. We're project managers
and problem solvers at the end of the day. And
that's very much project management discipline.
So then through the journey, how did Altoil Capital
come to be? When did that happen? Why did you?
Yeah, so my business partner, Harley Dalton,
I'd known for a very, very long time. He actually
helped me land my job at Wilson's when I was
coming out of engineering. So we'd kept in contact
for a long period of time. At the same time,
I left my previous employer and he sold his business.
He was one of the founders of DNR. Dalton Nickel
Reed or DNR Capital as it's now called. So he
sold out of that and, you know, was basically
looking for something to do. So was I. We really
wanted to focus on alts. We thought there was
a really, so this is nine, 10 years ago, we thought
there was going to be an amazing opportunity
to invest outside of traditional markets. So
that's how we kind of. came to be and I think
really it was very much like capital protection
led as well so Altor means protector so how we
kind of thought about the world when we sort
of saw an opportunity to kind of get more involved
in the structuring of deals and I think having
a kind of M &A background and capital markets
background allowed me to kind of think a lot
about how to protect capital through structuring
so that was kind of very big and then we developed
you know, a couple of different mandates that
really focused on the SME. So that mid -market
or lower mid -market corporate category and developed
an investment process. I mean, one of the great
things having Harley on board with me was it
being through this process of setting up a multi
-billion dollar funds management business. So
I knew exactly what we need to be doing on day
one. develop you know a track record so you know
people and performance and process the three
p's so as a fundee that's the things you need
to focus on so we developed that very early it's
interesting the um the the journey of alternative
investments like do you remember like when we're
coming up it was all pretty much like the 60
40 portfolio everyone needed bonds cash gold
and well that all went out the window with 2008
right so how interesting is it you know the thought
process now that you speak to a lot of advisors
like myself included like the it's almost pivoted
to like core satellite allocations but more like
you have a defensive part of the portfolio then
the offense right and before you have to have
like australia in there but the world's gotten
so global you know a lot of people out there
saying australia is nigh uninvestable when you
got returns double digits you know on the other
side of the on the waterways ben what and but
for people not familiar with say alternatives
what what is alternatives and where i'm going
with this is If you look at the average ASX return,
it's something like 8 and a bit percent. Meanwhile,
a lot of these alternative private credit assets,
which you guys do as well, you're returning in
the tens and the higher. And it's potentially
more stable because it's like asset back depending
on what you're lending against. So it's really
the evolution of it as an asset allocation. Everyone's
using it to essentially ensure deliverability
and then clients actually get... more protected
instead of the whippiness of just holding direct
equities. How fascinating has been this asset
class, the evolution of it? Yeah, that's right.
And you can speak to it more than I can, but
that's the evolution of the advised client in
Australia, really. It's gone to the days where
people didn't have access to great – they might
have had a stockbroker, but they didn't really
have a relationship with a financial advisor.
That industry is obviously – has really matured.
So being able, you know, advisors being able
to understand the other types of products out
there that can get that right balance in their
portfolios outside of Aussie equities and property.
Even bonds is probably not even sophisticated
up until, you know, recent years in terms of
the 60 -40 allocation. That was more a funds
management concept. in terms of, you know, the...
So I think for us, yeah, it's been amazing to
go on that journey. But what we saw was an ability
to, you know, take a long -term view. I think
the problem with markets often is it's very short
-term focused. You don't know what you're really
buying in terms of, you know, the arbitrage of
the markets and the buyers and sellers and the
behaviour of such. So I think kind of bringing
it back to a private market. taking away the
noise and allowing you to think more long -term
was really important for us. And also we're quite
macro driven from an industry perspective. So
we like to invest in businesses that will all
borrow and to businesses that got strong macro
thematics, really strong tailwinds. Being a business
founder, we know that it's not always linear.
So you've got to be in the right sectors to kind
of push you through those troughs when they happen
because they do happen. That's part of life.
So with Outdoor, what are the funds and what
are the assets you cover? Because Prime's also
associated with Outdoor as well, right? So you
wear many different hats. So maybe let's begin
there. What hats do you wear and why have you
chosen these asset class and what are the funds?
Yeah, so I'm the Chief Investment Officer at
Altor Capital. We have a number of different
strategies. We've got a private credit fund,
which is our flagship strategy. It's a diversified
private credit, corporate credit fund. It's been
around for over seven years now. So that's strategy
one. We've got an emerging growth fund, which
is our growth equity strategy. And then we've
got a recently formed fund in the last 12 months,
which is a social infrastructure fund. And there's
a whole nother podcast associated with that.
So I won't spend too much time on that. And then
the other thing we've been doing a bit more recently
is a lot more in sports and entertainment. So
we think that's a great asset class and a great
industry to be investing in, a great time to
be investing in that space. So we're doing...
a lot more of that, more so on sort of special
purpose vehicles, SVVs, rather than in the funds
themselves. Well, just flag quickly before we
get into the private credit. That's essentially
how we met. So my cousin, Mark Arena, just purchased
the Perth Wildcats, you know, what, nearly 12
or 18 months ago, right? And your guy's a prime.
I think Reece essentially helped him with the
buy side on that contract. We won't get into
it too much, but that's essentially how we connected.
It was so often how a lot of us connect as well.
Sports is an amazing network of people. Everyone
watches sport in Australia and everyone has a
passion for sport. So it's amazing the connectivity
that you get by being in that industry. It's
quite impressive. Yeah, and then when I caught
up with you guys and tested my cars and I'm like,
hey, so are these Alto guys? Are they legit?
He goes, no, no, no, they're fantastic. And they
helped me really well through the process with
that acquisition. So you guys should really have
a chat. So yeah, I've been enjoying learning
about your firm. But let's go back to the private
credit fund. What are the mechanics? What's the
asset? What are you actually lending against?
I can't remember. Is it B2B? Is it property?
What's actually underneath the hood? Yeah, so
it's a corporate credit strategy. We don't have
any property exposure. And I think that was quite
purposeful as well in the sense that we, you
know, a number of our clients already had quite
large property exposure. So we wanted to bring
to market something that allowed them to diversify
away from that exposure to property. So we purely
focused on what we call a low mid -market category
of... of corporates uh so it's anywhere from
kind of 20 to 100 mil revenue is kind of the
sweet uh for us the sweet zone for us and anywhere
from kind of two to three mil of ebitda up to
kind of 10 mil of ebitda we are what we call
an active credit manager uh growth manager so
i think you know you've had a few guests on the
on the pod uh that focus on growth um segments
so that's very important for us and we talked
a bit about that around the the industries we're
targeting but what we are is also a very active
manager so we actually become quite actively
involved in these businesses and that's very
very unique and what does active look like it
could be taking a board position it could be
helping them uh invest understand how their business
works so it's it's like a private equity mindset
but we're obviously investing um you know at
the top of the table in senior secured facility
so to kind of answer the second part of that
question uh you know we're investing in senior
secured loans uh those lines are secured against
you know assets receivables or cash flow so it's
not one particular asset um that we're that we're
looking at it could be combination of uh but
it's very specific for you know the borrowers
that are seeking us out so they've all got a
funding requirement a growth funding requirement
and we're there to really design uh you know
a package uh of um of capital that can basically
allow them to achieve their objectives and then
we go on the on the journey with them so growth
-based lending to businesses essentially is the
yep Exactly. But you don't do property. Just
quickly on this. So hypothetically, you've got
a, I don't know, a gym rollout, right? Or whatever
it is, you know, a Chuck E. Cheese or Nando's.
So what happens there if, say, a business is,
say, on the retail or, you know, front -facing
commercial shops when they have, you mentioned
you look at different assets but you don't touch
property. So if you've got one side of the business
and they're looking to roll out and they want
to do, I don't know, 30 stores. um you know for
the next you know inside the next 12 months but
part of the business has another entity which
is running the mcdonald's model where they want
to essentially own the land you know and then
and then you know put someone in there and get
the lease and pay it all off but you don't touch
the property side do you help with that type
of lending where it's essentially two separate
asset classes but you have you have to have one
to have the other yeah i mean if there's uh property
or assets that um uh support the business then
we definitely take security against those assets
so we're not if it's an operating business that
has has a property asset then we will um take
security over that property if it's not already
encumbered so yes we will look at but it has
to be an operating business that's i guess the
key difference we're not involved in you know
developments property developments um land banking
any of those things that Our friends that run
private credit funds, they do that really well.
We're not property people or property investors.
So we really wanted to be quite specific around
corporates and just sticking, we call it sticking
to our knitting. But yeah, just focus on the
corporate. Nice. What returns is the fund delivered
historically and what are you expecting for the
next 12 months? Yeah, so it's done. Well, we
can put the caveat here about, you know, historical
performance and future performance. But, you
know, we've done just under 12 % for the last
seven years per annum after fees. And the running
yield on the portfolio at the moment is around
12%, 12 .5%, something like that. The fund's
targeting cash return of 10 % after fees. That's
paid quarterly. So there's two components to
the fund. There's the cash element, which is
the recurring interest income that comes through
the loan facility. So that's a target of 10 %
per annum. But because we are active in these
borrowers, we also look to take equity positions,
free attaching equity positions in the businesses
as well. And they're either in the form of options
or free equity. And depending on the deal construct,
they can be either or. But for us, and that's
obviously not revolutionary. We've had credit
hedge funds for many years taking options positions
or warrant positions in businesses. But what
we try to do is take outsized equity positions,
but also back ourselves to create the value by
working a lot more hands on with these businesses.
So we think that we've got a greater chance of
actually delivering on the second part of the
return, which is really the. capital return because
we are very hands -on with these businesses and
we've now realized over five portfolio businesses
where we've taken meaningful equity off the table
for the work that we're doing with these businesses
yeah let's really dig into this because every
man his dog out there wants to land same in property
right you know yeah but when it comes to the
equity piece People want to essentially lend
five or six, maybe seven times to develop a relationship
before essentially the equity piece, however
it's structured, comes into even the conversation,
right? So I find that very interesting that you
– so are you the same? Do you have to lend to
someone a number of times before essentially
you consider the equity piece or you just say
it based on a deal -by -deal basis? Yeah, it's
definitely – and all our portfolio companies
at the moment have attaching equity in some form.
So when we look at the deal and the opportunity,
we spend a lot of time working with the founders
and the executive to find out what it is. We've
got two parts to our filter in terms of the process,
but the first part is actually quite equity -driven
versus the serviceability and coverage, which
is the second component of that process. So we
really want to understand who are the people
behind the business, what's the moat. all those
things that it may be a traditional equity investor
would look at. And then what's this business?
What do they actually want to achieve over the
next three to five years? And what are the key
catalysts in the business? And where is that
funding being deployed to help with that growth?
And that could be acquisitions, could be capital
improvements, all those kind of typical growth
scenarios. And then we sit down with the founders
and say, all right, well, this is how we're going
to help you. We'll give you the money, but it's
just not money. It's smart money. Some people
might argue that's not that smart, but it's money
that comes with partnership and advice and help.
So then we go on the journey with that founder
and that management team and say, all right,
well, how can we do this? How can we do that?
We've got plenty of examples of what we've done,
and I'm sure that... will probably be your next
question. And then what we ask for is equity,
attaching equity to help and add that value.
And a lot of the time, those business owners
actually love having us in the equity stack because
it means that we're a really aligned partner.
And then we can look at the total facility from
an IRR perspective. So we can look at the interest
income and we can also look at the equity returns
that we think are realistic to achieve. They
don't always come to fruition, but we think it's
likely that we can achieve equity returns or
growth returns from those positions. No, I couldn't
agree more. If you're in bed with the business
or both the equity piece and the lending piece,
if you're just doing the lending, you just want
to essentially get paid and have the loan paid
out and don't lose. But if you're in bed with
the equity side, you have complete interest to
see this actually... you know go all the way
and i find that quite fascinating and i think
i last year the year before i did a southeast
asian uh firm i won't mention which one it is
uh that specializes in was it uh venture debt
right so venture debt using warrants uh southeast
asia but i think he was saying and i was going
to ask you as well on the risk side that the
deals that he was looking at begin at was it
50 million or something like that so when you're
lending out say five or ten percent you only
require it's the ability to say if it all goes
to pot to sell off and when you sell the business
to get your five to ten percent back on the equity
piece and you still cover it right so from my
understanding and please correct me if i'm wrong
or please explain a bit better if you have the
ability to do a venture debt style or however
you structure it the investors and the people
you'll, you know, they're investing with you
in these transactions seem to be in a better
position in the capital stack from a risk reward.
Have I got that correct? Maybe you can do a better
explanation. Yeah, and I know the guys you're
talking about as well, but for us, you know,
obviously we're not on the venture debt side.
These are, you know, more traditional kind of
industrial type businesses. So financial services.
healthcare energy transition so really really
big kind of macro driven businesses but the kind
of way that I would explain it is that you've
got a contractual obligation which is where your
debt is right so that company borrows that money
they've got a contractual obligation to repay
that to repay that loan and there's obviously
interest that's attached to that and that incomes
great for our clients because it turns up every
quarter and allows them to achieve what they
need to achieve from a retirement or financial
outcomes perspective. But we would be also remiss
to say that if we're going to be active in these
businesses and we want to be active because it's
great to actually keep an eye on things and that's
a good thing from a defensive protection perspective.
We've also, our skill sets as managers have been
very much more growth orientated and advisory
partnership led. So how do we actually capture
additional value by being more hands -on with
these businesses as well? And that's where that
equity enhancement comes from. So it's not necessarily
taking more risk. It's actually about selling
your value to the person who's borrowing off
you. and then taking them on that journey and
demonstrating that you can add value. And a really
good example of that was a business that we lent
to a number of years ago, the business, and we
took a free attaching equity instrument as well
as part of that. But when it came to the business
being at the point where the founder actually
wanted to raise a significant growth capital
round that we couldn't provide, we actually ran
a formal process where we actually did, you know,
like a proper kind of advised M &A advice process
where we ran our competitive process, setting
up a data room, introducing parties, working
on the financial model, the documentation and
didn't charge them, you know, a traditional capital
advisory fee because we were aligned by value
that we were creating in the equity position.
And the founder loved that about what we were
doing. He knew that we were at the table with
him. trying to get the best outcome because we
were going to generate financial returns from
that equity position. No, that is so important.
So I'll just jump in there. Yeah, I mean, I make
stockbroking as well. How many times have we
seen a transaction where the brokers get involved
and all they care about is just getting their
fee? And then they convince them to do A, B,
C, D, E, F, G. And the only people that win are
essentially the brokers raising the capital.
But as soon as the money is done, they either
flog it or something happens. There's no accountability
or interest in helping that business after they've
done the raise. And it just ends up cannibalizing
itself. How many times have you seen the consequences
of the actions? But no, this particular strategy
which you have is fantastic. Yeah, advisory is
like dating and what we do is like marriage.
Like you go on, you've got to take a... Advisory
is like just going on Tinder. Yeah. So yeah,
it's definitely a long... uh yeah we think that
we think a very long -dated strategy like you
have to uh it's not these things aren't you're
not in for a quick turn and you know a true alignment
and partnerships also very important as well
so bringing bringing those uh borrowers and founders
and executive on that journey and adding real
value and we've fortunately now been able to
to do that a number of different times and developing
you know, a good reputation for that partnership
approach, which you think is really, really important.
So are these businesses ASX listed or are they
predominantly private companies? Predominantly
private. We've done a couple of public companies.
So, yeah, we do both and we're happy to do both,
but primarily private companies. So can you talk
to any of the businesses which you've done this
for? You mentioned a little bit about the engineering
side, but what type of businesses are these?
Are these telcos? Are these engineering firms?
What is your bread and butter? What do you find
the majority of these asset classes are? Yeah,
so in terms of the portfolio at the moment, it's
financial services, engineering and infrastructure
services, and energy transition are probably,
I guess, the major kind of categories that we're
in. And there's obviously probably subsectors
to those kind of larger categories. So that's,
I'd say, probably 70 % of the portfolio, 75 %
of the portfolios in those three categories.
And they're, you know, typical, you know, Australian
businesses that have, you know, founders and,
you know, need to have access to capital. But
they're in. industries that we understand. We're
quite industry agnostic, but there's industries
obviously we prefer because there's some macro
around them or we've got the skills inside and
internally that can add most value. And that
could be introducing, you know, relevant client
relationships to win work. So we're at that level
too around how do we actually help these businesses
with sales strategies. introducing them to um
you know key relationships that we have to drive
revenue growth so that's the kind of approach
that we have so you say financial services like
i'm an advisor and look we've all seen the numbers
i think what advisors dropped from 16 000 down
like eight and a half thousand recently there's
been the tightening up in that financial planning
space you know it's just been acquisition after
acquisition you know anyone that's retiring that
wants out all the young guys are coming in and
trying to jump and then well who's the other
competitor i can't remember the name There's
one other main lender that really likes lending
in that financial space. But if I'm understanding
it correctly, is that something that you do?
So if there's a large acquisition, well, let's
call it, say the revenue is $10 million, you're
paying three times book, $30 million ticket.
Is that, you know, for a large acquisition, we
just discussed, you know, Canaccord's potentially
looking at buying Wilson's. really confirmed
yet we'll find out how that goes but that's a
very big deal but is that somewhere where you
come in that you know growth -based lending looking
at acquisitions you know is it just in the advisory
space do you touch mortgage brokers like just
trying to get an understanding of and the other
reason i'm really digging into this i find a
lot of people that listen to this are actually
people that own and run these types of businesses
and they might be actually finding it hard to
find you know credit or the right partner in
this particular space. And you never know what
comes from these things. So I just want to dig
into, you know, who is the right type of client
in the financial services space for you? Yeah,
so that's, you know, we've got a business called
WT Financial. It's actually a listed company.
It's acquisitive. We've helped them fund acquisitions,
multiple acquisitions. And, you know, we, interestingly,
when, you know, we talk about why they don't
seek out traditional, I mean, are these businesses
not able to get access to traditional banks?
We actually refinanced a big four as part of
that facility and then gave the business an opportunity
to get access to the right type of capital they
needed to grow because the bank wasn't there
and the bank. is not there for a variety of other
reasons around timeframes or complexity of transactions.
And I think that private credit managers have
done a great job of really dispelling a lot of
those myths around the types of businesses that
they're lending to. We just have that flexibility
to create the right product and the right funding
structure that these businesses are after. So
WT is a great example. So it's a dealer group,
basically. Its whole premise is around how it
can provide the right services to financial advisors,
whether that's around compliance, et cetera.
And we've been able to help Keith, who's the
managing director there, lead a... quite successful
acquisition strategy so that is definitely something
that we we like doing it's been a great uh it's
been a great lend for us and a great relationship
for us and we're you know looking to continue
to support him um with his growth aspirations
does that also uh pivot into like the the horizontal
integration and financial services i'm seeing
a lot of things happening now and like you get
an advisory shop or an accounting firm or mortgage
broking the whole one stop shop service type
routine is really starting to take traction.
Clients are coming in and they don't want to
leave. You've got a good relationship here and
why do I have to leave? Can it just all be in
-house? Are you finding a lot of the acquisitions,
are they still keeping in their lane or are they
trying to do a one -stop shop? I think it's probably
a combination of both. I wouldn't say there's
any one particular trend. We always are very
cautious about synergies around cross -selling.
I think that there's plenty of businesses that
have gone before that have probably misjudged
that concept. So I guess we're quite cautious
about focusing or thinking that the return profile
is predicated on that. But yeah, we're seeing
even other businesses as well that we get involved
with are naturally looking for scale benefits
as well. So whether they're buying... because
they've got a larger fixed cost base or investment
they've made in shared services or whether it's
other businesses that are trying to be a little
bit more vertically integrated. I think they
regularly happen and the financing that we provide
does help. Our financing is not always about
acquisition financing. I know there are funds
out there that do specifically focus on particularly
sponsored. uh credit or or leverage loans but
for us it acquisitions is just one of many growth
strategies that we would be looking to for our
borrowers to undertake that makes sense so in
the um in the other part of the portfolio are
there any other companies uh you can discuss
uh like on the engineering side or anything or
is it everything everything's pretty much underneath
an nda and no one wants to no one wants to be
talked about No, no, each quarter we give, you
know, we give regular updates with, you know,
with the portfolio to the clients. So, you know,
the clients have that look into the businesses
that we're working with. But no, there's no,
I mean, we've got, you know, a business called
Energy Build, which is in the renewable space.
We've got a business called OnSpec, which is,
you know, an amazing business. That's more in
oil, gas field work. So they work with all the
large oil and gas producers and that business
creates basically like a tool, a monitoring tool
that provides those customers with data to allow
them to increase flow rates out of their wells.
So we're leading a very, very strong growth capital
injection for those guys. They've won some amazing
contracts recently and have had amazing growth.
So, you know, these businesses, they range and
vary, but that's kind of a snapshot of some of
the names. With the oil and gas one, where are
their main clients? Is it everywhere across Australia?
Is it data centric helping with the flow rates
or is it? they just specifically focus on one
side of the coast or yeah they've got uh relationships
in wa they've got relationships in queensland
new south wales and then we've recently uh expanded
into the us um but but this this type of interestingly
they've been winning a lot of work in that hydrogen
space as well um so there's you know green greener
energy i guess for those uh investors or others
that are kind of more focused on moving away
from oil and gas. You know, they are looking
at expanding and doing work in other sectors
that aren't so emitive, I guess. But the benefit
of improving flow rates is not only is production
is improving, but it actually prevents a lot
of flaring as well. So it does have some secondary
benefits to emissions. So it's quite a unique
business and they've been very successful. We've
only been on that journey now for about just
under two years. I think now the EBITDA of that
business has tripled and likely to continue a
pretty similar growth trajectory over the next
couple of years. To give some context on that
business, two years ago, what were the numbers?
What are they today? And, you know, how have
you helped? Like, I suppose some people would
be interested to hear, you know, you working
with them. What are the numbers actually look
like for that type of business? Because it's
a very interesting business. And also the TV
show Landman's come out, you know, after the
success of the, you know, Yellowstone. You know,
he's come in and there was that particular thing
where he drags the chick lawyer out in front
of the wind farms, right? And just discusses
with a point blank that, you know. everything
is essentially petroleum -based. It doesn't matter
how you want to do it. You can't stick up enough
wind farms to do a thing. Otherwise, these big
oil and gas companies, they have them scattered
everywhere, right? So we're stuck with it. For
the people that don't like that, it's just a
reality. People that do like it, it's fantastic.
But how have you gotten in to help a business
like this? And as you made a comment, it prevents
the flaring, which saves them money, but it also
stops harmful gases getting into the atmosphere,
right? fantastic yeah i haven't watched it yet
but it's definitely on on the list because i've
heard some amazing um yeah amazing reviews but
i think from out it was quite an interesting
journey we went on with that business and it
was actually referred to us from a client of
ours um so that was quite a unique thing that
we hadn't seen you know either so we're actually
seeing a lot of our investing clients referring
us businesses which has been you know like an
interesting change recently as well. But we did
a lot of work. We actually commissioned an independent
expert to have a look at the gas market. We knew
ourselves that there was a need for gas as part
of the transition to renewables, but we didn't
have kind of the hard numbers and the hard view
and the facts behind that. So we actually commissioned
a report that looked at the policy settings,
supply and demand settings. And we use that and
also help us with thinking around the investment
horizon as gas was being used as a transition
fuel. So that was a key part of what we were
doing. The business, we helped the founders buy
a business off a larger parent company that owned.
It was basically a business that parent company
didn't want to pursue anymore. So there were
a couple of existing management teams. So we
basically did a management buy -in. um into that
business um you know so we basically came in
from scratch it was had very small revenue base
um it'll do what were the numbers like you know
how big was the deal what were the revenue yeah
so the revenue at the time would have been probably
four or five million and it'd probably be up
towards kind of 30 million now so they've had
some quite large in two years yeah it's gone
from 5 million to 30 million in two years yeah
some of the contracts were kind of getting worked
on in the background. So it wasn't kind of a
full origination of that much revenue in that
particular year. So a lot of it was being kind
of incubated and kind of brought into the structure.
And the deal terms were, we were able to kind
of buy it at a very, very low valuation, which
meant the fund could actually contribute the
debt to fund the growth. but also get themselves
or get a fund in there and the investors get
an equity position in it as well. So that's,
you know, I sit on the board of that business.
I work with the founders. There's two founders
that I work with. And, you know, our remit is
to grow that business, protect the debt and ensure
that, you know, the things that the contractual
relationship that comes with that facility is
continuing, but also. How do you drive additional
returns through that equity position that we
received? And that was basically free. The fund
didn't pay and the investors didn't pay for that
equity position. How much was the equity position?
What percentage of the business? How was it structured?
Yeah, so it depends. It'll depend on, like we
put an earn out mechanism in place as well. So
the founders get a right to earn back depending
on revenue and EBITDA target. So it'll kind of...
It'll range, but it's a meaningful minority position
in the business. But I can't give you an exact
number because it'll depend on a whole bunch
of different outcomes. Yeah. This is the fun
part. When you really start picking apart deals,
how do they work? Why do they work? But what
I'm trying to understand, so you've got the equity
piece and then you've got the capacity to buy
back. I love that because you incentivize the
– because when you're an owner, all you want
is equity as much as you can. And everyone knows
equity is the most expensive thing to give away,
right? So having the ability to work with a founder
to grow and then go – otherwise, they get three
years in and they go, screw this. I'm working
for someone else. I'm going to flog my stuff
and go build a competitor, right? But how good
is the structure with the capacity? If you hit
your targets, you get more equity back. Doesn't
that really incentivize? someone's behavioral
psychology in their mind just to really you know
roll up the sleeves and get stuck in because
it's and it's a natural deleveraging exercise
too so if we can incentivize those founders to
to grow from you know a couple of million ebitda
which was what we were kind of targeting at the
front end up until you know four or five million
dollars of ebitda that that's a natural way of
deleveraging the business as well so you you're
willing to give up some of the equity return
because you know that your debt position is,
you know, not as high as it would have been when
you started the journey. So I guess it rewards
a whole bunch of different behaviours that we
really like. And it doesn't work for every...
Like, this is quite unique. These businesses
are the exception rather than the rule in terms
of what we would generally do. But there's a
very specific set of... um attributes that we
know works really well when it comes to these
types of businesses that that you can buy you
know the founders can buy them well they can
use a bit of leverage to help them they don't
need to raise equity to fund the acquisitions
they're intimately involved in the businesses
because they're already management teams and
they're willing to share in some of the upside
for um for that contribution of capital and and
you know we were able to give them a lot of comfort
about how we operate because we've we had other
businesses that were able to give like you know
testimonials and those things that allowed them
to um you know that allowed them to get comfort
about the value we could bring i've got a question
for you like as a fund manager you need a deliverability
to clients now there's an equity piece in it
you know people that have invested in this yes
you've got the income component coming through
everyone's happy but in order to you know get
the equity piece back to a client normally everyone
has to sell part of the equity as you mentioned
have exits right but as the expression goes you
never sell a good business you don't know what
this business could be you know this could be
a 30 it's all in gas right you know it could
keep evolving and be a 200 year old company right
so what i'm just wondering is how What are the
other strategies or do you have any other strategies
that give the ability to provide exits without
diluting your equity? And where I'm going with
this, just been reading quite a lot. I think
I've been working with someone else who, because
everyone understands about borrowing against
assets like property, right? You can do that
all the time. You build one, let it grow, you
refinance, take the capital and go to another.
But it's very uncommon. People aren't familiar
with it. You can actually borrow against equity
positions in business. So you don't actually
have a... um capital gains event and there's
no tax on essentially the borrowed money after
it gets read on in the valuation do you consider
those types of strategies um or is that too much
uh risk i'm just i'm just curious because you
know it's now becoming a really common topic
to talk about like you know it's pretty much
how elon musk you know founded twitter uh found
a twitter and x you know so i bought it you know
he didn't sell anything you know he used that
capital to redo another business so i'm just
curious about your thoughts on that strategy
or if you consider it yeah we don't we don't
generally do kind of personal lending or all
those like we've always got to take a view that
the business can support the the facilities that
we're that we're deploying i think the way we
do think about exits and how do we get exit outcomes
for the equity as well like we are we're not
perpetual capital vehicles so you know the way
we think of the same way we think about the contractual
obligation to repay the loan. We also think about
the contractual obligation for us to sell the
equity if there is value there. So there's a
lot of work that's done around shareholders agreements
in advance of deploying that capital as well.
So we're thinking about how do we exit the equity
position if there's an opportunity to, and that's
first giving the founders a right to buy our
equity positions off us. before we run a process.
But yeah, we are very conscious about the, you
know, realising the value for the equity as well.
They're detached anyway, so they can, you know,
you can have loans without, with the equity being
sold, which is a case that we've had with Energy
Bill. We actually have sold the equity there
and we still remain as a lender. So that does
happen. then sometimes we can be repaid the loan
and still have the equity on foot. So that just
continues. So there's no kind of horses for courses.
It will kind of vary, but fundamentally we're
looking to get an exit on both. So I'm just running
through the numbers. So you said it's two years.
Revenue's gone from $5 million to $30 million
plus and expansion is to the US, right? It sounds
like it's on a very good growth trajectory. Why
did you sell the equity off? So you have no equity
and currently... No, that's a... So I was talking,
there's another business that I was talking about
on spec. Oh, sorry. Yeah. Right. And what type
of business is that one? That's the gas field
services business. Yeah. Energy bill was the
one that we've exited out of. Right. Sorry, that
makes a lot more sense. Yeah, I love the idea.
You have one product in your house that generates
income. Everyone gets looked after. Meanwhile,
then you've got the offensive end of town and
you can use the income. I think I heard the other
day that, and the math makes sense because I
do it for my clients as well. We're using different
fund managers. But if your client's got a million
dollars in, over like a four -year period, they
can generate 400 grand. you know deals that you're
looking at it just makes sense you protect the
downside yeah um do you find a lot of your clients
you know use the outdoor products for that they
stick money in the private credit generate the
income and then go offensive in your other funds
or how does it work like some investors will
have um you know investments across the funds
not you know i don't know the exact statistics
i think we did we did we looked at it probably
a couple of years ago um but you know fundamentally
they can they know what they're buying i guess
what that they know they're buying an approach
uh whether it's you know in credit or in equity
but fundamentally it's the same approach that
is growth orientated businesses backing really
good people and then being active you know actively
engaged the risk profiles are different and the
rates of return are a bit different obviously
the the credit's a lot more defensive more stable
type returns, whereas the kind of growth equity
is the more volatile, more higher return concept.
So that's what they're investing in. It'll just
kind of depend on what their objectives are.
Makes sense. Before we pivot to something else,
is there any other questions you normally get
that you find quite interesting from other people
who haven't touched on the private credit fund?
Oh, no, not particularly. I mean, obviously a
lot of people are really keen to understand what's
happening within the business as well, like where
are the challenges and opportunities. You know,
I think a lot of clients like asking those questions
to try and get reads on, you know, what's happening
in business and the economy more broadly. So
I think that's... you know, probably a separate
conversation for another time. No, but that is
a very good point that they raised because the
private credit lenders, just like the bankers,
are the closest to the coalface of figuring out
because, you know, there's what people tell you
at a barbecue, how amazing they're doing. But
meanwhile, you don't know exactly what their
finances look like and, you know, are we in a
tough position and everyone's getting squeezed
or is it, you know, pop the champagne and let's
go for a run. How are you currently finding business
right now? Is the economy buoyant? Is everything
looking very positive? Is it a good time? Because
the past three or four years, the private credit,
especially in the raising space, has been quite
tough. So where do you think we are right now
in the cycle? Yeah, I think we're certainly coming
through definitely a more challenged period.
I mean, we've had... A number of businesses were
impacted by wet weather. And one thing which
has been quite interesting is the unionised workforce.
We had one business that had, you know, quite
a large revenue contribution from Victoria. And
so they were impacted more so when Labor got
in federally. specifically the CFMEU. So, you
know, that's the type of stuff that I guess you
really see. And, you know, from our perspective,
businesses have challenges. Like we're not, you
know, we don't come out there and say everything's
perfect because that's not the case. And I'd
be lying to say that. But for us, because we
are active, we can actually. you know, get involved,
understand the business, help them out. And,
you know, so we can help them out if there's
challenging periods of times, but we can also
help them out if things are going well. So that's
been one thing. I mean, obviously COVID was hugely
disruptive. And as I said, this fund's been around
for over seven years now. So we went through
COVID. So, you know, we're having... challenges
with you know supply and and access to supply
access to people and resources all those things
um but you know borrowing costs uh you know are
falling i think we're probably i'd say through
the worst of it um you know so we're we're generally
pretty positive around around the outlook for
you know small business in in australia that's
really good to hear um just on the on the risk
side with covid you know have you had any businesses
you know not not succeed you know what like people
it's in the back of their head it's like yeah
we do these loans but you know every now and
again it's just part of the business model you
know one will fall on challenging times and then
you have to help them go through the process
roll it up or shift the business or you know
has that happened in the past couple years and
how did you yeah we yeah we had this for we had
this for covid actually we had uh we had a existing
borrower that um was was a little bit challenge
coming into to corporate into covert and i had
two businesses that they owned um so yeah we
we had to help we had to help them out for uh
a number of months and that that um meant you
know a few different things but fundamentally
we actually helped them sell one of their businesses
and that actually got the loan repaid So we're
able to work with them proactively and actually
help them sell one of their operating businesses
to repay the loan. So again, that's that hands
-on approach. The relationship that we form with
the management team is one of partnership. So
when those challenging environments happen, then
you're not shut out of the boardroom. You're
actually invited into the boardroom and said,
all right, well, here's the challenge. How do
we solve it? How can you help? So that was one
that was basically challenged. It never went
into administration or receivership. It continued
to trade and we were able to sell the business,
got repaid our facility. So that was a fantastic
result. So that happens. Doesn't happen a lot,
but it does happen. It makes sense. Just conscious
of time, we haven't touched on Prime or we can
just do another podcast on it. what's prime how
does it all how does it all work and uh come
on like you guys just helped by the the tasmanian
jack jumpers the basketball team so that's pretty
freaking cool you know any basketballing enthusiasts
out there as well like do you want to give a
bit of color around that or we can always just
uh postpone that to another conversation but
up to you well yeah quickly i mean prime financial
group is our parent company so harley and i made
the decision about 18 months ago to uh to sell
uh altor we it was a very conscious decision
we for a variety of different reasons but we
what we wanted to do was really scale altor aggressively
and we needed access to you know all the right
uh infrastructure um to do that so we uh we made
the decision altor still exists um and we've
been kind of moved into a different world now
with Prime, but the relationship's been fantastic.
They kind of leave us in the corner and we get
on with doing what we do best, which is investing.
But what they've brought to us is a sports, very,
very sophisticated, well -respected sports advisory
concept. that you referred to earlier. So we're
working very closely with their corporate team
to buy sports and entertainment assets. And the
Jackjumpers has been one that we've recently
done and purchased. We've done about three sports
and entertainment deals so far. And it's something
that we want to do a lot more in and think there's
an amazing opportunity. businesses that are profitable,
that have great management teams, that have got
great brands. I don't know if anyone's been down
to Tassie, but the way the fans just love the
team, it's amazing. So you've got this great
brand that supports the business. You've got
a great management team. And then if you can
look, we like to think about them as platform
assets. You've got one revenue stream, which
is five guys running around on a basketball court.
But what happens when you extend that through
infrastructure and facilities, through a women's
program where you can get scale benefits? So
that's the way we're kind of thinking about sports.
So we want to buy assets that are brands, but
also platform assets that allow us to drive revenue
growth and profitability. One question I had
in the back of my head, is this stadium owned
by the Jackjumpers or is it leased from Tasmania?
It's owned by the state government. We have a
revenue, we get revenue from the stadium, not
just the games that we play there, but the other
events that are hosted there. So the P &L does
reflect some stadium revenue, which is quite
unique. particularly in the Australian context.
Yeah, that is unique. That's why I was curious
about it. And for those fans out there that aren't
really basketball fans, but you have done two
other transactions, so what sports are they in?
So one in motor racing and the other one was
a picks and shovels business called Launched.
So we've helped fund them. uh for and this is
in our growth fund but we've helped fund a couple
of acquisitions accretive acquisitions for them
as they think about their growth growth trajectory
so launched is the other business that we've
done what's the motorsport one i can't remember
what it is it's not formula one is it no no No,
it's not public yet, so I'd rather not say. Oh,
it's not public yet. Yeah, yeah, yeah. One for
another day. Yeah. One for another day, Ben.
Ben, it's been great having you on. Is there
any thoughts you want to, you know, share with
any listeners or anything on your mind that you
think's a good topic to discuss? No, I think
that's covered a range of different things that
we're focused on and really interested in. i
hope the listeners have got something out of
the kind of active approach to credit we think
that is uh very unique and now has seven years
of success um so if you know if people are looking
for you know and i think this is you've probably
seen this as well like credit in terms of allocation
to credit managers has changed you know five
years ago investors were probably allocating
to one manager now we're seeing like equity managers
them allocating to multiple managers. So I think
that's the opportunity now is to think about
managers and their different strategies and how
that can play a role in your alts allocation
or your allocation to income or defensive or
private credit. One thing I want to just quickly
cover is impact of falling interest rates on
your private credit fund because you've got the
equity piece. So, you know, we've seen it before
where, you know, some managers now who are targeting
RBA cash rate plus five, you know, when rates
went to zero, there's, you know, a good mate
of mine, he still managed to put out six, 6%,
which is, you know, quite fantastic considering.
So what happened during the COVID times? Like
if rates go down, how much of the equity piece
play? Does it still just kind of tick along,
sit at the 12 % because your deals are kind of
fixed in? Are you impacted by rate changes? Because
that's probably one of the biggest questions.
A lot of people are thinking about considering
they just cut. So, you know what I mean? Well,
we've got the equity is obviously a bit different.
I mean, there arguably is benefit to the equity
is interest rate falling environment because
your cost of capital is falling. But, you know,
so from a interest income perspective, we have
flaws in our facilities. So we're able to mitigate
against. or hedge against interest rate risk.
So they're kind of floating over BBSW, but there's
flaws in those facilities. So if we see large
interest rate falls, which would be good for
businesses, the fund investors are protected
against that. So I call it like a natural hedge.
It's embedded into the loan agreements. And then
just on that point, Trump's made it clear that
he wants to drop the value of the US dollar as
a number to attract investment in and jack it
up again, exactly what the Chinese have been
doing for like 40 years. And you mentioned the
oil and gas business looking at expanding into
the States. How do you help businesses cover
the currency risk? Yeah, well, fortunately, that
business is only just launched there, so it's
not a major component of it. There's another
business that's about 80%. It's an Aussie business,
but it's about 80 % US dollar revenue focused.
So we don't have any official kind of hedging
in place. It's quite natural on hedging around,
you know, most of its production costs are in
US dollars. Most of its operations are in US
dollars. So it's quite naturally hedged out.
I mean, we do talk a lot about hedging, particularly
now as, you know, we think about, you know, funds
and fund capital going more broadly, whether
in Asia. One thing that we're very interested
in is looking at, you know, the opportunity up
in Asia, which we all kind of get a little bit
focused on Australia. But, you know, really the
opportunity is up in Asia and using Australia
as a launchpad for that type of investment. So
we regularly talk about. What would hedging look
like? But we're not that sophisticated yet that
we're down the path of having done anything yet.
Actually, one question. This is just for me.
What impact are you seeing with the businesses
you talk to that do have exposure into Asia?
Let's say the US. Say exposure into the US. They
sell into the US, but now these tariffs are coming
into play, right? And the expense and the cost.
And I think I was chatting to a mate at one of
the banks who looks after a very big one where
40 % of their business was selling into the States
and cost just blew out and they're all angry
about it. But he's saying essentially, well,
if you come, I'm just looking at the math. Does
it make sense that they move their manufacturing
into the States to get their discount or are
these businesses just going, well, the US is
just not? worth it like i'm just curious like
because you see this you'd learn you speak to
these these businesses you may not be lending
to anyone that has ux but surely these people
are coming to you going hey i've got a problem
like yeah there's there's two words that are
quite often used at board uh rooms at the moment
that's tariff mapping so there is a lot of work
um from executive teams really to understand
what uh what tariff impacts are having and it's
it is There's no science to it because it changes
every day. And it is really, really difficult.
But it's about how you understand how much your
customer can wear. And it depends on if it's
product or what kind of product it is. So, yeah,
it's definitely a big headache and something
that consumes. some time of those in those board
meetings where we have us sales um but only only
two businesses are probably impacted by it and
that's one in in on the credit side or one on
the growth equity side um but yeah tariff mapping
is a big challenge uh very complicated very complex
and very fluid from what you've seen does the
math make sense them picking up and say moving
manufacturing from i don't know somewhere cheap
like southeast asia and then moving it to the
states to get that discount does the math actually
doesn't try to work out right you see this stuff
not me does that math make sense i don't think
so i think the form i think the view that everyone's
formed is that if you're taking a long -term
view uh you wouldn't you wouldn't relocate um
for that for that purpose um you know i think
that what we know is that we've been able to
shield a lot against those tariff increases.
So we've been able to pass them on, whether to
end consumers or through the value chain to the
end consumer. So I think the impact hasn't been
as widely felt as the headline numbers that you're
listening to or reading in the press every day.
And it certainly doesn't warrant changing your
whole strategy based on what could be. uh you
know something that's so maybe maybe medium term
maybe three four or five years um right so people
are sorry long term yeah so people are speculating
that you know how long is this uh these policies
going to be in but hypothetically say the republican
house holds um government for the next 12 years
and people may have made a decision based on
no no no everyone hates it the democrats are
going to come in and we'll be back to business
as usual But what happens there? Like, you know,
that's making a decision based on a hope and
a prayer instead of... Yeah, I think it's definitely
a two -pronged approach. You've got to understand
the implications to your business, the financial
implications, and if you can get comfortable
that, you know, you're relatively neutral and
there's no point making large strategic decisions
to relocate production or work with different
production facilities to get... to avoid those
tariffs. But I think fundamentally, no one's
making kind of really rash decisions just yet.
We know it's relatively neutral. We'll be quite
strategic the way that we'll approach it and
take it on the basis that we get more information.
At the moment, it's so fluid. It's really hard
to make long -term strategic decisions. That's
very interesting, Ben. I'm very happy that no
bloke's like you so you can tell me what's going
on because you see this stuff in the papers,
everyone's asking questions about it. A lot of
the investments that myself and clients make
are all businesses that have these implications
to hear what's actually happening in the border
and that they're discussing it, but it's more
like a wait and see instead of let's just do
something drastic. It's very, very interesting.
Very interesting, Ben. Well, Ben, thank you very
much for coming on The Rate of Change with York
Wealth Management. That's been brilliant. If
anyone wants to learn more about Altor Prime
or yourself, what's the best way for them to
get in touch? Probably head to the website, altorcapital,
A -L -T -O -R. You'll be able to get a lot of
information on there, be able to subscribe for
access to... to updates and, and information
about our products. So that's probably the best,
uh, way to go or, um, I'm on LinkedIn. So shoot
me out on, on LinkedIn. And you're going to get
like 2000 people saying, Hey, nice to meet you.
All right. Well, thank you very much for coming
on and, uh, we'll catch up soon. Thanks. Great.
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