L1 Capital delivers huge $150m profit to outshine fellow stockpickers

A boutique Melbourne funds manager that bet on a big equities recovery after Covid-19 smashed the market in March last year has delivered a huge profit for its two founders.

L1 Capital founders and co-chief investment officers Mark Landau, left, and Rafi Lamm recorded huge profits in 2021.

A boutique Melbourne funds manager that bet on a big equities recovery after Covid-19 smashed the market in March last year has delivered a huge profit for its two founders, dwarfing the performance of their stock-picking peers.

Mark Landau and Raphael Lamm’s L1 Capital, which manages the listed L1 Long Short fund, made a $152m profit in the year to June 30, documents lodged with the corporate regulator show.

Eighteen months ago, L1 was lamenting its portfolio was “poorly positioned for the Covid-19 outbreak” but noted the subsequent plunge in share prices around the world “created one of the best investment opportunities we have seen in our career”.

They were proven right, with L1’s profit surging from the $14m it made in 2020 and delivering the duo a $63m dividend after L1’s revenue from performance and management fees rose markedly from $34m to $237m.

L1’s profit result was over $100m more than the $49.2m result recorded by Phil King’s Regal Funds Management and far exceeded the boutique fund management firms led by big names such as David Paradice, Peter Cooper and Geoff Wilson.

L1’s Long Short portfolio returned a 72.9 per cent gain in the year to June 30, a period when the ASX rose about 25 per cent.

Its successes included stocks like US bank Wells Fargo and poker machine manufacturer Aristocrat Leisure, which both rallied after falling heavily at the height of the pandemic, retailer Lovisa and iron and lithium miner Mineral Resources.

Overall, L1 manages about $4.5bn and reportedly earned $128m in performance fees for the L1 Long Short fund for the 2021 financial year, though only $60m was paid during the year. The L1 founders have reinvested some of the fees in buying more L1 Long Short shares on the market.

L1 is now concentrating on four key themes as the effects of Covid on the global economy start to recede: US sports betting, energy, vaccine recovery stocks such as Qantas and companies where corporate activity will or should take place, such as Tabcorp’s pending demerger of its $10bn lotteries unit.

“We remain excited about the opportunities in the market at present, given the large number of portfolio stocks with significant upside to valuation,” Landau and Lamm told investors in a recent presentation.

In dividend terms, the biggest payers were Paradice’s Paradice Funds Management, which manages about $17bn and paid its founder and staff almost $34m for the year, and David Pace and Matthew Ryland’s Greencape, which paid out a $34.5m dividend.

Greencape’s directors also declared a $9m dividend in August and another $8.8m in September. Its financial report says the group only has seven employees. Net profit for 2021 was $30m, down from $34m a year earlier.

Vinva, established by a team led by managing director and head of equity investments Morry Waked after he left Blackrock in 2010, paid a $21.1m dividend to its shareholders last December for the 2020 financial year, when it made a $21m profit.

A quant-driven fund which manages money for some of Australia’s biggest investment funds, Vinva now has more than $30bn in funds under management, split between about $27.7bn in Australian holdings and the remainder in global funds. It made a $25m profit in 2021 from $57m revenue.

Regal Funds Management recorded the second biggest profit behind L1, making $49.5m a year after it had lodged only a $2.2m surplus for 2020. While King says he has found it hard to short shares in what has been a bull market, Regal has benefited from positions in firms like palladium developer Chalice Mining, up 148 per cent in the past year, and tech firm Life360, which has risen 200 per cent in 12 months.

Cooper Investors’ profit dipped slightly to $23.2m and founder Peter Cooper, a member of The List – Australia’s Richest 250, received the bulk of the $18m dividend the firm paid.

Geoff Wilson’s private Wilson Asset Management (International), which derives management fees from the various Wilson listed investment companies, doubled its profit for the year to about $22m. Meanwhile, Maple-Brown Abbott’s profit dipped about 41 per cent to $9.3m from about $44m of management fees.