VGI Partners shares surge on $5.6bn merger deal with rival Regal Funds Management

Shares in the Rob Luciano-led VGI Partners rocketed 25 per cent higher after the investment manager negotiated a deal to merge with larger rival Regal Funds Management.

VGI Partners executive chairman Rob Luciano Picture: Jane Dempster/The Australian

Shares in listed investment manager VGI Partners have surged 25 per cent after the Rob Luciano-led company said it had sealed the deal to merge with its larger rival Regal Funds Management.

The new company, known as Regal Partners, will remain on the ASX and be one-third owned by existing VGI shareholders. The vast majority will be owned by existing Regal shareholders.

The merger – first revealed by The Australian in January – will create a funds management firm overseeing some $5.6bn.

In an ASX statement, VGI said the merger would give its shareholders “exposure to a diversified and growing platform of hedge fund, private market and real asset investment strategies for institutional, high net worth and retail investors in Australia and offshore”.

It would also provide an opportunity for Mr Luciano “and the VGI investment team to leverage additional resources from the merged group, including Regal’s extensive investment capability and track record investing in Asian equity markets and private unlisted investments”.

Neither Mr Luciano nor Phil King, Regal’s largest investor and key stockpicker, will be on the merged entity’s board. Instead, it will be chaired by Michael Cole, a former Platinum Asset Management chairman.

Brendan O’Connor, the current chief executive of Regal, will be appointed CEO of the merged group. The chief financial officer at VGI, Ian Cameron, will remain in the role at the merged group.

Mr King told The Australian on Wednesday that he and Mr Luciano “both see ourselves as very fundamental investors”. “We both started out careers as chartered accountants and have been investing in the stock market for many, many years,” he added.

Despite the similarities, Mr King said VGI and Regal were “focused in different areas”.

“Rob was looking at large caps in North America and Europe and we are focused across the market cap spectrum in Australia and Asia,” Mr King said.

“The Australian market is going to be one of the best performing in the world over the next five years,” he added.

VGI Partners executive chairman Rob Luciano. Picture: NCA Newswire / Gaye Gerard

“In terms of the market, investors have done well in growth stocks, but the next five years – as inflation increases – we think value and resource stocks will be the best sectors to be in and that’s how we’ve focused our portfolios.

“Shorting has become a little bit easier … and one area we see some of the greatest opportunities in is on the short side.”

VGI, which began as a funds management house focusing on a small number of wealthy families, had been one of the market’s most aggressive short-sellers – taking positions against ASX-listed law firm Slater & Gordon and Corporate Travel Management.

But the company has more recently faced poor returns – as the market turned against its largest holdings – and the departure of many of its key staff including Doug Tynan, a partner and VGI’s second-largest shareholder. Mr Tynan has since started his own firm, GCQ Funds Management.

Mr Luciano, in an interview, also pointed to his career trajectory as one which bore similarities to Mr King’s. “We both started and trained at chartered accounting firms,” Mr Luciano said.

“We both then realised accounting was not for us – I didn’t know this until we got talking – and we went to the sell side, and we both made our way to the buy side and eventually went and set up our own firms.

“We are both fundamentally driven, we have both gravitated toward long-short (investing).”

Asked where he saw the greatest opportunities for investors, Mr Luciano said he was “most enthusiastic about what we think are well-positioned digital businesses whether that be in enterprise software, online marketplaces – particularly those that have blended their business models with physical capabilities and assets”.

Mr King has moved to expand his business, buying a 51 per cent stake in Attunga Capital, which manages around $150m and has significant exposure to energy. Regal also has a half-stake in Kilter Rural, a specialist manager of Australian farmland, water and ecosystem assets on behalf of institutional investors. It has $500m under management.

The merged firm will have around 100 staff – 72 from Regal – and some 63 per cent of its funds in global and Asian equities. Regal currently has 38 per cent of its total funds in those markets.

Shareholder approval will be sought in May or June.