(Bloomberg) — Australia’s largest hedge fund firm is also a top performer. Now, the company is leveraging those profits to build an investment behemoth modeled after some of the world’s largest private investment companies.
The Legal Partners Limited subsidiary, led by co-founder and chief investment officer Phil King, operates four of Australia’s six best-performing funds. These include two small companies that came out on top with returns of more than 37% in the first eight months of this year, according to data provider Preqin. This dwarfs the 6.6% rise in Australia’s benchmark index over the period.
Meanwhile, Regal’s oldest fund has returned more than 23% annually since 2004, ranking among the top hedge funds in the world.
The parent company manages A$17 billion ($11.4 billion) in assets and is now looking to capitalize on its earnings and associated cash flows. The company is trying to outpace its rivals, build new investment platforms from private equity to credit, and restructure its business in Blackstone’s mold.
In its latest transformative move, the company is in talks to acquire rival asset manager Platinum Asset Management. The companies aim to conclude negotiations within the next three weeks, said a person familiar with the matter who asked not to be named. This issue is confidential. Representatives for Regal and Platinum declined to comment on potential schedules.
“We’re on a path to successfully diversifying our business beyond just being a rock star CIO,” CEO Brendan O’Connor said in an interview, referring to King. “We aim to emulate the success of the Blackstones and Apollos of the world.”
That’s a tall order for a company with a market value of less than $1 billion. But Regal, which has tripled its assets under management in just two years, says it is open to taking on more as it targets bigger rivals and takes on new businesses.
Staggering profits have driven Regal’s growth since King and his brother Andrew founded the company nearly 20 years ago. This is a study of the flywheel approach that characterizes the fund management industry, where investment returns can amplify inflows. For Mr King, who started his career as an accountant at KPMG and an equity analyst at Macquarie Bank, this represents his boldest bet yet on a company, and one that could be his own. .
Regal’s nine core equity long/short funds currently manage nearly A$7.6 billion. The firm’s Australian Long Short Equity Fund has returned 14% annually since its inception in 2009. The oldest, highest absolute return funds that claim to have an “aggressive investment approach” are those with an average return of more than 23%. Since 2004.
Mr King’s investments ride out some of Australia’s biggest booming industries, including “buy now, pay later” providers like Zip and the consolidation of the lithium market, while travel agency Flight Center Travel Group has shorted thematically threatened companies, including the nation’s largest retailers.
“We have clearly shown that long-short investing in equities is superior to investing only long in terms of both risk and return,” King said. “This was the foundation of our business, but it also created an opportunity to grow new strategies.”
These long-term gains are helping attract new capital from investors. Funds under management have soared from just A$1.1 billion in 2017 to more than A$17 billion. In the first nine months of this year alone, the company raised A$1.2 billion in net flows, of which A$937 million was used for long-term investments. short strategy.
“Regal has an attractive strategy because it has strong performance and high performance fees,” said Marcus Barnard of Bell Potter Securities, one of the top analysts covering the company. All of them have given the stock a buy rating. “The company is generating inflows, which is unusual, but it reflects the attractiveness of some of its products.”
This explosion in profits comes at a difficult time for the industry as a whole, allowing Regal to suddenly absorb former rivals and peers.
In 2022, it acquired hedge fund VGI Partners in a reverse takeover that gave Regal a corporate shell to become a public company. After a slow start, investors have been rewarded over the past 12 months, with Regal shares doubling, outpacing the benchmark index’s roughly 20% rise. This has made the Kings billionaires, with the shares held by Phil and Andrew now worth around A$330 million.
After going public, Regal along with private equity firm EQT AB embarked on a unilateral takeover of larger rival Perpetual. The A$1.7 billion bid was rejected twice. And last month, Regal made a bid worth more than A$500 million for Platinum. Platinum opened the door to a potentially lucrative offer after rejecting the bid. The acquisition will increase Regal’s funds under management to more than A$30 billion.
Meanwhile, Regal has continued to expand into the private market. Regal acquired agriculture and water asset management company Quilter Rural in 2019, followed by its acquisition of a controlling stake in energy and carbon fund management company Atunga Capital in 2021. Regal then moved into one of the hottest areas of the financial market this year with the acquisition of private debt firm Merix Capital. Regal has also launched a feeder fund targeting approximately $1 billion for new vehicle purchases in the Cayman Islands.
“Over the next five to 10 years, there will be opportunities to do a lot of other alternative investment strategies, like private equity, infrastructure investing, and probably other things,” King said in an interview.
O’Connor believes that “there is no company in the country today that ultimately owns that position, and that presents an opportunity for us.”
Admittedly, Regal is still a minor player compared to the American giants, which have since been modeled after. Blackstone has $1 trillion in assets under management and a market capitalization of $205 billion.
Moreover, Regal’s growth was not without its problems. Just last week, South Korean regulators indicted the company and a former employee for allegedly violating short-selling rules, following a market-wide investigation by the Korea Financial Services Commission. Regal denied the charges. In 2021, Regal was banned by Australia’s market watchdog for manipulating the market against its dealers.
For King, rapid business expansion was at odds with an aversion to publicity that increased with wealth. He paints an unassuming portrait as a fan of the Sea Eagles rugby league team and an avid, if flawed, surfer. He often takes public ferries to work and avoids suits in favor of open collars and rolled-up sleeves. He would like it if the only thing he was known for on the street was his love of oat milk piccolo coffee.
Still, Mr. King’s influence over the company is significant, even though he does not serve on the company’s publicly listed parent company’s board of directors or in any management position. While the company aims to diversify, it’s Mr. King’s trademark stock management that helps Regal stand out.
“I am more excited than ever to invest in the Australian stock market,” Mr King said. “The huge bubble in passive investing has created tremendous opportunities for stock pickers.”
See more articles like this at bloomberg.com
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