VGI Partners Limited (RPL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the VGI Partners conference call and webcast. I would now like to hand the conference over to Mr. Robert Luciano, Founder and Chief Investment Officer of VGI Partners. Please go ahead.

Good afternoon, everybody, and thank you for joining us. I'm really pleased to welcome you today and to announce the merger of VGI Partners and Regal Funds Management. It's a momentous occasion for us, and we're really excited by it. And we think it's going to deliver substantial benefits to VGI's investors, including VGI's listed investment company shareholders. Now in the room with me this afternoon, I'm joined by Phil King; and Brendan O'Connor from Regal, also have Adam Philippe from VGI. Let's get straight into it. If we could all turn to Slide 3. And I'll go through the executive summary. So as you can see, VGI Partners Limited and Regal Funds Management Proprietary Limited have entered into a merger implementation deed. The combination of VGI and Regal will create a market-leading provider of alternative investment strategies with total funds under management of approximately $5.6 billion. Now the merged entity will be renamed and a new ASX ticker will be assigned. The merger provides VGI's investors with exposure to a growing and scalable well-diversified investment management group, which includes hedge funds, private markets and real asset investment strategies, institutional, high net worth and retail investors in both Australia and internationally. The merged entity also enables VGI access to Regal's extensive investment capability in Australian and Asian equity markets but also in unlisted investments and real assets. Further, VGI will benefit from access to Regal's institutional-grade corporate platform and its well-established marketing and distribution capabilities. Now a key point to note is that the VGI Board of Directors intends to unanimously recommend that VGI shareholders vote in favor of the merger at the general meeting. And this will be an absence of a superior proposal and subject to an independent expert concluding that the merger is reasonable for VGI shareholders. Now moving to Slide 4 or Page 4 of the deck. And this just gives everybody a snapshot of the combination, which creates effectively a market-leading alternative investment manager in Australia. And you can see by the combination of VGI and Regal, the combined entity will have funds under management of approximately $5.6 billion. Importantly, you're going to have a scaled, diversified and growing investment platform that services institutional, high net worth and retail investors across Australia but also internationally. Further, you'll have staff of just under 100, approximately 43 investment professionals, and this will be across offices in Sydney, Tokyo, New York and Singapore. Now if we can move to Slide 5, the transaction rationale. The key points are as follows: diversification and growth is a very substantial benefit of this transaction. As I've discussed already, the combined group will have total funds under management of $5.6 billion. Again, exposure to what is a very substantially growing, but most importantly, scalable and well-diversified investment management group that covers the broad spectrum of alternate investing strategies. And it also combines the industry experience, the networks and the track records of both groups. In terms of investment team, where we get to combine the research capabilities of both VGI and Regal, which will give the combined group very substantial expertise in Asian markets and, obviously, adds to the existing capabilities of Regal in Australian markets but also Regal's proven track record in unlisted investments in real assets. Further, the combined group will be able to leverage the expertise that Regal has built up in specific verticals, namely in health care, but also in resources. And finally, the combined group is able to leverage a centralized and scalable corporate platform. Now moving to Slide 6. Now this summarizes the transaction details. And I guess the key points I should highlight are as follows: VGI is to acquire 100% of Regal in consideration for ordinary shares in VGI. The pro forma ownership will be broken down to be 67% Regal, 33% VGI. The merged entity will be renamed, will remain listed on the ASX post completion, but with the new ticker and the combined entity will have no debt. I should highlight to existing VGI shareholders that a fully franked dividend of up to $0.40 per share will be paid post approval of the merger, but premerger completion. And so this will be paid to existing VGI shareholders. Further, there will be a Board of 6 directors, 2 nominated by Regal and 2 nominated by VGI, and there will also be 2 new external independent directors. In terms of management, the current Regal Chief Executive Officer, Brendan O'Connor will be CEO of the combined group. And VGI's CFO, Ian Cameron, will be CFO of the Merged Group. Now in terms of timing and next steps, shareholders do not need to take any immediate action in connection with the merger. VGI intends to provide an explanatory memorandum in either April or May, and this will include an independent experts report and an indicative timetable and a notice of the general meeting at which VGI shareholders will be invited to vote to approve the merger. And finally, the VGI Board of Directors intends to unanimously recommend that VGI shareholders vote in favor of the merger at the general meeting. And this is in the absence of a superior proposal and subject to an independent expert concluding that the merger is reasonable for VGI shareholders. Okay. Now that I've finished that section. I'm really pleased to be able to hand it over Phil King to now make some comments. Thanks, Phil.

Thanks, Rob. I'm also very excited about the proposed merger announced today. And I also think it's a great outcome for the client for both our companies. I've follow Rob's career since he worked at Caledonia 20 years ago. and was very impressed with his ability to start VGI and attract capital from some of Australia's leading family offices. He's got a great long-term track record, but probably has been impacted too much in recent years by the challenges of running a listed business, something I try to avoid until I have the right team around me and enough diversification in the business. Rob is well recognized as of the best global investors in Australia, and by spending time with him in recent months, I understand why. I don't think I've met anyone who worked harder or knows his companies better. Our businesses also have very similar philosophies around offering a family office style of investment and the concept of enduring strong alignment with investors with both Rob and myself having significant investments in our funds. What excites me most about this merger is the very complementary nature of the 2 businesses and the significant benefits that our investors will enjoy. By bringing together the extended networks investment experience and client relationships into 1 merged group. Brendan O'Connor, Regal's CEO and the proposed CEO for the merged group will talk a little bit more about our business shortly, and we'll highlight the concept of a platform for future growth. At Regal, we've invested heavily in recent years in building a strong operational infrastructure, business support network and sales of the marketing team to provide the business with a strong foundation for growth and allow the investment team and me to focus completely on what we do best, which is managing our clients' capital. One of the obvious attractions of bringing together VGI and Regal is to provide Rob and his team with access to that platform, to leverage off the significant investments we've made in our operational, marketing and technology infrastructure and provide them with the best possible environment to focus completely on managing capital. In addition, while the VGI and Regal investment teams and strategies will operate separately, there are potential opportunities for the 2 teams to collaborate going forward. Regal has an investment team of over 30, including a number of industry sector specialists and very strong capabilities and a track record investing in Asian equity markets and private investments alongside a well-regarded trading and execution team. These are resources that will be made available to the VGI team, which has the potential to further enhance their existing capabilities. For shareholders of the merged group, of which I will become 1 soon too and so we will start at Regal. This is a transformational deal. It creates a business with over $5.6 billion of FUM, providing a diversified range of products and one that's growing and intends to continue to grow. It leverages the existing platform and client relationships of both groups and provides the opportunity for the merged group to continue to grow and to deliver exceptional client outcomes. We're obviously very excited about the transaction and are looking forward to meeting with shareholders and clients to talk in more detail soon. I'd now like to ask Brendan O'Connor to provide a more detailed view of the Regal business and outline the merged group.

Thanks very much, Phil. For those who aren't aware, Regal aims to be the leading provider of alternative investment strategies in Australia. On Slide 9, I'd highlight a number of key points that summarize who Regal is today. We're known as a multi-award-winning specialist alternative investment manager headquartered in Sydney and currently managing approximately $3.4 billion in capital on behalf of institutions, family offices, wealth groups, charities and private investors. Our heritage is being built upon fundamental long-short investing, and Phil and his team have pioneered the hedge fund and alternative industry in Australia since 2004. Today, we're a well-diversified range of alternative investment strategies across hedge funds, private market, real asset investment strategies with offices in Sydney and Singapore. With over 70 staff and 31 investment professionals with a well-established corporate platform, operational and IT infrastructure that has a proven sales and distribution capability that bring that together. Finally, we're also 100% owned by our founders and staff, all of whom are rolling their equity into VGI shares and entering into escrow arrangements. On Slide 10, a with further detail around Regal's portfolio of products. They span from global and Asian equity products, Australian equities, special security hedge funds, private markets, including pre-IPO and emerging companies and then real and natural asset strategies, including the award-winning products from Kilter Water and the Attunga Power and more recently, carbon capabilities. On Slide 11, we highlight that you may know us through our listed investment vehicle, RF1. The Regal Investment Fund, which listed in back in June 2019, seeks to provide investors with a selection of alternative investment strategy that together seek to provide attractive absolute returns with limited correlation to the market. We see it as being a collection of 6, currently, of Regal's best investment strategy, and we've been delighted with its investment performance since inception with an annualized return of over 30%. That return has been supplemented by extensive shareholder communication and engagement and capital management initiatives, including distributions and buybacks where necessary. On Slide 12, we really think there are 4 different phases to Regal's growth. The business was started in 2004 by Andrew and Phil King. And by 2015, we've grown with a range of strategies beyond just absolute return and market neutral when we launched the Australian Small Companies fund. The following year, we launched a very successful emerging company strategies and by 2019, we've launched RF1. As we roll on forward today, as mentioned, we've launched 2 specialist products in the last 6 months focused on health care and resources. And today, we're delighted to be announcing a merger with VGI. On Slide 13, I'd really highlight the platform that Phil referred to earlier. We really see that platform being built around our -- with our dedicated execution and market access, we have a dedicated trading and sophisticated in-house execution platform really provides extensive access to our broking relationships and broker networks, all for the benefit of our clients. On that point, I'll hand back to Rob, who will talk a little bit more about the merged entity.

All right. Thanks, Brendan. Now moving to Page 15. Here, we have the proposed Board and senior management team. You can see in terms of the Board, the independent Chairman will be Michael Cole and in services to allow Phil and myself to be completely focused on managing clients' money, and that is the best use of our time going forward. Turning to Page 16, and this slide covers the FUM of the combined group and gives you a sense of the diversification and scale of the combined group's funds under management. Now in the box on the far right-hand side, this shows you the breakdown of the $5.6 billion in terms of strategy and underlying funds under management. On the bottom box there, you can see that roughly 2/3 of the funds under management is unlisted funds that comes from ultra-high net worth investors and other wholesale investors and with roughly 1/3 from listed investment company and listed investment trust capital that will consist of RF1, VG1 and VGI. So moving to Slide 17, and this covers the proposed transaction time line. Look, I think the key points here is that we are going to look to have the VGI AGM on the 27th of May, we will hope to have the EGM and the AGM combined. If not, the EGM will be slightly after perhaps very late May or early June. Another point that I'd like to highlight for VGI shareholders is that there will be a pre-completion fully franked dividend of up to approximately $0.40 subject to VGI Board approval, and this will be paid to VGI shareholders prior to completion of the merger. Now turning to Page 18. The merger of VGI and Regal will have substantial benefits for VGI's listed investment company shareholders. One of the key points is that it's going to alleviate non-investment related activities, for key VGI investment staff and will allow us to focus entirely on portfolio management. Further, we are able to leverage Regal's substantial Asian market expertise and that will very much assist our investment capabilities of VGI. In addition, we will access Regal's proven ability to successfully manage listed investment companies as Regal has proven with its exceptional management of RF1. And a final point we should note here is that we'll be looking to update VG1 and VG8 investors in April with a run down on both portfolios. Now moving to Page 19 here. And just a quick summary. So as I mentioned in the beginning of the presentation, we're very excited about this combination between VGI and Regal. It is going to create a market-leading provider of alternative investment management strategies with a total of funds under management of $5.6 billion. It will give shareholders and our investors exposure to a growing and scalable and very well-diversified investment management group that provides strategies to institutional, high net worth and retail investors across Australia and internationally. Further, it provides VGI access to Regal's extensive investment capability in Australian and Asian equity markets, unlisted investments but also real assets. Finally, VGI gains access to Regal's institutional grade corporate platform and its extremely well-established marketing and distribution capabilities. Now I'd like to hand it over to Brendan O'Connor for some final comments.

Thanks very much, Rob. Listen, I'd like to reiterate what you and Phil King have already said. It's a very exciting transaction for us. It really provides a platform for growth as we look to expand into other alternative investment strategies. Thanks very much for your support, everyone. I now believe that Adam Philippe will moderate some Q&A. Further, I might pass to Adam.

Thanks, Brendan. We do have some questions that came through in advance of the webinar. Just a reminder, everyone, there is an question box if you wish to submit a question as we run through online. Quite a few come through that I might just paraphrase or combined, if you don't mind, just around the -- I guess, how the investment teams will work together? Will the offices remain the same? How -- still how we do and work together and collaborate, not sure if we can address all of those in one go.

Do you want to go first?

Yes, sure. Okay. So just in terms of how the investment -- VGI's investment offices will continue to work for. We will maintain our offices here in Sydney, and the VGI investment team will continue to operate from 39 Philip Street in Sydney. We'll also retain our offices in New York and Tokyo. We're hoping that those offices will grow in due course with the assistance of Regal and additional hires in due course. In terms of portfolio and portfolio capability, I'm going to continue to stay focused on the global portfolio. In terms of the Asian fund, still stay focused on the Asian fund. But Phil has some substantial capability in Asia office there for nearly a decade, has a great track record. So it obviously makes a lot of sense to leverage off Regal and their capabilities, Phil's portfolio management capabilities in Asia. I don't know, Phil, what would you like to add on that?

No, I think that's important. Rob. I think it's important just to reiterate that the 2 investment management teams will be maintained -- will maintain separate offices, and we'll be running their existing portfolios. Look, I found it helpful sitting down with you and discussing certain stocks that you like. And I think you found it helpful meeting some of my investment management team, and talking about some of their views on some of the stocks that you aren't. And I think, fortunately, I think we tend to agree more than we disagree on the stocks in the portfolio. I know that you've got a lot of interest in the [indiscernible], and that's a stock that my health care team really likes as well. And so I think that was a very fruitful discussion when we talked about that stock. So look, I'm excited about the opportunities to work together with you, Rob, and I think it's going to be really, really good for both businesses.

Okay. Adam, next question?

I guess following on from that, do you see much overlap between the businesses?

The great thing about the combination is the 2 businesses are highly complementary, and there is not a lot of overlap in strategies or clients. We'll be mainly a head fund business focused on Australia and Asian equities as well as global equities. But Regal has had meaningful exposure to real assets and private markets for over 5 years, and we've experienced strong growth in this part of our business that we think will continue over the next few years. So we're very excited about the combination.

Thanks, Phil. Okay, we've got another question here. Do you expect cost synergies out of this transaction? And if so, what are they? And what is the quantum? Brendan, if you can touch on that?

Thanks, Adam. That's a good question. Listen, today is really about bringing together 2 highly complementary businesses, as Rob and Phil have already mentioned. And in that regard, I think we've got an eye to looking to see the opportunities to collaborate around distribution, new products and including even investment ideas, better prosecuting the research there. So I think with increased scale, there's ultimately perhaps opportunity to look at efficiencies across the business, and -- but we're more excited about the growth opportunities that the merger presents.

Perfect. Would you spot here again, Brendan? But the next question, why did the merger -- sorry, the proposed merger ratio change?

Yes. Thanks, Adam. Well, the merger ratio with an estimate back at a term sheet stage in late January of 60/40 really it's an outcome of conservatory due diligence over the last 2 months in negotiation that we ended up at 67/33.

Moving on to the next one. What other deals were considered by VGI? Why didn't you just pursue distribution arrangements with certain other groups as speculated in the press?

Okay. Thanks, Adam. Well, look, there are -- what I'm prepared to say is as follows. There were a number of discussions that VGI had with a series of other groups. Some of those discussions involved multiple meetings. However, it was clear at the early stages of the discussions with Regal, that Regal was the preferred partner, particularly in terms of the relationship that I was able to form with Phil. Phil has a very similar mindset to myself. It's a founder-led organization. there's very strong alignment of interest. Phil is a former accountant, such as myself. So here he already had a favorable head start in that regard. And it just made a lot of common sense combining the 2 businesses. And I respect Phil immensely, and that was highly additive. And I just think it's going to be a very powerful combination over the long term.

Thanks, Rob. How will Regal better address the persistent discount to NTA experience across VGI's held listed investment company, LIC?

Thanks, Adam. Listen, I think the most effective way to address the discount to NTA in our experience is ultimately through performance. There's no doubt about that. And I think Rob and his team are outstanding investors. And part of this and part of what we can do is help create an environment to allow them to do what they do best, and that is actually deliver that investment performance. I think Regal's got deep expertise in marketing and distribution and operational and trading infrastructure, all of which can be brought to bear to assist. Listen, I also note that the Boards of VG1 and VG8 today have also announced a capital management strategy for each LIC. And yes, that will be important. But maybe let me finish by talking about our direct experience. In managing RF1, we have found that a combination of good performance, proactive and regular investor engagement and active capital management through distributions and buybacks where necessary all combined to ultimately increase the likelihood that the listed vehicle trades at or above NAV, and that's what we hope will ultimately be delivered in VG1 and VG8.

Great. Thank you, Brendan. Next question. Sorry, just a reminder for those who are on the webcast, there's an ask-a-question box, if you wish to submit a question as we go through. We'll try and get through as many as possible as alluded to at the start. If we don't get to you, we'll get back to you directly following the webinar. One for you, Rob. Why is this deal beneficial for investors in VGI's funds?

Thanks, Adam. Well, look, I think Brendan touched on a number of the benefits, but let me go into a little bit more detail. The combination allows me to no longer be involved in day-to-day management activities of VGI, and will free me up from Board responsibilities. And that's a huge positive for me, allows me to spend even more time on investment management and stock picking. And that, by definition, has to be a substantial benefit to our investors. In terms of benefits to our listed investment company investors, again, those points are reiterated. We get to completely focus our time and effort on our portfolios. We get to leverage the Asian market expertise of Regal, which is very substantive, and adds to our existing capabilities and having an office in Tokyo and Singapore, I think, is going to be highly accretive. But in addition to that, we leverage off the first-class capabilities that Regal has in infrastructure, particularly in terms of marketing and particularly in terms of servicing listed investment company shareholders, adds to the capability that VGI has. And as Brendan highlights, yes, it's about performance, but there are another -- various other factors that come into play. But hopefully, that covers off on it.

We've got some questions coming in a couple this morning and then some live just on the composition of the new -- the Board, sorry, of the new merged company. Brendan, I guess, given you joining the Board, any more color you can give on this?

Thanks very much, Adam. I'm excited to announce that Michael Cole, who will join the Board as independent Chairman. Many of you may be aware of Michael Cole, given his time as Chairman of Platinum Asset Management for over 10 years. Michael will be joined by Sarah Dulhunty as an independent non-Executive Director. Sarah has a very distinguished career as an equity capital markets lawyer at Ashurst for many, many years. And Michael and Sarah will be joined by another independent director who is currently on the Board of VGI, Jaye Gardner, and Jaye currently as Managing Director of Grant Samuel. So I think we're delighted to be able to have the skills that Michael, Sarah was there and Jaye bring. In addition, that we joined by Ian Gibson, an Executive Director, who is currently on the Board of Regal and also a director along with me along some of Regal's subsidiaries. And David Jones is currently on the Board of VGI in an Executive Director role. David will move to a nonexecutive role and join the merged entity Board. Finally, I'll also be on the Board, as you noted. So that will be a Board of 6 people led by Michael Cole, as I said, as independent Chairman.

Thank you for that, Brendan. Great. Next question here. There's been much commentary of late around the performance of Australia's listed fund managers, is Regal prepared for the challenges of being a listed entity and what are the upside? This one's for you, Phil.

It's something I've been thinking about for over 10 years -- so I certainly think we're ready. I've been very reluctant to list the business until we have the right team in place and until we were diversified enough to reduce the reliance solely on me. I very must thing we're in that place at the moment and the opportunity to merge with VGI further enhances our team and offers further diversification. I think having listed equity is a great opportunity to incentivize, retain and attract staff. So I'm very excited about the opportunities it provides to us and I think it will very much mean that Regal will continue on the growth path.

Thanks for that, Phil. I guess noting that there was some information on Regal's existing funds in the slides earlier, the questions come through, what are the plans for the future growth and new products post the merger?

Thanks, Adam. As noted earlier, Regal has made a number of acquisitions over the past 4 years, and we've sought to diversify the business and to fulfill that ambition to be the leading provider of alternative investment strategies. I'm happy to share with you that we have a number of new strategies in the pipeline. And while I can't comment on anything specific today, I believe the alternative investment strategies we are looking at would be very complementary to the merged group.

Thanks for that, Brendan. Look, I can see we've got some additional questions here coming through online, but we might have to wrap up the presentation there just given the time. Again, for those who didn't have your questions answered directly today, we'll be in touch if you submitted your contact details with any online questions or if you came through prior to this webinar. If you do have any other queries, obviously, in questions at any time, please contact Investor Relations or your relationship manager in the distribution team. I'd like to now turn back to Rob for some brief final remarks.

All right. Thanks, Adam. Well, thank you, everybody, for joining us this afternoon. We're very excited to have announced this merger with Regal Funds Management. We think it creates a very substantial combined platform, which will underpin substantial growth for shareholders in the years ahead, but also deliver a highly competitive risk-adjusted returns to our investors. Thank you very much, and good afternoon.

That does conclude our conference for today. Thank you for participating. You may now disconnect.