PM Capital Global Opportunities Fund Ltd. · ASX:PGF
PM Capital Global Opportunities Fund — PM Capital — PM Capital Investor Forum 2017
66 slides from PM Capital Global Opportunities Fund's conference presentation, May 2017
Slide 1: PM Capital Investor Forum
PM Capital Investor Forum May 2017
Slide 2: PM Capital Investor Forum
PM Capital Investor Forum May 2017
Slide 3: Lachlan Cameron, Head of Distribution
Lachlan Cameron Head of Distribution PM Capital
Slide 4: Disclaimer
Disclaimer This presentation is issued by PM Capital Limited (ABN 69 083 644 731 AFSL No. 230222). It does not constitute advice of any kind, and is not an offer capable of acceptance in any jurisdiction. The opinions (which constitute our judgement at the time of issue) and the information herein i
Slide 5: Winning fundamental Moneyball – making money from anomalies
Winning fundamental Moneyball – making money from anomalies PM Capital Limited | May 2017 5
Slide 6: Why PM Capital?
Why PM Capital? Objective: Long term performance accretion Performance (net of fees) 1 3 5 7 Total return Since As at 30 April 2017 Year Years Years Years since inception p.a. p.a. p.a. inception PM Capital 24.6% 14.8% 22.2% 13.0% 8.8% 379.2% Global Companies Fund PM Capital 16.5% 8.5% 13.8% 10.3% 1
Slide 7: A history of after-fee outperformance…
A history of after-fee outperformance… $100,000.00 $95,835 $90,000.00 $80,000.00 Global Global $70,000.00 $60,000.00 Companies Fund Companies $50,000.00 $40,000.00 MSCI World Fund Net Total $30,000.00 Return Index $20,000.00 $10,000.00 $42,148 $- 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Slide 8: A history of after-fee outperformance…
A history of after-fee outperformance… 60,000 $49,032 50,000 Enhanced Yield Enhanced 40,000 Fund Yield 30,000 RBA Cash 20,000 Fund 10,000 Rate - $37,857 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 $140,000 $121,097 $120,000 Australian Australian $100,000 Companies $80,000 Fund Companies $60,000
Slide 9: Business update
Business update More sales staff New CRM Transparency for client New brand, more staff Digital comms New logo Website PM Capital Limited | May 2017 9
Slide 10: Website
Website PM Capital Limited | May 2017 10
Slide 11: Agenda
Agenda Speakers Jarod Dawson 30m Director and Portfolio Manager Credit Strategies Paul Moore 30m Chief Investment Officer, Chairman and Portfolio Manager, Global Equities Q&A 15m Close PM Capital Limited | May 2017 11
Slide 12: PM Capital
“il PM Capital
Slide 13: Jarod Dawson, Portfolio Manager
Jarod Dawson Portfolio Manager Enhanced Yield Fund Director PM Capital
Slide 14: Finding value and Outlook
A desire to change the game 1. Finding value Doing it differently Why search for anomalies? Where to look for the anomalies The overlooked players 2. Outlook PM Capital Limited | May 2017 14
Slide 15: Changing the game
Changing the game We view risk as the risk of losing money Ability to be up to 100% cash – in or out of markets Invest globally – why be constrained? Exploit the capital structure Intense research – stick to what really matters: the facts Focus on the anomalies: rational when markets irr
Slide 16: Why search for anomalies?
Why search for anomalies? Idea generation is based around arbitrary indices – instead of genuine investment opportunities. The industry is • Hundreds of investments / few parameters - why? flawed • 5 year interest rate duration – why? • Interests of Issuers v Investors “baseball thinking is medieval
Slide 17: Finding value for money
Building a team Finding value for money Home Distressed bias hard assets Rated v Listed v unrated unlisted PM Capital Limited | May 2017 17
Slide 18: The overlooked players… interest rates
The overlooked players …interest rates 11% 9% 7% 5% 3% 1% (1% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 US Australia Germany Switzerland Japan Source: Bloomberg Germany/ Japan/ Switzerland – 10yr fixed rates still effect
Slide 19: The overlooked players… USD subordinated debt
The overlooked players …USD subordinated debt FRNs issued by ANZ and WBC decades ago in USD – fallen off the radar Originally issued with tiny credit spreads - cash + 0.15%! Post the GFC – capital prices savaged: 50% Market focused on very small coupon Stick to the facts play on higher r
Slide 20: Debt investment, equity-like returns
Debt investment, equity-like returns Interest rates bottomed in 2016 – 40% return since! Westpac Subordinated Debt (USD) ANZ Subordinated Debt (USD) $80 $80 $75 $75 $70 $70 USD $65 USD $65 $60 $60 $55 $55 $50 $50 Source: Bloomberg PM Capital Limited | May 2017 20
Slide 21: The overlooked players… BHP senior/subordinated debt
The overlooked players… BHP senior/ subordinated debt 2015/16 – perfect storm - China scare/ oil supply shock/ Brazil mine disaster BHP credit spreads at distressed levels (home bias) • EUR Senior Debt Bills + 300bp • USD Subordinated Debt Bills + 600bp Market focussed on downside uncertainty/
Slide 22: BHP – sold after 4 months for a 7% absolute return
BHP – sold after 4 months for a 7% absolute return BHP senior debt 300 PM Capital senior debt entry point 250 200 Spread (bps) 150 PM Capital senior 100 debt exit point 50 Source: Bloomberg PM Capital Limited | May 2017 22
Slide 23: The overlooked players… Lar Espana
The overlooked players… Lar Espana Post GFC / European Crisis chaos: Commercial property 50-70% Market panicking over where it will end Portugal, Ireland, Greece, Spain (PIGS)…Australia the one in the mud Stick to the facts - Compare the pair: Lar Espana (Spain) Dexus, Stockland (Aus) Buying a
Slide 24: The overlooked players… Tesco
The overlooked players… Tesco Unloved business – market sentiment around equity Market focused on profit write-downs/ accounting issues Back to Basics - Turnaround Story • Cleaned house - new management implementing significant change • 3rd largest global retailer – great brand, huge customer
Slide 25: Bottom of the 9th… bases are loaded
Bottom of the 9th … bases are loaded Higher interest rates • Effectively no interest exposure + USD Sub Debt • Bloomberg Composite Index – 5yr duration = 10%-15% potential losses • Double positive if you have no interest rate duration: • Avoid material losses form higher rates • Income yield incre
Slide 26: The process has to provide runs
The process has to provide runs Objective: Consistent returns, regular income Performance (net of fees) 1 3 6 1 3 5 Since Total return 30 April 2017 Month Months Months Year Years p.a. Years p.a. inception Since inception Enhanced Yield Fund 0.4% 1.5% 3.0% 6.3% 3.5% 4.4% 6.1% 145.2% RBA Cash Rate 0.
Slide 27: PM Capital
“il PM Capital
Slide 28: Paul Moore, Chief Investment Officer
Paul Moore Portfolio Manager Global Equities strategies Chief Investment Officer Chairman PM Capital
Slide 29: PM Capital Limited | May 2017
PM Capital Limited | May 2017 29
Slide 30: Patience and conviction
Patience and conviction All great investments are questioned at the time of purchase TMT – old v new economy GFC – equities v cash “…a once in a life time opportunity to move out of cash and into debt instruments; and for those with a long term perspective straight into equities…” Paul Moore, Ma
Slide 31: Why invest in anomalies?
Why invest in anomalies? PM Capital Limited | May 2017 31
Slide 32: Why invest in anomalies?
Why invest in anomalies? From an investment perspective - to be a successful investor you have to be doing something that others are not PM Capital Limited | May 2017 32
Slide 33: Why do they occur?
Why do they occur? Fear and the avoidance of pain “The day after the market crashed… people began to worry that the market was going to crash.” Peter Lynch, One Up On Wall Street, 1987 So what makes us feel safe? What is it that you are afraid of? A portfolio manager for an institution…cannot
Slide 34: Perception v facts
Perception v facts Lazy research, focus on the obvious, superficial; group think • When all men think alike no one thinks very much. Walter Lippmann, 1915 PM Capital Limited | May 2017 34
Slide 35: Perception v facts
Perception v facts Lazy research, focus on the obvious, superficial; group think • When all men think alike no one thinks very much. Walter Lippmann, 1915 “Good looking ball player” = brand name/ blue chip PM Capital Limited | May 2017 35
Slide 36: Perception v facts
Perception v facts Lazy research, focus on the obvious, superficial; group think • When all men think alike no one thinks very much. Walter Lippmann, 1915 “Good looking ball player” = brand name/ blue chip “If he’s a good hitter why doesn’t he hit good?” • Consumer revenue growth PM Capital Li
Slide 37: Perception v facts
Perception v facts Lazy research, focus on the obvious, superficial; group think • When all men think alike no one thinks very much. Walter Lippmann, 1915 “Good looking ball player” = brand name/ blue chip “If he’s a good hitter why doesn’t he hit good?” • Consumer revenue growth Not always
Slide 38: Short term focus
Short term focus • Banking has to survive Severe • Land values long term reflect economic production cyclical • Financial transactions are the basis of our capitalist system change • Gambling; since the dawn of time • Desk top v Mobile Secular • Globalisation (Brewing) change • Capital and Dividends
Slide 39: Distractions
Distractions Administration/ superannuation/ regulation Macro – Brexit 39
Slide 40: Las Vegas (Howard Hughes) … to Ireland to Spain (Hispania)
Las Vegas (Howard Hughes) … to Ireland to Spain (Hispania) Cairn Homes (€) 1.60 +50% 1.50 1.40 1.30 Hedge fund wants out… € 1.20 1.10 1.00 …CEO calls…never 0.90 let the mkt… 0.80 06/2015 09/2015 12/2015 03/2016 06/2016 09/2016 12/2016 03/2017 Close Source: PM Capital, Bloomberg 40
Slide 41: Conflict/misunderstanding
Conflict/ misunderstanding PM Capital Limited | May 2017 41
Slide 42: PM Capital Limited | May 2017
PM Capital Limited | May 2017 42
Slide 43: Conflict/misunderstanding
Conflict/ misunderstanding “People who run ball clubs, they think in terms of buying players. Your goal shouldn’t be to buy players (raise funds), it should be to buy wins (businesses that will give your required return on your capital)…” Source: Moneyball PM Capital Limited | May 2017 43
Slide 44: Conflict/misunderstanding
Conflict/ misunderstanding “People who run ball clubs, they think in terms of buying players. Your goal shouldn’t be to buy players (raise funds), it should be to buy wins (businesses that will give your required return on your capital)…” “When I see Johnny Damon, what I see is an imperfect understa
Slide 45: Conflict/misunderstanding
Conflict/ misunderstanding “People who run ball clubs, they think in terms of buying players. Your goal shouldn’t be to buy players (raise funds), it should be to buy wins (businesses that will give your required return on your capital)…” “When I see Johnny Damon, what I see is an imperfect understa
Slide 46: Conflict/misunderstanding; Why co-investment is so critical
Conflict/ misunderstanding “People who run ball clubs, they think in terms of buying players. Your goal shouldn’t be to buy players (raise funds), it should be to buy wins (businesses that will give your required return on your capital)…” “When I see Johnny Damon, what I see is an imperfect understa
Slide 47: How do you find anomalies?
How do you find anomalies? Insight, judgment and intuition Brewing Banking Monopoly service providers Macau Alternative asset managers Investing can’t be reduced to an algorithm or a mechanical process. PM Capital Limited | May 2017 47
Slide 48: What gives you the conviction to invest?
What gives you the conviction to invest? What is the objective ? ? What is the problem PM Capital Limited | May 2017 48
Slide 49: What gives you the conviction to invest?
What gives you the conviction to invest? What is the objective ? ? What is the problem If you don’t know what you are looking for, hard work won’t find it PM Capital Limited | May 2017 49
Slide 50: You need to ask the right questions
Background research is key You need to ask the right questions You need to be focused both in the number of opportunities and the specifics of your research Better to know a lot about a little than a little about a lot PM Capital Limited | May 2017 50
Slide 51: When do I pull the trigger?
When do I pull the trigger? You will never know the exact time – but it has to be based on valuation as valuation is what protects you Understand how the plumbing works • Buying: Las Vegas access to bank credit • Selling: Alternatives – corporatisation Most importantly, trust your instincts an
Slide 52: Bondnado
Bondnado June 1989 17% SVR Source: RBA • May 2017 -0.3% VR HSBC (FRANCE) PM Capital Limited | May 2017 52
Slide 53: The theory of evolution – Charles Darwin
The theory of evolution – Charles Darwin Australian residential property • 1988 - Mortgage risk weight dropped to 50% • 2007 - Mortgage risk weight calculated using internal models - RWA drops to ~15% • 2007 - Borrowing to purchase property allowed for SMSFs + Open slather for foreign investors =
Slide 54: The more subtle anomaly
The more subtle anomaly Passive investing Distributors and regulators driving at full speed ahead Dominate flows and free float Not based on valuation Everyone will own the same assets! Where all people think alike! The capitalist system will break down? Correlated with bond yields!
Slide 55: Keynes quote on conventional failure
“Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.” John Maynard Keynes
Slide 56: Keynes quote on conventional failure
“Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.” John Maynard Keynes Investing in businesses at a discount to their inherent value (anomalies) is business common sense
Slide 57: How is the portfolio placed?
How is the portfolio placed? Industry consolidation; 2003 – 2016+ Global Brewing Genuine Las Vegas + Ireland + Spain; 2009+ Post GFC Housing Recovery long term From crisis comes opportunity; 2009+ opportunities Domestic Banking Global CBA equivalents; yield A good business at a good price; 2011+ Ser
Slide 58: Conclusion
Conclusion It’s not easy - you have to work hard and wait for the genuine anomalies to appear and you must have conviction because… PM Capital Limited | May 2017 58
Slide 59: Conclusion
Conclusion It’s not easy - you have to work hard and wait for the genuine anomalies to appear and you must have conviction because… The best ideas always come at a point of maximum uncertainty. PM Capital Limited | May 2017 59
Slide 60: Conclusion
Conclusion It’s not easy - you have to work hard and wait for the genuine anomalies to appear and you must have conviction because… The best ideas always come at a point of maximum uncertainty. That is how we believe you can genuinely add value over the longer term PM Capital Limited | May 201
Slide 61: PM Capital Limited
Ne Fal * PM Capital PM Capital Limited
Slide 62: Rebecca Morgan, Sales Director
Rebecca Morgan Sales Director PM Capital
Slide 63: Q&A
Sy) | RY Q&A i PM Capital
Slide 64: A differentiated approach
A differentiated approach High conviction / unconstrained / benchmark unaware • A different risk reward proposition to the market Investing from an Australian perspective • Tax and currency are part of the equation Alignment through co-investment • Investors not fund gatherers • We invest as we beli
Slide 65: PM Capital
“il PM Capital
Slide 66: Thank you
“il PM Capital Thank you