Armytage Private’s Micro Cap Activist Fund rides wave of buyouts

Lee laFrate’s Micro Cap Activist Fund has three companies subject to takeovers, including two in a single day.

Armytage chairman Lee laFrate: ‘We successfully identified this trend a year ago. It has been manna from heaven. Our investment strategies are paying off handsomely for investors.’

When Lee laFrate launched his Micro Cap Activist Fund to target underperforming listed investment and financial services companies six months ago, never in his wildest dreams did he believe three would now be subject to takeovers, including two in a single day.

The MCAF, run by Mr la­Frate’s Melbourne-based fund manager Army­tage Private, rallied over 15 per cent in October and the NTA reached an all-time high as three MCAF stocks — Evans Dixon, Xplore Wealth and Easton Investments — received takeover bids, the latter two from the Alex Waislitz-backed HUB24.

Tony Pitt’s 360 Capital made an offer to fully acquire Evan Dixon shares, two months after buying former CEO Alan Dixon’s stake in the embattled wealth manager and advisory house.

HUB24 raised $50m to acquire Xplore Wealth via a scheme implementation agreement and took a 40 per cent interest in Easton Investments. In return, Easton agreed to purchase HUB’s Paragem business.

Armytage established MCAF, banking on an expected wave of consolidation of the LIC sector and of platform providers for superannuation.

“We successfully identified this trend a year ago. It has been manna from heaven. Our investment strategies are paying off handsomely for investors,’’ said Mr laFrate, the chairman of Armytage, which manages more than $325m for high-net-worth investors and smaller institutions.

The MCAF runs with only seven stocks at a time and is now actively searching for new investments in a sector which Mr laFrate said would see further consolidation following the $6.4bn takeover bid for AMP by US private equity player Ares.

Recent months have also seen IRESS bid for OneVue, IOOF’s play for MLC and Pacific Equity Partners and Carlyle Group’s bid for Link.

Potential future targets at the smaller end of the market now could include the likes of Mainstream Group Holdings and Praemium, both specialist and more importantly independent platform providers for superannuation.

Praemium took control of wealth management platform Powerwrap last month after a decade-long courtship between the two companies.

“The market is splitting into two. You are seeing consolidation at the top end with AMP and IOOF. In the middle you have HUB24 and Netwealth. And at the bottom you are seeing rapid consolidation in microcaps, which is the space we play in,” Mr laFrate said.

Armytage, which celebrates 25 years in business this year, is an active deep-value investor with investments in large-cap and emerging mid, small and micro-cap ASX-listed companies.

In addition to the MCAF, its flagship offerings are the Australian Equity Income fund and a Strategic Opportunities fund.

“What has come out of the Hayne royal commission is the increased educational requirements for planners,” Mr laFrate said.

“That has taken a significant number out of the industry. Subsequently it will increase the value of the other listed financial planning service operators.

“Australia is an ageing population so there will never be a greater need for financial advice and planning in the future. Those left standing will share the spoils.

“The sector has been pilloried because of the poor management of wealth management businesses by the banks. They are still paying for that today. But mark my words, in three to five years the banks will return to the space, maybe in a different form that they left it. Perhaps in the future there will be tech systems that make it easier for the banks to access the retail investor. But they will be back.”