Meeting with billionaire Kerr Neilson, B&B Power chair Len Gill and GPT chair Peter Joseph
February 2, 2010
Dear Mayne Reporters,
The alarm went off at 4.50am this morning and it wasn't to get up for a chicken and champagne breakfast at the Melbourne Cup.
Australia's only billionaire hedge fund manager Kerr Neilson had decided, in his wisdom, to hold the second Platinum Asset Management AGM on Cup Day in Sydney so the taxi arrived at 5am for the $62 fare to catch the one-quarter-full $69 Virgin Blue flight from Bleak City to Sin City.
The timing worked well because it meant the fortnightly spot with Deborah Cameron on 702 ABC Sydney could be done face to face for a change and we had an interesting discussion about the global credit crisis, interest rates, shareholder protest votes and media moguls dropping like flies. Have a listen here.
Impressed with Kerr Neilson
The Platinum AGM was an interesting affair with founder, 58% shareholder and chief executive Kerr Neilson not saying a word until all the formal business had been dealt with.
Whilst chairman Michael Cole told me afterwards that former ASX chairman Maurice Newman had warned him to watch out for some hostile Mayne Report questions, the whole tone of the meeting was very conciliatory and even complimentary.
How could I be angry with a company that accepted a $20,000 subscription at the $5 float price last year and then generated a $15,000 profit when we stagged it at close to $9 on day one. Whilst explaining all the current market losses to the wife after buying into every flea-bitten resources wannabe out there, I still fondly refer back to the glory days of the Platinum play when begging forgiveness.
Besides, Platinum has just had one of its best ever quarters - relatively speaking. The flagship $7 billion international fund returned 7.5% in the September quarter, versus just 1.5% for the MSCI world index.
After getting beaten up through its largely unhedged play on the currency on the way up, the outperformance by Australia's only world-scale global equities investor has returned in spades thanks to the crashing currency and especially the decision to be overweight yen rather than euro.
The honest truth about Kerr Neilson is that he's the closest thing Australia has to a Warren Buffett. Over the years he has generated many billions of dollars for his loyal flock of largely retail followers through exceptional international stock picking. He deserves to be worth more than $2 billion and the richest hedge fund manager in the land for that superior performance where he has beaten the benchmarks by more than 10% a year compound over more than 10 years.
It's very easy making money as some sort of domestic service sector power player like Woolworths, the Commonwealth Bank or Telstra, but Kerr Neilson generates truckloads of wealth for the nation allocating client capital more efficiently than most in the toughest competitive market of all - international investing.
And he does it in a mild mannered way without fanfare or excess. There are no multi-million dollar birthday parties with the Rolling Stones for Neilson and today he didn't even use any slides during his address, instead just talking. The cost-conscious culture was on display as shareholders only got biscuits and fruit after the meeting and Neilson even gloated that no-one at Platinum has a personal assistant.
Whilst the likes of Perpetual have a cost base which soaks up more than 50% of management fees, the Platinum equivalent is just 25%. Like with most asset managers, the disclosure of individual portfolio manager pay packets is poor due to the exemption granted to fund managers for not technically being "executives". However, the executive directors and board are all modestly paid indeed.
When it came to the board elections, I got independent directors Margaret Towers and Bruce Coleman to identify their personal connections with Neilson. Were they old friends and did they have the independence to stand up for the interests of us minority shareholders if need be?
Both have long histories in the funds management industry and pledged their independence, although another shareholder got stuck into the quarterly board meeting, so I gently suggested they step it up to six a year given all that is going on.
Funds management is a winner-takes-all industry, yet Platinum has seen Funds Under Management tumble from $21.3 billion to $14.3 billion over the past 15 months. Chairman Cole said this split equally between redemptions and reductions in asset prices.
However, with this latest spurt of out-performance, Platinum should soon start to turn this around, especially now that it is pushing aggressively into the wholesale space and directly chasing mandates from superannuation funds.
I pointed out that Industry Funds Management boss Garry Weaven is on the war path over fund manager fees, but Neilson said all this could be accommodated by building in bigger performance fees as a trade-off for lower base fees.
Unfortunately, Platinum didn't webcast the AGM but we've captured the audio and will bring it to you later in the week, including Neilson's insightful speech and the Q&A which weren't released to the ASX.
Allco and Babcock fund AGMs in Sydney tomorrow
It's a packed schedule in Sin City with the Allco Equity Partners and Babcock & Brown Infrastructure AGMs in Sydney tomorrow.
Most investors give anything called Allco or Babcock a wide berth these days, but AEP and BBI represent very different investment propositions. AEP actually has about $100 million in cash and should simply be distributing this back to shareholders.
Given that the debt-ridden, teetering and now suspended Allco Finance Group is the largest shareholder, it is hard to fathom why this hasn't happened yet? AEP claims to have net tangible assets of $5.58, yet the stock closed at $1.80 tonight. Wind the damn thing up, for goodness sake. I raised this issue with AFG CEO David Clarke when we met in Melbourne a few months ago but given he's an AEP director, this will be worth ventilating again in public tomorrow.
Whilst AEP is a cashed up listed private equity vehicle trading at a huge discount, BBI is listed infrastructure fund which is carrying way too much debt and also trading at a huge discount.
However, BBI appears to have done a reasonable deal with Queensland Investment Corp today, selling half its Powerco business in New Zealand for an enterprise value of $NZ2.2 billion. BBI shares bounced 4c to 25.5c and a big issue tomorrow will be precisely what sort of advisory fee was gouged, if any, on this deal.
It is interesting that the Queensland state government is borrowing more than $6 billion a year to fund an enormous infrastructure spending spree, whilst its $60 billion investment fund shells out huge sums buying up infrastructure assets in New Zealand.
A briefing with Babcock & Brown Power's independent chairman - plus some friendly Babcock advisers
The Babcock spinners got in touch last week and lined up a meeting with Babcock & Brown Power chairman Len Gill at the Chifley Square headquarters this afternoon. BBP is the runt of the Babcock litter as its shares plunged from $2.70 at the time of the Alinta acquisition to a miserable 12c tonight after debt got out of control and the manager was forced to lend it $400 million at punitive rates.
Whilst the discussion was off the record, there was nothing particularly sensitive disclosed and we had the company secretary plus the investor relations manager Fiona Osler, who is married to an old school mate, sitting in the room.
Len was interested in hearing about all issues that could be raised in advance and I ended up giving some PR advice on how proceedings are likely to unfold. That said, it was made clear that just because issues are discussed in private doesn't mean they shouldn't be repeated in public at Friday's AGM. This is a trap that the Australian Shareholders' Association falls into all too often.
Talks or no talks, the position at Babcock & Brown Power remains the same - the manager has grossly underperformed and ripped out ridiculous fees from an appallingly governed and conflict-riddled structure.
The only long term solution is ditching Babcock & Brown, internalising management and changing the name. However, the short term issue is reducing debt and some significant strides have been made improving the governance structure. Unfortunately, Babcock will have to be paid on the way out the door given they have this ridiculous 25-year management contract which effectively makes it impossible to sack them, no matter how bad the performance.
Stand by for some big protests on Friday over director elections and pay issues, although Babcock & Brown remains the largest BBP shareholder with 10% and most other institutional shareholders have fled for the exit as a capital strike engulfs most of the flea-blown Macquarie and Babcock listed infrastructure funds.
Bumping into Peter Joseph
It was most amusing bumping into GPT chairman Peter Joseph (he's been sent this edition - "hi Peter") in the foyer of Chifley Square straight after the Babcock briefing. Peter was chatting with a former finance director of BT Funds Management and they fondly remembered their days with Kerr Neilson at BT back in the 1980s.
Peter was looking a little brow-beaten, which you would expect with GPT shares having plummeted from $4.50 to 84c over the past year, climaxing in the massively discounted $1.6 billion rights issue at just 60c last month.
I had a meeting with Joseph and now departed GPT CEO Nic Lyons in Melbourne after making this video calling for their heads and Peter was philosophical today, even speaking in favour of aggressive shareholder activism. He's done the right in declaring he won't seek another term at next year's GPT AGM, so there were no fireworks in the foyer of the Babcock building, but the irony was rich indeed given that it was the disastrous Babcock joint venture which brought GPT down.
That's all for now. Hope you enjoyed The Cup and we'll be back with another update at around 6pm tomorrow night on the Allco and Babcock AGM action. And why not tune into the BBI webcast from about 2.30pm tomorrow as you should hear some very interesting debate about a company that has blown up billions whilst paying hundreds of millions in fees to Babcock & Brown.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.
The alarm went off at 4.50am this morning and it wasn't to get up for a chicken and champagne breakfast at the Melbourne Cup.
Australia's only billionaire hedge fund manager Kerr Neilson had decided, in his wisdom, to hold the second Platinum Asset Management AGM on Cup Day in Sydney so the taxi arrived at 5am for the $62 fare to catch the one-quarter-full $69 Virgin Blue flight from Bleak City to Sin City.
The timing worked well because it meant the fortnightly spot with Deborah Cameron on 702 ABC Sydney could be done face to face for a change and we had an interesting discussion about the global credit crisis, interest rates, shareholder protest votes and media moguls dropping like flies. Have a listen here.
Impressed with Kerr Neilson
The Platinum AGM was an interesting affair with founder, 58% shareholder and chief executive Kerr Neilson not saying a word until all the formal business had been dealt with.
Whilst chairman Michael Cole told me afterwards that former ASX chairman Maurice Newman had warned him to watch out for some hostile Mayne Report questions, the whole tone of the meeting was very conciliatory and even complimentary.
How could I be angry with a company that accepted a $20,000 subscription at the $5 float price last year and then generated a $15,000 profit when we stagged it at close to $9 on day one. Whilst explaining all the current market losses to the wife after buying into every flea-bitten resources wannabe out there, I still fondly refer back to the glory days of the Platinum play when begging forgiveness.
Besides, Platinum has just had one of its best ever quarters - relatively speaking. The flagship $7 billion international fund returned 7.5% in the September quarter, versus just 1.5% for the MSCI world index.
After getting beaten up through its largely unhedged play on the currency on the way up, the outperformance by Australia's only world-scale global equities investor has returned in spades thanks to the crashing currency and especially the decision to be overweight yen rather than euro.
The honest truth about Kerr Neilson is that he's the closest thing Australia has to a Warren Buffett. Over the years he has generated many billions of dollars for his loyal flock of largely retail followers through exceptional international stock picking. He deserves to be worth more than $2 billion and the richest hedge fund manager in the land for that superior performance where he has beaten the benchmarks by more than 10% a year compound over more than 10 years.
It's very easy making money as some sort of domestic service sector power player like Woolworths, the Commonwealth Bank or Telstra, but Kerr Neilson generates truckloads of wealth for the nation allocating client capital more efficiently than most in the toughest competitive market of all - international investing.
And he does it in a mild mannered way without fanfare or excess. There are no multi-million dollar birthday parties with the Rolling Stones for Neilson and today he didn't even use any slides during his address, instead just talking. The cost-conscious culture was on display as shareholders only got biscuits and fruit after the meeting and Neilson even gloated that no-one at Platinum has a personal assistant.
Whilst the likes of Perpetual have a cost base which soaks up more than 50% of management fees, the Platinum equivalent is just 25%. Like with most asset managers, the disclosure of individual portfolio manager pay packets is poor due to the exemption granted to fund managers for not technically being "executives". However, the executive directors and board are all modestly paid indeed.
When it came to the board elections, I got independent directors Margaret Towers and Bruce Coleman to identify their personal connections with Neilson. Were they old friends and did they have the independence to stand up for the interests of us minority shareholders if need be?
Both have long histories in the funds management industry and pledged their independence, although another shareholder got stuck into the quarterly board meeting, so I gently suggested they step it up to six a year given all that is going on.
Funds management is a winner-takes-all industry, yet Platinum has seen Funds Under Management tumble from $21.3 billion to $14.3 billion over the past 15 months. Chairman Cole said this split equally between redemptions and reductions in asset prices.
However, with this latest spurt of out-performance, Platinum should soon start to turn this around, especially now that it is pushing aggressively into the wholesale space and directly chasing mandates from superannuation funds.
I pointed out that Industry Funds Management boss Garry Weaven is on the war path over fund manager fees, but Neilson said all this could be accommodated by building in bigger performance fees as a trade-off for lower base fees.
Unfortunately, Platinum didn't webcast the AGM but we've captured the audio and will bring it to you later in the week, including Neilson's insightful speech and the Q&A which weren't released to the ASX.
Allco and Babcock fund AGMs in Sydney tomorrow
It's a packed schedule in Sin City with the Allco Equity Partners and Babcock & Brown Infrastructure AGMs in Sydney tomorrow.
Most investors give anything called Allco or Babcock a wide berth these days, but AEP and BBI represent very different investment propositions. AEP actually has about $100 million in cash and should simply be distributing this back to shareholders.
Given that the debt-ridden, teetering and now suspended Allco Finance Group is the largest shareholder, it is hard to fathom why this hasn't happened yet? AEP claims to have net tangible assets of $5.58, yet the stock closed at $1.80 tonight. Wind the damn thing up, for goodness sake. I raised this issue with AFG CEO David Clarke when we met in Melbourne a few months ago but given he's an AEP director, this will be worth ventilating again in public tomorrow.
Whilst AEP is a cashed up listed private equity vehicle trading at a huge discount, BBI is listed infrastructure fund which is carrying way too much debt and also trading at a huge discount.
However, BBI appears to have done a reasonable deal with Queensland Investment Corp today, selling half its Powerco business in New Zealand for an enterprise value of $NZ2.2 billion. BBI shares bounced 4c to 25.5c and a big issue tomorrow will be precisely what sort of advisory fee was gouged, if any, on this deal.
It is interesting that the Queensland state government is borrowing more than $6 billion a year to fund an enormous infrastructure spending spree, whilst its $60 billion investment fund shells out huge sums buying up infrastructure assets in New Zealand.
A briefing with Babcock & Brown Power's independent chairman - plus some friendly Babcock advisers
The Babcock spinners got in touch last week and lined up a meeting with Babcock & Brown Power chairman Len Gill at the Chifley Square headquarters this afternoon. BBP is the runt of the Babcock litter as its shares plunged from $2.70 at the time of the Alinta acquisition to a miserable 12c tonight after debt got out of control and the manager was forced to lend it $400 million at punitive rates.
Whilst the discussion was off the record, there was nothing particularly sensitive disclosed and we had the company secretary plus the investor relations manager Fiona Osler, who is married to an old school mate, sitting in the room.
Len was interested in hearing about all issues that could be raised in advance and I ended up giving some PR advice on how proceedings are likely to unfold. That said, it was made clear that just because issues are discussed in private doesn't mean they shouldn't be repeated in public at Friday's AGM. This is a trap that the Australian Shareholders' Association falls into all too often.
Talks or no talks, the position at Babcock & Brown Power remains the same - the manager has grossly underperformed and ripped out ridiculous fees from an appallingly governed and conflict-riddled structure.
The only long term solution is ditching Babcock & Brown, internalising management and changing the name. However, the short term issue is reducing debt and some significant strides have been made improving the governance structure. Unfortunately, Babcock will have to be paid on the way out the door given they have this ridiculous 25-year management contract which effectively makes it impossible to sack them, no matter how bad the performance.
Stand by for some big protests on Friday over director elections and pay issues, although Babcock & Brown remains the largest BBP shareholder with 10% and most other institutional shareholders have fled for the exit as a capital strike engulfs most of the flea-blown Macquarie and Babcock listed infrastructure funds.
Bumping into Peter Joseph
It was most amusing bumping into GPT chairman Peter Joseph (he's been sent this edition - "hi Peter") in the foyer of Chifley Square straight after the Babcock briefing. Peter was chatting with a former finance director of BT Funds Management and they fondly remembered their days with Kerr Neilson at BT back in the 1980s.
Peter was looking a little brow-beaten, which you would expect with GPT shares having plummeted from $4.50 to 84c over the past year, climaxing in the massively discounted $1.6 billion rights issue at just 60c last month.
I had a meeting with Joseph and now departed GPT CEO Nic Lyons in Melbourne after making this video calling for their heads and Peter was philosophical today, even speaking in favour of aggressive shareholder activism. He's done the right in declaring he won't seek another term at next year's GPT AGM, so there were no fireworks in the foyer of the Babcock building, but the irony was rich indeed given that it was the disastrous Babcock joint venture which brought GPT down.
That's all for now. Hope you enjoyed The Cup and we'll be back with another update at around 6pm tomorrow night on the Allco and Babcock AGM action. And why not tune into the BBI webcast from about 2.30pm tomorrow as you should hear some very interesting debate about a company that has blown up billions whilst paying hundreds of millions in fees to Babcock & Brown.
Do ya best, Stephen Mayne
* The Mayne Report is a multi-media governance website published by Stephen Mayne with occasional email editions. To unsubscribe from the emails click here.