Cashed-up Regal Partners boosts clout with PM Capital deal

Regal Partners has doubled its funds under management to $10.8bn through two major acquisitions and still has ‘significant firepower’ for more deals, says CEO Brendan O’Connor.

Regal Partners CEO Brendan O’Connor

Regal Partners will have plenty of firepower left over for acquisitions should opportunities arise after it significantly boosted its scale and investment offering with two major deals this week.

However, for now it seems the focus will shift back to organic growth.

The ASX-listed alternatives manager founded by Phil King will almost double its funds under management to $10.8bn with its purchase of long-short equities and fixed-income fund PM Capital and 50 per cent stake in Taurus Funds Management, a specialist financier of mining companies.

After making upfront cash payments totalling about $48m for these deals, Regal will have a significant amount of cash available for acquisitions, according to CEO Brendan O’Connor.

“We’re absolutely still looking to do acquisitions, if they make sense,” he said.

“We’re looking to grow our business organically, first and foremost…but we continue to keep on the lookout for attractively priced, accretive, culturally aligned transactions.”

Regal currently has over $200bn of surplus capital on its balance sheet.

The cash required for PM Capital and Taurus will use less than a quarter of its surplus capital.

“We’ve still got significant firepower to continue to look at other accretive acquisitions if culturally they make sense to bring into the business,” Mr O’Connor added.

Founded by current chairman and CIO Paul Moore in 1998, PM Capital is only one of Australia’s oldest boutique asset managers, and has an enviable track-record in global long-short investing.

Regal Partners CEO Brendan O’Connor

Mr Moore said the partnership will leverage Regal’s corporate and business support infrastructure and distribution capabilities and provide PM Capital the discipline of a non-executive Board.

He said the partnership will also allow PM Capital’s investment team to focus more on investing.

In an investor briefing, Mr O’Connor said “there’s no one else that comes close” in Australia to Paul Moore’s track record in global long-short investing in many different market cycles since 1998.

“Paul and the team have continued to perform through that and that total FUM (funds under management) is about $2bn if you back out the enhanced yield strategy.

“So if you have a look at the amount of capital that other global long-short managers - or even global long-only managers in Australia - have collected, Paul deserves to be running far more capital.

“So I don’t think the opportunity here is about new strategies, so much as really just looking to increase the scale of that track record. Given it’s a global long-short fund it’s very significant.

“He could be running much more capital than they are at the moment.”

With its mostly retail client base, PM Capital also offers “exciting synergies” for Regal, as most of its funds are wholesale and high net worth managed investment schemes.

The addition of the $800m enhanced yield strategy run by Jared Dawson is “very attractive” in the current environment of higher inflation and interest rates, according to Mr O’Connor.

“From a long short equities perspective, we’ve now got breadth across specialisation in Aussie equities and international equities, complementing the capability we inherited through the merger with VGI,” Mr O’Connor told The Australian. “I suspect that the next big areas of growth organically and inorganically will be in the private market side, in particular, around credit.”

PM Capital’s enhanced yield strategy is a credit fund, investing in short duration global corporate bonds, is currently generating a yield of around 6.5 to 7.0 per cent per annum.

“Our view is that we’re in for an environment with rates being higher for longer amid sticky inflation,” Mr O’Connor added.

“We’re going back to an environment that we had pre-GFC, where money or capital had a true cost to it. We’re obviously going through a bit of a squeeze at the moment - the money supply is coming back (down) as the central banks are all going through a co-ordinated period of tightening.

“Therefore, I think investors are rightly getting paid handsomely, taking credit risk, whereas they weren’t two years ago.”

Asked what could be next on the radar for Regal Partners in terms of acquisitions, Mr O’Connor said the fund manager’s recent attempts to buy Perpetual Limited and Pacific Current may have “raised a few eyebrows” in the funds management community.

“I guess what I’m highlighting is that where we think we can buy a business well, in a business that clearly has a demonstrated sort of edge in their investment strategy, and culturally, it’s aligned to what we’re doing and it’s accretive for RPL shareholders, we’ll have a look at it.

“We’re not too precious about saying we’ll just stick to this swim lane or that swim lane.

He said Regal is a “case study in the benefits of diversifying the business.”

“We’ve added a lot of value to the Regal brand by bringing more strategies to our clients.”

Regal has approval from over 50 per cent of its shareholders to issue $130m of converting redeemable preference shares as additional consideration for its acquisition of PM Capital.