TOL - 13th Jan, 2023
Three of private equity's most attractive sectors
We have already introduced you to the changing face of private equity. Now, more than ever, the industry is going through a democratisation phase where everyday investors can get exposure to some of the world's most lucrative transactions and some exceptional once only family-owned businesses.
David Chan of MLC Private Equity has called the asset class a closely guarded secret that can now be shared with investors, even if they don't have the million-dollar minimum investments that usually come with this field.
Now, David shares his three top favourite sectors. Unlike other private equity funds, the MLC team do things just a little differently. Within their diversified portfolio, they are currently favouring three specific sectors. And as we revealed in our last Expert Insights video, they are also three sectors with worldwide applications.
EDITED TRANSCRIPT
LW: One of your favourite sectors is healthcare - what opportunities are you seeing there?
David Chan: We play in the very, very defensive part of healthcare, which for us is more on the services and devices side and less so on the pharmaceutical side where in that space, it's less cash flow dependent and more about building the next blockbuster drug. For example, we are doing a deal at the moment which is in the medical catheter space.
In this business, 90% of its customers' sole supply is from them because they work with these companies on their FDA approvals.
And so these FDA or Federal Drug Administration approvals take years to complete, and once they're specified into that design of that device, it's very hard for that customer to then switch suppliers. Right? They're not going to go through another two, three-year process.
And in this case, we're also working with a management team who have successfully run a catheters business before and generated five times the returns for investors. And so it's a proven management team in a sector that we think has very, very strong long-term tailwinds with a business that has recurring and sticky revenues.
LW: Another of your favourite sectors is tech - what is a top opportunity from that sector?
David Chan: Tech is a sector which we're very passionate about, and we think technology is one of those ubiquitous sectors that are taking over multiple industries.
For us, where we like to play in tech is more on the enterprise SaaS and the recurring revenue parts of the tech sector and less so on some of the flashy late-stage VC start-xups that you read about that are more cash-burning for us and are more subject to consumer preferences and fads.
What we want to see are companies that are like the bricks and mortars of different business models and industries.
For example, we have systems that are the core IT systems for hospitals or for GP clinic chains. And so without these systems being operational, the doctors can't schedule patients and can't bill them. The hospital can't schedule its staff and roster appropriately. So these are mission-critical systems that the businesses can't function without, and we find these types of businesses have very, very high recurring revenue and very, very sticky customer bases, and they're all characteristics that we like in these more challenging market conditions ahead.
LW: Another of your favourite areas is consumer - but what is the opportunity there? Is it in consumer staples or discretionary companies?
David Chan: We play right across the consumer spectrum, but to make it more concrete, what we like in consumer businesses is a real defensiveness to the model and some secular growth tailwinds behind it. And so for example, the pet sector is one of those consumer sectors we really love and we see that trend of humanization of pets as having very long-term tailwinds.
These days, ironically, many people treat their pets in many ways better than their kids, so there are just more insurance products, there are more veterinary or other service products, and there's more range of food products for pets than we've ever seen in the past.
Another example of a consumer company that we've backed is in a crossover with healthcare. So orthopaedic shoes, for example, are shoes designed to relieve pain for people with foot issues. And so because there is a medical reason for this consumer product, people purchase this product even in tough economic conditions. And we've seen that a range of different products, including hair care and others which are are FDA-approved products or have clinically proven benefits and hence, it's not just a simple fast fashion or consumer preference risk that we think is very hard to predict and hard to keep on top of. These are long-term secular trends that for us will last decades.
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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