Blue Sky’s looking to invest in fast-movers

PRIVATE companies on the cusp of stepping up in size are one of the targets of publicly listed Blue Sky Alternative Investments.

10/3/16 Jodie Fox of Shoes of Prey is a keynote speaker at the Melbourne Fashion Festival Business Seminar, her company is one of the biggest success stories in Australian fashion technology sphere. Aaron Francis/The Australian

PRIVATE companies on the cusp of stepping up in size are one of the targets of publicly listed Blue Sky Alternative Investments.

Blue Sky is looking for opportunities for private equity and venture capital money, chairman John Kain said.

“It is purely expansion capital,” he said.

“We look for businesses which have really good management, are cashflow positive and profitable, enjoy good growth opportunities but need capital to grow further.

“We back the management rather than stepping in and running the business.”

Some of the companies it has supported included Shoes of Prey, which began as an online retailer where women design their own shoes.

Under co-founder Jodie Fox it has enjoyed phenomenal growth, expanding to design department store shopfronts and into the United States.

Blue Sky also has invested in wine seller Vinomofo, courier Parcel Point and fast-food chain Beach Burrito.

Its SA investments include the GM Hotels chain, Balance Carbon, Hospital Pharmacy Services, Alcidion and the Willunga Basin Water Company.

The diverse array of firms have been supported by funds set up by one of four business units owned by Blue Sky, an investment vehicle dreamt up by two country boys who wanted to try something new.

Alternatives sits outside traditional asset classes of domestic and foreign equities, property, interest-bearing securities and cash.

Blue Sky has four units – private real estate, private equity and venture capital, hedge funds and real assets such as water licences. Each unit sets up funds for particular projects or ventures.

The funds earn fees for establishment, management and high performance.

Mr Kain believes Australia is lagging the US where alternative investments attract considerable weight in portfolios, such as endowment funds of Harvard and Yale.

But Australia is catching up. The Future Fund has a third of its pool in alternatives.

Blue Sky has more than $1.7 billion in assets under management and a market cap of $395 million. It was elevated to the ASX 300 this week.

Listed in January 2012, its shares traded below $1 until May 2013. This week they hit a record $7.35.

A separate listed investment company, Blue Sky Alternatives Access Fund, invests in the projects and ventures of Blue Sky’s business units.

Real estate ventures are property management in Australia and the US, inner Brisbane units and student accommodation.

This week Blue Sky formed a joint venture with Goldman Sachs to invest in accommodation for up to 10,000 students.

The listed investment company, with a market cap of $129 million, ploughs cash into individual projects but is restricted to a maximum 50 per cent stake.

Investors have three options to get involved – buying shares in Blue Sky Alternative Investments, buying shares in the LIC or directly into a fund.

The shareholding in the main company is mainly wholesale and institutional, with only 13 per cent retail.

LIC was established for retail clients to have exposure to the sector while still enjoying liquidity. Sophisticated investors invest directly in the funds.

Blue Sky managing director and founder Mark Sowerby grew up on a farm in Warren, NSW, but worked in SA running Seedmark. Mr Kain, who grew up on a farm at Hamley Bridge in SA’s Mid North, and Mr Sowerby recognised in the early 2000s there were potential hot spots in the rural sector

“We both had a view the agricultural commodities market would turn, driven by global demographics,” Mr Kain said. “We wanted to build an investment vehicle so people could get exposure to that.”

They baulked at a passive investment in farmland or going into rural supplies.

They chose water licences where ownership had recently been legally separated from land. They linked up with Rob Thomas, a former SA head of the Environment Protection Authority and a Murray Darling Basin Commissioner, and Graham Dooley, managing director of United Utilities, to form an Adelaide-based fund to invest in water licences.

“So there’s always been a strong connection with SA for Blue Sky,” Mr Kain said. “And a lot of funds for our early projects were raised in Adelaide.”

Blue Sky is headquartered in Brisbane but Adelaide is its second biggest office, with the water utilities and hedge fund units operating from SA.

Industry and Innovation Minister Christopher Pyne is scheduled to deliver an opening address at a Blue Sky public presentation to investors in Adelaide on Thursday, April 7.