Behind Pitt’s big bet on fallen Evans Dixon

Chief executive, former McGrathNicol chairman Peter Anderson, is quick to emphasise a planned turnaround of the business is underway.

Former ­Essendon football club chairman David Evans right, led a merger with Alan Dixon’s funds advisory business in 2018. Picture: Stuart McEvoy for The Australian.

Buying brownstones in the New York City borough of Brooklyn seems a long way from the boardrooms of Melbourne’s Collins Street, but missteps by the once high-profile Dixon Advisory operation in the US housing market have set the scene for a corporate stoush over the future of one of Australia’s top financial advice firms.

Much is at stake for some of the city’s highest profile names as they seek to lift the now listed Evans Dixon investment operation out of the mire and get it back on track, despite facing action from the corporate regulator and a savvy corporate raider in the form of funds manager 360 Capital Group.

The company’s executive chairman, former ­Essendon football club chairman David Evans, led a merger with the Dixon funds advisory business ahead of the company’s ill-fated float on the ASX in 2018, with the company’s downward trajectory already attracting the interest of class action law firm Shine Lawyers.

But Dixon founder Alan Dixon is now out of the business, “exiting”, as one insider delicately puts it, in July, with “personal reasons” cited at the time. He then sold out to Tony Pitt’s 360 Capital. The raider has bumped up its stake from Mr Dixon’s 16.7 per cent to just under 20 per cent and on Thursday took a board seat.

The move was portrayed as a meeting of interests, with Evans Dixon saying Mr Pitt had been invited to join the board “given the commitment” 360 Capital has shown in acquiring a 19.55 per cent interest. Non-executive director Anthony Pascoe will not stand for re-election to accommodate Mr Pitt’s nomination at next month’s annual meeting.

“We look forward to welcoming Tony to the board in due course,” Mr Evans said in a brief statement.

But in the subterranean way of corporate battles, wheels are already turning and chief executive, former McGrathNicol chairman Peter Anderson, is quick to emphasise a planned turnaround of the business is underway.

Evans also still boasts a roll call of big names backing the business — including Kerry Stokes, who invested $10m, and billionaire investor Robert Millner, who also tipped in $10m — who are backing his strategy and have recently upped their commitments.

The listed firm’s trouble had its genesis of the US Masters Residential Fund, set up by the then private Dixon Advisory. It began a decade long odyssey in which it built up a $1bn portfolio of mainly freestanding homes in the New York area. But the company blundered, spending too much to gentrify homes, leaving it with heavy debts and overcapitalised.

The real misstep, though, came in Dixon recommending the products to its loyal army of superannuants. What was billed as low risk came crashing down as the fund underperformed, and the unorthodox advice that prompted retail investors to pour millions into the scheme last month sparked a civil court action by the corporate regulator.

Evans Dixon was already on the ropes as investors lost also confidence in its other funds. Its own share price collapsed from its listing price of $2.50 per share down to 49c. All this distress, naturally, attracted predators.

360 Capital fits the bill, having earned its stripes in a series of takeovers of underperforming businesses. Pitt is yet to make his plans clear, though his relationship with Evans and remaining independent directors could prove decisive.

The company’s turnaround plan is simple. It wants to deal with the problematic US property fund, fight civil charges brought by the Australian Securities and Investments Commission, and build the business, which advises on about $20bn worth of funds, into the country’s leading boutique operation.

This may not be quite enough for Pitt, though, and his entry opens the way for a more radical agenda. Although the register is dominated by staff and the firm’s connections, it trades at a large discount, suggesting the sum of the parts would be worth more.

Anderson and his chairman are likely to give any notion of a break-up short shrift. But he admits the road ahead won’t be easy, telling The Weekend Australian that the firm is “taking backward steps in order to go forward”.

“We’re very deliberately trying to set expectations this year for where we expect to be in 18 months to two years time,” he says.

The former receiver gives a blunt assessment of the once high-earning US operation. On his account, buying distressed New York property after the Global Financial Crisis, with the Australian dollar above parity, was a sound play.

But it drifted from this sort of investing and became more focused on premium properties, and some areas it focused on were slow to gentrify. Costs were “inappropriate” and the fund too highly geared. Anderson says problems are being addressed. “We’ve got a two-year operational turnaround in place,” he says.

Pitt, ever opportunistic, last year lobbed a proposal to turn around the US property fund. He teamed up with Oaktree Capital Management but his overtures were rejected.

Anderson says the company is open to a corporate transaction, but cautioned that initial approaches had been at “inappropriate values” which implied distress.

“When there is a corporate opportunity that reflects appropriate value, we will get value back to our investors,” he says. New rent controls have hit the US apartment market, making the portfolio of freestanding homes more attractive. He admits a “confidence issue” has hit the Dixon-dominated register but insists the firm can get value back.

The case launched by the regulator is at an early stage. But Anderson does not accept that the firm has misadvised investors and is critical of the marathon investigation by the regulator. Evans Dixon handed over hundred of thousands of documents but rejected offers to interpret them.

“We will be defending the action,” he adds, insisting no other part of the business is affected. “Nor do we ever intend to put ourselves in ASIC’s crosshairs again.”

Pitt, however, is unlikely to be deterred and the firm’s governance may be in his sights. Notably, he bought in just ahead of the ASIC action being disclosed, raising questions about why the regulator’s interest in the company was not revealed days earlier at the company’s annual results.

But what of the future? Anderson paints a picture in which a revamped company capitalising on the Evans & Partners, E&P, Dixon Advisory and Walsh & Company brands can flourish. In wealth advice it has about 9,200 clients, representing $20.1bn in funds under advice. In E&P it is in the top ranks of research, corporate advisory and debt and equity capital market advice.

In funds management, it has $6.7bn of assets. But changes are afoot here, with the Dixon-style of seeding funds and selling them through linked advisers out. Instead the firm is aiming for an educated cadre of advisers to capitalise on the tougher rules hitting the sector.

“We think that the wealth platform is exceptionally well placed,” Anderson says. The institutional business is also gaining momentum in the small and mid cap space. The approach is outflank competitors but not take on the giants. “We’re not trying to compete with Macquarie and Goldman Sachs,” he says.

Anderson says Evans Dixon, like many companies he’s handled in his career, is a “very much a turnaround”. What remains to be seen is whether the latest entrant to the board room shows the kind of patience the strategy demands.

“We look forward to having a constructive involvement from Tony,” Anderson says. “We have an absolute clarity on where we’re going with this business.”