Meet Anthony: The adviser hitting for discipline, flexibility and realism in investing and golf

For Anthony Murphy, investing is about active management, access to investments that investors couldn't find themselves and managing downside risk. After all, if you just want market returns, you can just buy the index.

But being risk-averse doesn't mean you need to steer clear of opportunities. 

Anthony believes in being early and different in your approach - and knowing when to exit a position. Take the digital asset market as an example. Those investors, like Lucerne Investment Partners, who got in and out before July 2021 are reaping the rewards of avoiding the dramatic falls as well as capitalising on gains until that point.

Risk is one of his key concerns - and something that fuels his side passions: golf and cooking. All three require discipline but are forever changing and you have to be sensible about the risks you take. Adding too much bicarb to your cake will ruin it, while using a 3 wood on the fringe of a green might be a good risk for Tiger Woods, but not for amateur golfers.

"Like investing, each time you turn up on a golf course, it's a different challenge due to a number of factors, many of which are in your control. You just have to be disciplined, flexible and opportunistic."

Anthony puts his money where his mouth is too - taking on the same investments and risks as his clients.

Anthony Murphy joins us for this Meet the Adviser profile from his holiday to the birthplace of golf - St Andrews - where he is enjoying the 150th anniversary of the British Open. In this wire, he shares how a chance meeting for AFL sponsorship kickstarted his career in financial advice, what value-add means for him and how golf was able to offer his proudest moment at Lucerne.

Financial adviser profile

• Name: Anthony Murphy
• Company: Lucerne Investment Partners
• Licensed under Lucerne Investment Partners.
• Years working as an adviser: 16
• Investment goals: To build generational wealth for my family, investors and colleagues through identifying, understanding and supporting quality risk-adjusted investments.

Why did you choose this profession and how did you get started as a financial adviser?

I have always had a genuine passion for helping and supporting people and organisations. During my studies at ANU (double degree in Economics and Commerce, Finance Major), I was President of the Australian Rules Club for four years. In my final year, on my search for a new major sponsor for the club, I was introduced to a financial services company who agreed to become the club's major sponsor on the proviso I agreed to join their investment advisory business. I welcomed the opportunity and within 6 months, I had completed university, got engaged and moved to Melbourne to work in the company’s newly established Melbourne office.

Do you have a particular speciality in the types of clients you typically work with?

We specialise primarily in sourcing investments that are not usually available or familiar to the broader market and then create appropriate structures to allow all investors to access these opportunities, i.e., we bring investments that are often exclusive to the ultra-high net worth market and make them available to everyone – this is a passion of mine. These types of investments often provide the best risk-adjusted returns. 

We work with individuals and their families and provide flexible mandates to cater for professional, sophisticated, and retail investors. A large portion of our investors hold self-managed super funds and are in the peak earning years of their working careers or retired.

Can you share a bit about your process for building portfolios and selecting investment products?

We construct bespoke portfolios for each investor – no investor is the same and the industry is swamped with standard models that often do not align with the individual investor’s investment profile. 

Initially, I ask investors what per annum return they are targeting over a 5-year period, regardless of market conditions. Provided this is reasonable, portfolios are then constructed to achieve this outcome with the least amount of volatility. Deriving quality risk-adjusted returns underpins Lucerne’s investment philosophy.

Products with flexible investment mandates, run by highly aligned professional managers that consistently outperform are the focus for Lucerne. These products are difficult to find. However, they do exist, and partnering our capital and our investors capital with such investments is a true “value add”.

Most products can make money in good market conditions. Products that have the ability to generate returns in both good and bad markets stand out to Lucerne. 

We place a much greater emphasis on managing downside risk than generating returns in bull markets - buy the index if you want that, and you don’t need an advisor for this!

Can you share two of your “go to” funds with us? 

I am biased, but I believe the Lucerne Alternative Investments Fund (LAIF) produces the type of risk adjusted returns most investors seek. I established LAIF in December 2017 as a fund of funds to provide all investors access to a diversified portfolio of bespoke fund managers from around the globe whom we highly rate and are often difficult to access. We overhauled the strategy in late 2019 to focus more on downside risk. LAIF has delivered annualised net returns of ~11% p.a. since inception. For context, the ASX200 Accumulation Index has delivered 6.09% p.a. over the same period with twice the volatility of LAIF. The majority of our investors hold 15-20% exposure to LAIF, which holds ~15 underlying investment funds.

A single manager I highly rate, is Ben McGarry from Totus Capital – a well-known contributor to Livewire. Lucerne and our investors have invested directly with Ben since 2014 and Totus has been a meaningful position in LAIF from day 1. Ben is a realist and often avoids the hype and fads the stock market and investing can bring. His continued disciplined approach has delivered investors a return of 16.5% p.a. since inception with a substantial amount of that out-performance being delivered in weak equity market conditions. Case in point, Totus returned 25% for FY22 and 3% in June 2022!

How would you describe your personal investment philosophy?

Be early and be different and value strategic partnerships.

Identifying market trends and respective investments (both positive and negative) before the broader market does can lead to significant outperformance for investors. Consider investors who owned the likes of REA Group Limited (ASX:REA), CSL (ASX:CSL) and AfterPay early on, well before the broader market understood or valued these companies. The returns made by these early-stage investors are far superior to most. Now, apply this approach to alternative asset classes and the returns can be greater still. Digital assets, private equity and venture capital are examples where quality superior can be realised by being early and being different. What is equally (perhaps even more important) is to identify when to exit these trends and/or investments. 

Most trends and markets are cyclical, and you never want to be the last one at the party holding the punch bowl. So, be opportunistic, but equally, be realistic and sensible and know when to fold them. 

The rampant rise and subsequent crash of the digital asset market is a great example of this. We took in a position in this space via a highly credentialed manager in Feb 2020 and then existed that position in July 2021. The timing of this exit was supported with the hype surround the digital asset market at this time and there was too much hubris behaviour for our comfort levels. We will re-consider at a later date.

Good advisors form working partnerships with industry experts and such behaviour is beneficial to the adviser’s clients. Too often, advisers feel they need to “own” or “control” the adviser/client relationship. Not one advisor can do everything or be across everything. This is why I am a huge believer in spending the majority of my time and Lucerne’s time in building and maintaining relationships with industry professionals and partnering capital with them.

Be early, be different and embrace working partnerships – this is a great model for sustained success in investing.

Could you please share your top three holdings in your personal portfolio and tell me a bit about why you hold each of these positions?

The Lucerne Alternative Investments Fund (LAIF) – alignment with our investors is paramount. We expect our preferred fund managers to have most of their investable wealth invested in their own funds alongside investors, and therefore the same expectation applies to Lucerne staff. LAIF also provides me access to a number of investment strategies I could not access directly.

HEAL Partners – HEAL is a mid-stage private equity follow-on fund investing in a concentrated global portfolio of businesses that are global, scalable and repeatable – 3 key components to any great investment. The fund is hard closed at $160m (very small in private equity world), targeting annualised net returns of 30% and is currently well ahead of this target. Lucerne and our investors make up ~10% of the fund. HEAL was founded by one of the best investment teams I have ever met, and this was recently vindicated by global behemoth Elliot Management anchoring HEAL to raise and manage a second fund. I recently discussed HEAL with the Livewire audience in this wire.

Lucerne Select Alpha Fund (LSAF) – we created LSAF to provide investors access to a portfolio of the best direct investment ideas originated from LAIF’s managers, our fund manager and family office networks. LSAF primarily invests in private companies with a select group of investors, and targets returns in excess of 20% p.a. Launched in September 2021, LSAF is currently well ahead of this target return and provides our investors access to special opportunities that are generally not available through normal market channels.

Could you tell me about your worst investment? How did you deal with this falling position or fund?

Lucerne and our investors took too much direct exposure to a small cap ASX listed company. The company failed to deliver on its global expansion aspirations and suffered significant share price deterioration. Given the combined size of our investment, we could not exit the position. However, we worked with the company to restructure and recapitalise its balance sheet and introduce a new senior executive team. The company may still be a success, but it was heavy learning lesson not to get over excited about an investment, regardless of how attractive you may think it to be. This investment was a key catalyst to revolutionising the way in which Lucerne invests today – through appropriate structures to best mitigate and manage returns vs risk. 

We all make mistakes in investing, and always will. It is vital to learn from these mistakes so future ones can be reduced and better mitigated.

Can you share one of your favourite client success stories?

A small group of our investors salvaged a basketball team in the WNBL from the brink of collapse. This group contributed substantial capital, restructured and joined the board, secured new talent and re-launched the team 6 years ago known as the Melbourne Boomers. Lucerne has been significant sponsor of the Boomers since 2016 and the club’s hard work paid off, with the team claiming the WNBL 2022 championship. I was so proud of my clients' generosity, hard work and dedication, and Lucerne is so pleased to be part of the journey and is a big supporter of women’s sport.

What three conversations are you most frequently having right now with clients? And what is your answer to these questions?

1. The deteriorating macro environment
   Investors are rightly concerned with the economic outlook, something we have been warning against for some time. Limit exposure to market correlated strategies in times like this. I believe we still have 12-18 months of soft market conditions, so be active and think differently. We welcome current market conditions as the hubris behaviour in recent times was unsustainable. Never waste a crisis! We are seeing excellent opportunities (both in funds and direct investments) arising and our investors are taking full advantage of this. Remember, only be greedy when others are fearful.
2. Cash is good (sometimes, even King!)
   Yes, inflation is high and the opportunity cost of holding cash is also theoretically high. However, this was not the case in June 2022 when markets plummeted and more broadly throughout 2022. The Buffets etc of this world are cash heavy and investors who are opportunistic and selective will ultimately do well from the current dislocation in financial markets.
3. Be patient and do not be short-sighted 
   Some of our best performing products and investments can perform poorly at different times. We encourage investors to think medium-long term because quality investments deliver over time and knee-jerk reactions during market corrections can cause serious deterioration in long-term investment returns. Consider product and investment returns over the longer term. Too often investors react to hastily to a negative month or quarter and exit an investment, often to their detriment. As Buffet says, his ideal holding time is infinite. When we identify a quality manager or investment, we too want to hold exposure for as long possible and not cut them because of short period of drawdown.

What are the two most common mistakes you see in the portfolios that you inherit and how do you go about fixing them?

Most investment portfolios we inherit are too vanilla and do not consider alternatives, i.e. they are limited to holding long-only equities, bonds/fixed income and property. We start by reducing the reliance on stable/strong market conditions and introduce a greater spread of assets classes, further diversifying and improving the return profile of the portfolio.

As mentioned earlier, if investors want market returns, you do not need an advisor – the availability of online platforms and ETFs provide investors access to this passive approach.

Advisers should add value by providing access to investments that clients can often not themselves. 

Australians are a patriotic bunch, and therefore are often overweight Aussie equity exposure. We take a bias to international equities over Australian, particularly the US markets, which consistently outperform the ASX, and construct portfolios to suit this view.

Many investors also have too much vanilla credit and income exposure often via bank hybrids and bonds. Superior risk-adjusted returns can be delivered in private debt where security and control are genuine and well understood. Our preferred private debt strategies have delivered 7-15% p.a. over the past three years whilst protecting capital.

Can you share a personal passion or ambition you have for your future? 

My two favourite passions are golf and cooking.

I grew up playing golf and have always found it to be my “timeout” from the rest of the world. 

It’s a game of skill and patience and forever changing – different courses, different conditions, different mindsets! 

It’s a passion I share with a number of clients and other stakeholders to Lucerne. Thus, it is nice that this passion can also be enjoyed in a working (or semi-working!) environment. I think the everchanging challenges golf brings can relate very well to investing, where the environment is always changing, and you need to constantly adapt your skill/game to suit. My proudest Lucerne moment came in May 2022 and involved golf. After two years of COVID-related delays, we finally hosted our inaugural charity golf day, raising $60,000 for the Royal Children’s Hospital Garden Program. I was floored by the generosity and support we received on the day from our clients and stakeholders for such a worthy a cause.

I also love cooking and find it incredibly therapeutic. I love how food brings together family and friends and you can often find me in the kitchen of a weekend preparing a meal or 3 for my family. On Christmas Day, I don’t leave the kitchen all day and my infamous dessert is pecan pie, which has become an extended family staple for the past 10 years! I love cooking with my three children and teaching them how to make different recipes. 

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