TOL - 20th Jan, 2023
The world is your oyster: How this global private equity fund stands out from the pack
When you were young (or at least young at heart), you may have heard the phrase "the world is your oyster". And while the phrase most often applies to young people who are ready to take on life's great adventures, the saying could probably also apply to investing. There is a whole world of investment opportunities out there and sometimes, the best ones are not found in your own backyard.
This is certainly the case for the MLC Global Private Equity Fund and portfolio manager David Chan. In our latest Expert Insights discussion, he revealed that the fund has only 10% allocated to Australia. But that doesn't mean he worries about losing out on opportunities here at home. In fact, he argues having natural exposure to offshore ideas is actually a necessary part of any portfolio.
"In today's environment in particular, having some assets offshore also helps mitigate some of those risks from a portfolio perspective."
In this brand new edition of Expert Insights, David shares his thoughts on why going global is a good thing. Plus, we'll delve into the one thing that makes David and his team stand out from the rest of the pack - their focus is not on the large end of town.
EDITED TRANSCRIPT
LW: Tell us about the allocations to different regions in the fund.
David Chan: For MLC, we roughly have 40% of our portfolio in the US, 30% in Europe, and 30% in Asia Pacific. I think it's a very global programme and it's always been designed that way, about half our team is based in New York. And the reason for that is that when we look at the opportunity set for investments, most of it is outside of Australia, and so we want to be able to access that global opportunity.
LW: Why is only 10% of the fund allocated to Australia?
David Chan: We've never had more than 10% of our programme invested in Australia, and the reason is that actually when you look at the investment universe, most Australian investors have their portfolios flipped the other way around, they have 90% of their assets in Australia and 10% offshore. But the growing opportunity set offshore means that they've actually missed out on a large leg of the growth.
And I think in today's environment in particular with different macroeconomic risks and rising inflation and currency risks as well, having some assets offshore also helps mitigate some of those risks from a portfolio perspective.
And so individuals can have some US dollar assets as well. So if the Australian dollar falls, there are some natural hedges to that.
LW: What makes your fund's team different from others in their field?
David Chan: At MLC we like to partner with sector specialists and that's something that we've seen the market evolve to over time. And once upon a time, it was okay to be a generalist and there was enough market opportunity and returns for everyone to have in the private markets because it's quite an opaque asset class.
But as more capital has come into the market, we found it increasingly important in sectors like healthcare, tech and consumer to really be focused on the sector so that you can bring the right expertise and capabilities to those companies and so they have a reason to want to partner with you.
Because today it's more than just about bringing financial capital to the table. You need to bring operational expertise and other skill sets before you can convince founders to take private equity capital.
LW: You guys have a mid-market focus. Explain what that means and why you are focussed there.
David Chan: So mid-market for us are companies with an enterprise value of around half a billion to around 2 billion in size. We want to partner with these companies and often be the first institutional capital. So this may be a family-run business or a founder-led business that's never had professional investors.
And so they may not be running the right ERP (enterprise resource planning) system, they might not have the right processes in place, and they might not have an independent board. And these are aspects that we, along with our private equity partners, can help these companies with.
When it comes to the larger cap segment where most of the money in the market is playing at the moment, that market is much more professionally run by companies that already have the processes and people in place.
And to generate private equity returns in that space of the market, people are relying more on the really high levels of leverage that you sometimes read about in the paper. We think there's a lot of risk in that strategy and it's very much pro-cyclical, so it tends to move up and down with the market. Whereas we find in the mid-market, because of the smaller size of the companies and the ability to add operational value add, alpha can be generated in that part of the market right through different market cycles and different conditions.
Want to learn more?
MLC Asset Management has been managing global private equity for over 25 years and has recently launched the MLC Global Private Equity Fund. To find out more visit their website.
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Hans is one of Livewire's senior editors. He is the creator and moderator of Livewire's economics series "Signal or Noise". Since joining Livewire in April 2022, his interview record includes such names as Fidelity International Global CIO Andrew McCaffery, JPMorgan Asset Management Global CEO George Gatch, and Lazard Chief Market Strategist Ron Temple just to name a few. He has a double degree in economics and journalism.
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MLC Asset Management Pty Ltd (MLCAM) (ABN 44 106 427 472, AFSL 308953) and MLC Investments Pty Limited (MLCI) (ABN 30 002 641 661 AFSL 23 07 05) (as the issuer of the MLC Global Private Equity Fund (Fund)) are part of the Insignia Financial group of companies (comprising Insignia Financial Holdings Ltd ABN 49 100 103 722 (formerly IOOF Holdings Ltd) and its related bodies corporate) (Insignia Financial Group). No member of the Insignia Financial Group guarantees or otherwise accepts any liability in respect of any financial product referred to in this communication or MLCAM’s services. Past performance information is not indicative of future performance. Returns are not guaranteed, and actual returns may vary from any past performance described in this communication. This information may constitute general financial advice. It has been prepared without taking into account individual objectives, financial situation or needs and because of that you should, before acting on the presentation, consider the appropriateness of the information having regard to your personal objectives, financial situation and needs. You should obtain independent financial, legal and taxation advice and consider all risks before investing. The Fund is available via a Product Disclosure Statement (PDS). You should obtain a PDS and Target Market Determination (TMD) for the Fund and consider it in deciding whether to acquire or continue to hold an interest in the Fund. A copy of the PDS and/or TMD is available upon request by phoning the Client Services team on 1300 738 355 or on our website at mlcam.com.au.
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Hans is one of Livewire's senior editors. He is the creator and moderator of Livewire's economics series "Signal or Noise". Since joining Livewire in April 2022, his interview record includes such names as Fidelity International Global CIO Andrew...
Expertise
Hans is one of Livewire's senior editors. He is the creator and moderator of Livewire's economics series "Signal or Noise". Since joining Livewire in April 2022, his interview record includes such names as Fidelity International Global CIO Andrew...
Expertise
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