WAM Global Limited (WGB) Earnings Call Transcript & Summary

So today, it looks like Trump's out of the White House. I'd love to start with what does that mean for the market?

Assuming Biden wins, which seems a foregone conclusion now, even though there will be some legal wranglings, eventually, sanity will prevail. And so we'll have a Democrat in the White House. And historically, democrats have been good for equity markets, which is a little bit counterintuitive, you'd think, but they're big spending. So to me, it's probably interesting where the Senate -- the Democrats won't get control of the Senate. So that probably puts a nice check and balance. It could inhibit a lot of what Biden wants to do. So the big spending part of it, Democrats might be controlled to a degree. So I see it as positive and to have someone else running the free world or being -- then I actually think it's significantly positive for society.

And here in Australia, obviously, interest rates are at record lows. Do you think rates will be lower for longer? What does that mean for equities here domestically?

I mean it looks like it. And the comments from the Reserve Bank the other day about the quantitative easing strategies and dropping interest rates to 0.1% really means that real assets will be highly sought after. And just globally, the sort of flooding of liquidity into the system has to be positive for real assets and obviously equities -- beneficial for equities.

So Geoff, just thinking about Wilson Asset Management over the last 2 decades, what's -- it's obviously grown a lot. What's changed in that time?

In terms of investing, we've -- what's been important to us all the way through is having that interaction with management, so we can really understand how a company makes money. And then we value a company. And then we find a catalyst that we believe will change the value of that company for the positive. Now -- so effectively, we're looking for undervalued growth companies with a catalyst. And that gets modified in terms of what lens we're using. Now we started off focusing on really areas that when I started in the fund management industry in 1980 we were focused on, and that was small and mid-cap industrial companies. And as time has gone on, we've been able to add to that level of expertise. And we've got Oscar, who's the lead portfolio manager on that area with his team; then Matt who really had an expertise in looking at larger companies and really a fantastic ability to look at macro trends. I was very interested in setting up a large cap company, which is WAM Leaders. So we went from WAM Capital in the various entities to WAM Leaders. And that was highly positive for the business because we had people -- now there's 3 people there focusing purely on the larger companies and getting access to high-quality information that everyone in the organization could use. And then Catriona, who had worked with us earlier in the early days, then should come back from overseas, wanted to set up a global fund and joined us. And now we've got WAM Global, which again is another level of information we get, which as you know, Kate, other people want. We all sit in an open plan office. It has been a challenge with COVID, but everyone has coped with it exceptionally well in terms of how we can communicate. So it's really sharing that information. And then more recently, we've had the opportunity to take over BAF and is now the WAM Alternative Asset Fund, and Dania, just a high-quality individual in that alternative asset space has joined us. And again, that gives the whole organization really access to another higher level quality of information. So in our game, it's the highest quality of information tends to win. So what we've been able to do is, in a logical manner, add these areas of expertise, which actually feeds on the whole organization. Some people say, look, you're doing a lot. It's all very logically planned out, and actually, it benefits everyone. Also, personally, as an investor, it's allowed me -- I virtually had no money in offshore assets. So it allowed me to put money in WAM Global. And people will see I've been buying them more recently because they're trading at a discount to NTA, which is a great opportunity. And then with WAM Alternative Assets, it's another way of getting exposure to another asset class, which doesn't work like equity. So it gives you a nice level of diversification. And now I've been buying them because they're trading at a discount. So to me, it really is -- I think we've got a really good group of individuals, and the areas that -- how we work is very much -- feeds -- each of them feed on each other in terms of providing high-quality information and adding value to each other.

So WAM Alternative Assets is the newest addition to the LIC stable. The business has grown a lot. We often get questions from investors around that growth. We're obviously always adding new members of the team. Can you just talk to me a little bit about that, Geoff?

Yes. And I think over the last 12 months, we added 15%. We've increased the team by about 15% in terms of personnel. I sort of -- I feel flattered that when I talk to people, they say, "Oh, Geoff, you're doing so much." I'm the old guy. I did very little. It's -- everyone else in the organization is doing a lot. And we've got enormous depth. So the area I tend to focus on is -- would be more activist. So maybe that's why they think that I'm doing a lot. And if you think I've done a lot -- been doing a lot over the last 10 months, what was I doing last year? Virtually, nothing. So yes, to me, I do that, and I tend to look at listed investment companies and the one who's trading at discount and trying to work out whether there's any opportunities for us there.

So just on listed investment companies, you've spoken before about the golden decade of listed investment companies have been around for over 100 years. We're now in what you've described as a consolidation phase. What do you mean by that?

With most industries, you'll go through a strong growth phase. And then after that, you'll be -- you'll go through a consolidation period or a consolidation phase. And that's where the strong gets stronger and the weak either get absorbed by the strong players or fall by the wayside. And it's just how industries tend to develop over time. And now with listed investment companies, there was another period back in '03, '04, which was a strong growth period for them. I think there were 20-plus new IPOs in nearly -- in a 9-month period, really a short period of time. And then 3 or 4 years later, they went through a consolidation phase where some were taken over, we took one over, or some decided that the structure wasn't right for them. I think what a lot of people -- they think we want to have a listed investment company. To me, I think listed investment companies are the holy grail of investing because you get an opportunity to buy $1 of assets for potentially $0.80. Now to me, it's nearly unbelievable that, that could be the case. And the reverse is with most of ours, you're buying -- you're paying more than $1. They're trading at premium to NTAs. The 2 -- our entities that are trading at discounts is WAM Global and WAM Alternative Assets. And we're pretty convinced that over time, they will go to NTA, if not a premium. But there is a great opportunity. And what happens is when people list the listed investment company, they don't realize that when you list, they think, well, that's -- they've got to the grand final. That's just the start of preseason, and there's a lot of work you need to do once you're listed. And so people think of a great structure. And the fund manager, I'm going to list -- I'm going to get a pool of capital that he believes is permanent, which is not. Now [ pieces ] to shareholders' capital, so it can be taken away at any point in time. And they have to perform. And we've made 2 takeover bids recently for listed investment companies that we had bought $1 of assets at $0.80. And then something that happened that we believe wasn't in shareholders' interest, and we've taken that opportunity to make takeover bids for them. So you'll see the number of listed investment companies, I think, shrink. And what I've noticed over the last little period, that even though go back a year or 2 -- a year or so ago, the discounts were quite large, the discounts are narrowing because they are great investment vehicles. And over time, they perform. And if not, they probably perform -- a lot of the studies show how a closed-end pool of capital performed better. A listed investment company performs better than other types of funds.

And just on a listed investment company, what are the -- what do you need for a listed investment company to be successful?

Yes. Well, the first thing is performance. The second thing is the great thing about the structure is the listed investment company has the ability to pay dividends to shareholders over time. So you can deliver a growing stream of fully franked dividends. And I'm sure yourself, like myself, I think everyone at Wilson Asset Management, we're very incredibly pleased that in this period where companies are cutting their dividends, we've been able to increase our dividends on nearly -- well, I think WAM Capital, we maintained it at a very high level, but most of our other listed investment companies, we've been able to increase and give people dividend guidance of -- that we think we'll be able to continue increasing. So the second thing is being able to give shareholders a growing stream of fully franked dividends. The third thing is treat shareholders with respect, and that's -- when you're raising money, do it so it's in all shareholders' interest. And one of the companies we bid for recently had a capital raising at a big discount, which was incredibly unfair for all shareholders. So that was the catalyst for us to bid for that company. And the fourth thing is to really have a good shareholder engagement, communication and marketing strategy. So to me, they are the 4 things. And a lot of people, they miss on the last -- on the third and the fourth one.

So Geoff, you talked about with listed investment companies that they can trade at premiums, they can trade at discounts. Can you give me some examples of where perhaps one of our LICs has moved through that cycle?

Well, I suppose the first one we floated, which was WAM Capital, that -- yes, in the first 2 years, we did an IPO, raised the money in the dollar. The first 2 years, we paid significant fully franked dividends. I think it was $0.12 the first year fully franked and $0.14 the second year fully franked and performed very well. We were still trading at a discount to NTA. And what you tend to find, it takes a period of time for the share registers to tighten up. Once you listed on the stock market for some reason, people that have bought in the IPO, they change their mind or they decide to sell. And it takes a little while to effectively get to try but -- and the people that realize they want to invest in what you're doing. And it really took 2.5 years for WAM Capital. In the first period, we're trading at a 20% discount. So over time, this year, we just tightened up. And probably 2.5 to 3 years out, we went to NTA and then went to a premium, went to a 20-odd percent premium. I know now we're trading at a higher premium on that. So the share register is probably a bit tight from that perspective. And probably more recently, WAM Leaders, which was our second most recent IPO, that took a little period of time for the good performance from the guys, the increasing dividends. And then you tend to find the share register tightening. So a year ago, it was trading at a 10% discount. Now it's trading at a premium. And you'd assume the premium will slowly increase as they continue to perform. And I suppose the more recent one, our more recent IPO, which is WAM Global, that's just going through the exact same process. We've started the dividend. Actually, just at our recent Board meeting, we were -- at WAM Global, we're just talking about how pleased we are in terms of that big profit reserve we've got there. So we've got to look at whether we give shareholders guidance and the plan on growing that dividend over time. So you'll find WAM Global is trading at a discount now. I would assume that will -- in the next period of time, that will go to NTA, if not a premium. And the more recent member of our family, which is WAM Alternative Assets, that is -- we took that over. When everyone knew that we were coming in as the manager that was trading at about a 30% discount to its assets, it's trading at around a 10% discount now. I'd assume as we get our feet under the table and people realize how good Dania is, who's our portfolio manager who will be responsible for that, that will get to NTA, if not a premium. So it is a process, and you've got to be aware of it. And as you know -- you've been with me for 15 years. We've done it before. We know how to do it, and that's what we'll be able to deliver. The problem is a number of other people that decide that float listed investment companies aren't prepared to really commit significant resources in terms of that shareholder engagement communication team. We put a couple of million dollars plus a year into that. So -- and that is a cost to us as the manager but a benefit to shareholders that they can get a true reflection of the value of their assets.

It's interesting. I'm just reading a book at the moment about building good habits and about doing all the small things over a long period of time. And I was thinking a lot about our business and how over the last 2 decades, we've continually treated shareholders with respect. We've always loved engaging with them. And it's all those little things. It's making sure that the number of times I talk to shareholders that say, "I called the office and Geoff didn't call me back or I spoke to you, Kate, at one of the roadshows. If you remember, I've got a question," and to be able to give them our time and to be able to give them the opportunity to ask questions, provide feedback, take that feedback on board. And as you said earlier, the corporate affairs team, we're continually adding people to that team. They're very high-quality professionals who take great pride in how we communicate with our investors, whether it's the stock stories and views on the market or writing submissions to government. There's so many different ways that we think that we can engage with our investors. So it's just so important, isn't it?

100%, yes. And then to me, it's -- effectively, it's so fundamental and so logical where so many boards, they think they're on a different plane to shareholders, where we understand, hey, we're shareholders like them. And by -- they're investing in the market like we are. And the difference is we spend every hour of every day thinking about it, and they might spend that amount of time. And I'm sure a lot of our shareholders, if they spend every hour of every day looking at investing, that'd be probably better than us.

Just on -- you mentioned WAM Alternative Assets. There's about 3,000 new shareholders to the wealth and asset management family. What would you like to say to them?

Well, first of all, welcome. What I find and I think you mentioned you find is when you engage with new shareholders, they -- I remember a story when soon after the GFC, when we made a takeover bid for Premium, another listed investment company, we're just finding things tough at that time. I was reading the top 20 shareholders. And I remember bringing one of the shareholders and saying, "Look, it's Geoff Wilson." I'm Chairman of WAM Capital, who's made a takeover bid. And he was very -- incredibly skeptical of why was I bringing him, am I trying to persuade him. And I said, "Look, you're a choice. You can either accept cash and leave or you can become a WAM Capital shareholder. It's totally your choice." And he was highly suspicious. And I said to him, I said, "Look, when is the Chairman of another company run you?" And he said never. I said, "Wow, so you've got to give me some points for that." And with all the new shareholders, the 3,000 is -- it will be a journey with us and them. First of all, we've got to perform. We need to be able to make money so we can provide a stream of dividends. Obviously, we need to treat them fairly and with respect, and we need to engage with them. And that will -- really, we hope that they give us an opportunity because we believe that over time, that we'll be able to really deliver some good returns for them.

In terms of growth opportunities in the business, obviously, alternatives is a big growth opportunity. Where else do you see the business growing?

To me, the great thing about the market and any business is, well, you need to be growing. Otherwise, if you're not, you're going backwards. That's what everyone tells you. The -- in terms of opportunities, it is dynamic. And we are opportunistic by nature. And flexibility. What I've always learned in investing, flexibility is one of the most important things. So we think the WAM Leaders area, the guys, Matt and his team there have done an exceptional job. Now we believe that can continue to grow. As Catriona continues to perform with WAM Global, that's an area that can grow. Alternative Assets, that's an area that can grow. And if we can get really good high-quality individuals that can add value to the whole organization, then as you know, Kate, we're always looking -- we're always looking for those. And if we can provide an opportunity for them because -- I mean when I'm doing interviews with people, I'm more interested in what they want to achieve and trying to work out what their drivers are and -- because to me, the beautiful thing or the phenomenal opportunity we have is we can create whatever we want. Effectively, we can paint whatever picture we want. So to me, it really is -- we have a phenomenal opportunity to change.

All right. Geoff, well it's been great chatting to you this afternoon. And looking forward to the next few decades at Wilson Asset Management and seeing how we continue to grow and evolve during that time. So thank you.

Look, thank you, Kate. And before we leave, I'd like to ask you a question now. I know we've been -- it's been a conversation. So you've been with Wilson Asset Management for 15 years. You're CEO. You've done -- as you've been CEO, the organization has just grown and prospered. Tell me, what is the secret?

Look, it's the people. We're all on the same path we're all wanting to make a difference. We have got -- I always say we've got the best shareholders. We've talked about a number of stories this morning. As you said, it's painting that picture of giving people opportunities to perhaps do a new product or list a new company. It's really exciting and I think just fostering a really healthy culture of teamwork, staying focused on our shareholders and treating them fairly, standing up for them where we can, continuously looking at better ways to communicate and engage with them. I think they're all the parts that make it a great company, and it's exciting. I think the next few decades will continue to be a exciting time for us.

We're quite positive in terms of the outlook, and we think that you can lose that in terms of all the noise that we have had over the last year.

We are continuing to find lots of great ideas.

Where we're finding more incremental ideas is actually out of Europe. What we find interesting though is that the penetration levels of e-commerce vary vastly between different geographies.

We're currently seeing a generational shift in how payments occur with the shift from cash and check towards digital and API-driven payment processes.

When we caught up, it was a really crazy time. And it's been a busy year. There's been a lot of headlines dominating the news flow around the pandemic, U.S. election, stimulus in the market. And just even more recently, news on a potential vaccine. It's a lot of noise for people to get consumed in. I was wondering if you'd give me your take on what people have been overlooking or what are people missing.

The case for optimism as we look forward. There has been an enormous amount of noise. There has been some doom and gloom associated with the pandemic, a lot of people have had a tough year. But as we look forward, we're very optimistic we can. We know a lot more about COVID. The U.S. election is now passed, and the outcome, the setup looks quite positive for equities. And in terms of stimulus, we've got governments that's very supportive, central banks that are incredibly supportive. And so we're positive. We're quite positive in terms of the outlook. And we think that you can lose that in terms of all the noise that we have had over the last year.

If you shift that to the portfolio, how do you move things around to capture some of that optimistic view that you've got?

Initially, we focused on liquidity and bought a number of the larger-cap names that had really been sold off. As we've gone through the reopening of economies and a lot of the share prices of some of those larger-cap stocks have done exceptionally well, we have been agile and we have taken advantages of disconnects in valuation and have found a lot more opportunities in the small and mid-cap end of the market. From a geographic perspective, we had a very heavy weighting in the U.S., and we still love a lot of the businesses that we own in the U.S. But where we're finding more incremental ideas is actually out of Europe. And we find that a lot of the valuations there aren't as extreme as the U.S., but we can still find businesses that are really, that are growing fantastically, that have very high-quality management teams and are potentially earlier on in terms of some of those structural trends that are occurring through the rest of the world.

Yes. And I think in a year like this, it's brought home the importance of the ability to have that flexible view on the world and to be able to step back and to look where the opportunities exist, whether it's small to mid caps, whether it's in Europe, but it's continuing to stick to that process, great businesses, but we're just looking for those great businesses at very attractive prices.

So when we caught up in May, you talked about a couple of themes that you were looking to put into the portfolio, e-commerce, digital payments, which we know have been strong. You also introduced the concept of thrifty stores, which is an interesting one for the time. Are they still in the portfolio? And how they played out?

In times of uncertainty, people tend to tighten their belts. And so we had that thematic that we liked. And we played that thematic through a number of names around the world. For example, in the U.S., we own the largest dollar stores operator Dollar General; in Japan, a discount retailer called Kobe Bussan; and in Europe, a discount store operator called B&M Value Retail. And what we've seen is that the consumer has tightened their belt. We had a lot of those stores remained open. And so they were massive beneficiaries of other places where you could shop not being open. We have reduced some of the positions in those stocks just because they've done well. But we do think there is still uncertainty in the world. We are more optimistic on the outlook, but we still like the thematic. And what we liked about those individual businesses was that they had store rollouts themselves. They had really high-quality management teams, and their valuations were really compelling, so still like them.

We very much believe in digital payments having longevity to the theme. We're currently seeing a generational shift in how payments occur with the shift from cash and check towards digital and API-driven payment processes. It's been 10-plus years of a shift to digital payments, but cash remains an $18 trillion opportunity globally. And even over that time frame, the amount of cash transactions has actually grown. So a lot of reasons on our behalf to think that the digital payments thematic has a lot of runway left to go. Now we play that space and we play it through names like Fiserv and FIS, amongst others within the portfolio.

With these structural themes, it seems like everyone is on the trade. So it can continue, I believe that, but where's the value?

Most companies in the space, if they trade on a P/E at all, it's north of 100x, which are, it's not where we like to hunt traditionally. So what we've done is we've found companies that trade on 20x, 22x P/E.

And then on e-commerce, do you see the tailwinds continue to support that opportunity?

Yes. We think we've seen an acceleration in a trend that was already there. Companies playing in the home and furnishing area in Germany, home24 and Westwing are 2 names listed in Germany, trading on fractions of the peers globally and yet with an enormous runway ahead. The German market, for example, in home and furnishing, is at that 8% to 10%. Penetration level was 6% or 7% pre-COVID, and yet U.K. and U.S. well north of 20%. So those companies trade, Wayfair is the peer in the U.S., has a market cap of $24 billion. These are at the EUR 400 million, EUR 500 million market cap level and yet growing at the same level, net cash balance sheet, management teams well incentivized, well aligned and margins that are actually already better than their U.S. peer.

And so outside of those 3 thematics, what are some of the other ideas that are in the portfolio?

One would be the cloud. It's well discussed and well known, but through COVID, we've all been forced to migrate, whether it's us having with our travel. We do, at the moment, we're doing all our international company meetings via Zoom and Teams, et cetera. And yet, we're very early days in terms of transitioning on to the cloud. If you look across the world, 50% of dollars are still spent on premise. And so we think there's a significant longevity in that transition. And there has been some pull forward. So you had the Microsoft CEO talking earlier in COVID about 2 years' demand being pulled forward into 2 months. But that weight of dollars is still significant in terms of on-prem versus off. So we're excited about that opportunity there still.

And Nick, is there anything else that you've been doing some work on?

Health care as a trend has a lot of longevity to it. Demographics are also a significant tailwind here, where in the U.S., at least by 2030, the old will outnumber the young. And so 1 in 5 individuals will be over 65. And it's a truism in health care that you spend more as you age. So there's a couple of strong tailwinds behind the health care thematic. We play health care through a number of names in the fund, but in particular, Avantor and Thermo Fisher are great support companies to those companies doing the pharmaceutical research and development. They're not exposed to FDA approvals. They won't be a disappointment if a drug doesn't pass a Phase III trial, but they're set to benefit from these really strong long-term tailwinds that are in health care.

Where are you seeing some compelling value? Talk me through a story that you're really passionate about.

Yes, absolutely. So one I'd love to talk through is Avantor, who are kind of a life sciences and tools company. Now they've done very well. So they're in the mid-cap category at this point, but certainly not in the large cap like some of their peers in that space. And what they do is they both produce and distribute consumables and equipment to the pharmaceutical, the industrial and the government and academic end markets. And what we really like a lot about the stock, there are 3 things in particular that we think makes it a great name to hold right now. And the first is that 50% of the company is driven by biopharma as an end market. And biopharma is doing phenomenally well right now. The funding levels are at record highs and they're kind of future-proof for the next few years and the innovations that are being achieved in that space in oncology and orphan drugs and even with the vaccines. But for COVID, they're actually a big player there as well.

How have you changed the way that the overall portfolio looks from a geographic and a market cap position?

In places like Europe, for example, we can find a number of names that we think are really interesting. And then in particular, down the market cap, we think we're seeing lots of interesting companies in the small, mid-cap end of the market. If you look at the valuations versus historic norms, they're about average where they have traded over time, whereas in that large-cap growth end of the market, they're well above historic norms. So yes, we're finding lots of interesting, exciting opportunities there.

How are the 2 of you thinking about opportunities that come from a reopening of economies?

We found a number of businesses that we think are really interesting from an opening up perspective. So for example, in Germany, again, we own an outdoor media business called Ströer, which does digital billboards. They have 60% market share in outdoor billboards across Germany. They have a really high-quality management team that's highly aligned. So the 2 founders own 40% of the stock, and one of them is still the current CEO. They did some deals years ago that we think have created some very interesting assets that will, over time, where value will be realized over time. So yes, that's an example of a stock, which the revenues and the earnings have been hit through COVID as advertising was stopped, but it's a business with a fantastic industry position. It will survive and has a management team highly aligned to you. So we think it's very well placed as we reopen. Yes, so that's an example of a stock we have looked at. I mean, earlier on, as we came out of the pandemic, we thought domestic travel relative to international travel was going to rebound more quickly. So we looked at names, for example, in say, in France, we owned a position in the largest caravan RV player in Europe called Trigano. So we thought that was an interesting, interesting company because they were a leading player in the European market. Clearly, people still are itching to travel, but they can't go far. And it's at net cash balance sheet, and we rate the management team there and again, a founding family with a lot of stock. So yes, we played that earlier on. And then now we think we're more into those deeper hit line-of-fire stocks that are probably going to have the most potential to re-rate here. But for us, that's a portion of the portfolio. But at the same time, we have a lot of these longer-dated thematic stocks that we think can benefit looking out 5, 10 years.

Final question for shareholders. We ask you for a bit of a message for them at the end of our May Vault Update. Have you got a message for shareholders at the moment?

Obviously been a really hard year, but I think what can get mixed with all the media announcements, and there can be a lot of doom and gloom presented around the risks and the downsides of coronavirus. But I think if we take a step back, we're relatively optimistic about the coming period. We're not struggling to find new ideas and find companies that we want to invest in. So yes, we value their support, very grateful for it and are relatively optimistic about the period ahead.

That base case everyone's factoring now will be wrong. The low rate environment forever, that will be proven to be wrong, and that will cause big shocks through the stock market.

We're looking more at the growth commodity, so oil. We're looking at nickel. We remain positive on copper. A lot of the beneficiaries over the last 12 months, how do they cycle, how do they comp those numbers over the next 12 or 24 months?

I think the QE is a mistake though. It's at the end of the lockdown period. Our economy was reopening. You've got a vaccine coming now. So I think the QE will distort some of the market prices in Australia.

Value could become the next growth as the cyclical recovery starts to take shape.

Tech sector looks overvalued. I mean, that's a standout still. Prices could fall 30%, 40%. And I wouldn't be surprised if we go into this next phase.

Things don't happen that quickly. And by human nature, we'd like to go back to what we know. So as soon as borders open up and as soon as people are able to dine out and travel again, you will see that nuanced.

Guys, it's a really interesting time to be having a chat. There's been a huge amount of stimulus in the market. We've also had some news that's caused a reaction around the prospect of a vaccine. Matt, when we were talking just before we got started today, you talked about common sense starting to return to the market. What does that mean? What is that common sense that's coming in?

Well, James, I really think it's around the unprecedented response to monetary supply, sending rates down to zero, negative, you had all the long-duration assets just beat up, pulling forward expected returns to today and the valuations were getting out of control. What you're seeing now is some hope of some normality coming back into the market. So you're getting some rates moving up. A vaccine may cause monetary policy to be eased in the future. And all those expected returns will be diminished over time because it's very sensitive at the moment because the rates are so low and you've got probably the sweet spot at the moment. While economies are shut down, any change to those dynamics causes a massive impact.

Yes. What have been some of the impacts of all of this money that's flowing through the system and particularly in the market where you guys are investing? Like where is it going? Where is this flow of money headed?

Yes. I guess it's really around those long-duration assets, infrastructure, anything with interest rate sensitivity. But as we know, monetary policy doesn't really fix the economy, just boost the asset prices. So we're seeing that at the moment. Anything to do with duration or interest rate sensitivity, they've gone up a lot. But it really hasn't helped the economy as we found over time, monetary policy doesn't help the economy, fiscal policy does.

The other thing to note is that over the last 6 months, markets have been very dislocated. We've had a lot of volatility. So that's created a lot of opportunity. So what we've seen is that for a period of 3 to 6 years, there was a one directional market where people just buy long-duration tech just to kind of generate earnings and returns. Today, we have more opportunities in the market. There's more dislocation. So from that standpoint, from a day-to-day basis, we're more excited because there's more opportunities to make money for our shareholders.

So we're going to definitely dig into some of the opportunities in a second. But just while we're on the bigger-picture story, the RBA has lowered rates again quite recently and announced our own QE program. What's your take on that decision and the impact that it has, particularly in the large-cap space?

Yes. I think the RBA move initially was very good. They were very quick to respond to the pandemic, lowering rates. The funding for the banks was great. I think the QE is a mistake though. It's at the end of the lockdown period. Our economy was reopening. You've got a vaccine coming now. So I think the QE will distort some of the market prices in Australia. It's very good for property and the like, but I really think it's bordering on a policy error. They've gone too late. They should have gone much earlier. And holding down yield curve control hurts financial companies. But it's quite interesting that the market interpreted the QE announcement from the RBA probably in the way the RBA didn't want things to happen. The dollar shot up. The long end of the yield curve shot up because I think the market is looking at this response as being too late. And now it's actually going against what the RBA were trying to deliver, which was lowering the Aussie dollar. So policy is too late. It should have been earlier. And I think it could cause some areas of concern around some of the valuations in Australia as well.

The thing to remember is Australia is ahead of the rest of the world from a recovery phase. We're almost already out of the corona phase. And with the vaccine coming to the rest of the world, we've been able to manage and mitigate a lot of the risks a lot earlier. As Matt said, the RBA and policymakers in Australia were ahead of the curve early on with JobKeeper and JobSeeker and stimulus and whatever else was required, but they're doubling down at the wrong time. And so by doubling down at the wrong time, probably backs us up a little bit compared to the rest of the world.

Yes. Interesting. Maybe we could just have a quick chat about a recap from the conversation we had from May. You guys were being very active in the market, trading opportunities, and you sort of talked about sort of being chained to your desks. Some of the themes at the time were really, you were bullish on banks. You talked about having held some gold. You saw an opportunity in oil. I was wondering if you could maybe give me a recap on some of the views and how the portfolio has evolved and what's worked for you over the past 6 months.

The biggest thing we focused on was the sequencing of the recovery. So from a portfolio construction standpoint, we try to position ourselves from a sequencing standpoint, who's going to come out first, second, third, and then we constructed the portfolio with that backdrop. So if you consider, as Matt would have said in May, we were very positive around China being the first ones out of the coronavirus and the recovery phase. So we're very heavily positioned to resources at that time. Following that, we decided to tilt the portfolio to banks as a lot more of the domestic cyclicals because we thought Australia would be the next country to come out of it. So you kind of, from a flow perspective, we just started to, our money would flow from China to Australia to other markets where we thought the recovery will be taking shape.

You didn't mention the technology sector, which has been a huge beneficiary. I know you've alluded to some lofty valuations. How have you managed not having exposure to technology and why haven't you had that exposure?

I really think it's valuation for us. We just struggle trying to comprehend the market caps of these companies. Obviously, the conditions are ripe for them to go up. How we manage is by picking companies, which John alluded to, we look at the phases of this recovery. And we were quite early on the recovery phase domestically and companies like Star Group, SCG and a few of those, they're at depressed levels like trade below NTAs. And people were thinking balance sheets were a risk. And we never thought that was the case because of the controls within Australia. So I mean, that's how we've kept up by picking these really depressed companies that are actually generating good cash flow and have good asset backing. So I think the real important thing now is we're entering a different phase of the market. We were in the recovery phase now. Now with a potential vaccine, we are going to have to look forward to how this economic output gap closes, and that will benefit real companies. So we're looking towards those.

So maybe can we dig into some more specifics? I'd love to hear about what's in the portfolio. Now you talked about sequencing the phase of the recovery. So that's a bit of a retrospective. Talk me through what's in now and how you're thinking about playing the next phase of this recovery?

Well, really, the next phase is moving, like I touched on, closing the output gap in the economies. We've got potential GDP sitting way higher, and you've got this huge output gap. So we really need to close that output gap. And that closing of the output gap is consumer spending and also economic activity. So as that returns, you've got to be leveraged to those companies. And for us, that's where we really do well in that environment because we're looking at these companies making good cash flow. And balance sheets will be rewarded finally that were punished before. The good balance sheets will be rewarded in this environment. And you got to be positioned for anything linked to economic activity or recovery. So in the area for us at the moment, things that stand out is in insurance sector. Again, that's very much out of favor at the moment, but that is a sector that will benefit from rising yields, but also the premium cycle is incredibly hard at the moment and has been ignored. And anything paying a dividend as well, dividend payers have been punished in this environment, which is quite bizarre. They will be the next beneficiaries as well. So you've got to find companies with good dividends because they will be the next beneficiaries.

So the insurance names are IAG and QBE, but other aspects that we like to focus on is the companies exposed to government spend. So stocks like Lendlease and Downer should continue to do well over the next 12 to 24 months. Elsewhere, what corona and COVID has provided is an opportunity for companies to refocus on their cost base, reposition and restructure. So as what we're going to see when we come out the other side is more profitability in corporate Australia. So if you take Qantas, for example, what they were able to achieve during corona, they wouldn't have been able to achieve previously. So they were able to readdress their cost base. And as you come out the other side, their domestic earnings will probably be greater than their peak earnings for the group in totality from 2018. So we're very positive around corporate Australia that have been able to restructure their cost base and refocus on growth in the future.

You've mentioned a few stocks there. I'd love it if one of you, I don't mind who, could just take me a little bit deeper inside a really core position, something where you've got a lot of conviction about how you want to play. You think it's a good example of some of those things that you've talked about. And maybe just take me a little bit deeper inside the thesis.

Well, one I can touch on is IAG, the insurance company. So IAG, there is great debate around the exposure with business insurance. So again, what we like to do is find companies where the market has got an opinion and then we try to find the opposite and work through that. So we've worked through it quite often with different analysts, also lawyers and talking about business insurance. And we think the market's impact or the perceived impact will be a lot less than what they perceive. So we think IAG's exposure will be much, much less. And the market is sort of factoring in over $1 billion, $1.5 billion, which we think is very wrong. So IAG is a specific example of a company. During the pandemic, there was all this liability, which could be a lot of people are thinking unlimited, but we think it's very much contained. So that is a company that has been caught up in the hype around the pandemic. So that is a very specific case. But also you've got the potential of interest rates rising, which is a small portion of their earnings, but the real key is the premium cycle is incredibly hard. So you've got tailwinds coming out of this. And once BI is released, we think there'll be an incredible upside for this company.

Yes. Materials has been a sector that's held up pretty well. There's been some strength in commodity prices. John, you mentioned China came out early. It's been supportive for that part of the market. How have you guys played the material sector? Is it a core part of the portfolio now?

It remains in overweight, a key sector. So for the last 2, 3 years bulks, so BHP, Fortescue, Rio have been the main driver of our material overweight. And they've been massive beneficiaries from China's stimulus, supply shocks from Brazil. But as we sit here today, a lot of that has taken shape and taken place. So we're looking more at the growth commodities, so oil. We're looking at nickel. We remain positive on copper. So we're starting to rotate away slightly from the bulks and starting to look more towards the base metals, and so the oil stocks. As we think as recovery takes shape, they should be well positioned looking forward.

And is there a core or a lead position that sort of explains that rotation or that you can use as a case for that rotation?

I mean, the most obvious one for us has been Oz Minerals. So again, there was some company-specific things, which was the company was upgrading its production. And the CapEx was very much on target for their expansion, which was under question for a period. But it's really around the coronavirus knocking out a lot of the copper output in South America. So that was a beneficiary that we played, and we've been riding into this recovery phase. So for us, copper, like John said, very much activity-led commodity. And we think in the next phase, we will be positioned to do well.

We've talked a lot about sort of the core parts of the portfolio. I know you guys have a tactical way of thinking about the market as well. How is that balance between core and the tactical trading opportunities sitting at the moment? And where are some of the opportunities that you guys are thinking about from that shorter-term trading perspective?

The market provided a lot of opportunities recently. And as Matt pointed out, and you mentioned earlier that we were glued to our desk for a long period of time during the last 6 months. And people react in certain ways with information. And our job is to process the information and work out if it's an overreaction, long or short. So if people have gone a bit too aggressive on the stock and we own it, we've got to capitalize on those opportunities one way or another. And where we sit today, it's just a function of opportunities in the market. So we've been presented with a lot more structural core positions within the portfolio over the recent past. But as we look forward, we're probably going to have to start to look towards some of the shorter-term trading opportunities as they present themselves.

Yes. There's been all these big headline events in the papers. The U.S. election has been dominating coronavirus, vaccine, government stimulus. What do you think has been missed while we've all been looking at these headlines? What has the market missed?

Well, I think what happens during a shock or event is people get used to the current situation and extrapolate it for a long period of time. So we're actually in emergency settings globally on monetary policy and fiscal and the rate environment is incredibly low. And everyone is extrapolating this out for a long period of time. But this won't happen. This is a shock. And during a crisis, normally, it's a structural crisis. You've got to deflate a bubble. This is a shock event. So everything has been put on hold, but there is no essential bubble to deflate. So if you can get policy, fiscal policy kicking things along, monetary holding up asset prices, and we can recover out of this, that base case everyone is factoring now will be wrong. The low rate environment forever, that will be proven to be wrong, and that will cause big shocks through the stock market. And we're starting to see a bit of a glimpse of that now as we move out of Phase 1, which is pandemic; Phase 2, recovery and return to normality. We are in Phase 2 if the vaccine is here, but everyone is caught in the Phase 1 still. So that transition will be quite painful for a lot of people.

I was going to ask you where value is because that's where we started our last conversation. You gave us a great answer, but I'm going to flip it on its head and say, where don't you see value given you're talking about coming from Phase 1 to Phase 2?

Well, I guess it's anything to do with interest rate sensitivity and high valuations. So again, we look to the tech sector as overvalued. If the vaccine comes, I mean, it's all contingent on the vaccine because we're actually looking pretty terrible globally and the virus situation is accelerating to the negative side. So ex a vaccine, you'd be piling into that trade because policy will have to meet that virus. But if that virus is contained, policy will change. So tech sector looks overvalued. I mean, that's a standout still. Prices could fall 30%, 40%, and I wouldn't be surprised if we go into this next phase.

And a lot of those beneficiaries, as we mentioned earlier, of corona, of the COVID, the stay-at-home trade, so to speak, people have, you can't put a multiple on this year's sales or this year's earnings. And we'd heed caution on that because they will not be able to comp these as people start to return to normal life. So although people have suggested structural change has happened a lot more rapidly, as we know in the past, things don't happen that quickly. And by human nature, we'd like to go back to what we know. So as soon as borders open up, as soon as people are able to dine out and travel again, you will see that nuanced.

Yes. we are in a situation where you're not able to get face-to-face with your investors, which is obviously disappointing. This is the way that we're doing it in 2020. What's the message that the 2 of you have got to your shareholders and investors in WAM Leaders?

Well, I think the next 12, 18 months is incredibly exciting. I think we're going to go into this recovery phase. This will be more our market, even though we've actually performed well in this very dislocated market. We're very excited about the good companies coming back to decent valuations from the depressed levels they are now. And we think we can position the portfolio incredibly well over the next period as it plays out. So we're very excited about the opportunities, very excited about some of the companies that we can still purchase at discounts to what we think they're worth. So this environment is great for us.

And lastly, we're living through history, and it's exciting times to take note of how people react to how markets are moving because we'll be reading about this in 20 years and look back and go, okay, this is what happened. So it's just a great time. We're just going to stay glued to markets and enjoy the ride.

Right. Well, thank you both for your time.

Thank you.

Thank you.

Australians spend around $50 billion to $60 billion every year offshore. So a big portion of that money is now coming domestically. And a big beneficiary has been the automotive sector.

The key for us is to understanding the customer value proposition. So the companies that we invest in have very strong value propositions, where it is proven that the customer really needs their products.

Analyst projections were very negative for these companies and really forecasting a doomsday scenario. But as it's turned out, Australia has done a fantastic job to stop COVID effectively. And with borders reopening, we do see a very strong period for these companies.

More recently, though, we've started to invest back into housing on the back of our view that the historically low interest rates, the strong government fiscal support and over time, lenders will relax lending criteria is going to drive housing activity.

What's been lost in the market is the cash flow these companies are generating right now is at record levels. There's going to be a lot of cash on these balance sheets with minimal debt. So we do see the potential for earnings accretive acquisitions going forward, which we think will be the next leg for growth in the sector.

When we caught up in May, you outlined a bullish year, which turns out to have been a solid call. What's your view now if we do that sort of looking forward? Are you bullish, bearish? How would you answer that same question as we sit here in November?

I was talking to my parents this week and they were blowing up about how you can get a fixed term interest rate for 5 years, less than 2% these days. And they would have loved to have that back in 1991 when interest rates were close to 20%. So I think with that backdrop, it's hard not to be bullish on the market and particularly, when we've seen the extreme measures by central banks and governments globally to support economies coming out of COVID. And we've also seen a relatively positive outcome to the U.S. election. And we've also seen a potential vaccine. So we think and we're very positive in the markets going forward. And I think within that context, we are very positive on small caps. And I think that going back in May, I think I was probably more positive on large caps. I'd actually say one of the best environments for small caps we've seen in some time. And this largely reflects the fact that around 40% of the stocks that we look at in the small-cap market are exposed to the economy in some ways. I'm talking about sectors like retail, building materials, automotive. So we do see a very strong period for small-cap companies going forward.

If we just stay on that, so as we sit here, you really feel like there's confidence in this reopening process now and that's really the opportunity for you to find opportunities going forward?

I would say, look, if we split it up into 2. So if we go back into, when we last spoke in May, we would have talked about sectors like retail, domestic tourism, housing that we were positioning the portfolio into. And a lot of these companies were exposed to Australia. And if you can go back in time and think about May, Australia was in a much better place than the rest of the world. And as it's turned out, we're in November, we've done an incredible job of managing COVID. So a lot of those trades have played out, and we have reduced our weightings to those sectors. But where we see some value at the moment is looking at those companies that have significant international operations in COVID-impacted regions such as Europe and the United States, where analysts have been forecasting a very negative scenario for these companies over the next 2 or 3 years. And we do see a number of companies. And to rattle off a number of names like United Malt, which is one of the largest malt processors globally; Ramsay Health Care, one of the largest private hospital operators. And also, we've been adding positions in some of our existing names like skin care manufacturer BWX and also Infomedia, which is a technology company.

Yes. It's quite a different set of companies to what we talked about in May. And one of the themes that we did touch on in depth in May was around agriculture. Is that still a theme that you think presents an opportunity?

Yes. We think it's a great theme. And I think what's driven our bullishness on that sector is the fact that the crop has just gone or the rain that we've seen on the East Coast has just gotten better and better. And in fact, if you look at the recent crop forecast from ABARES, which is the government body that forecast the size of the crop, it was actually 24.3 million tonnes in September, and that's actually the largest forecast that we've seen in the last decade. Now the recent rain we've seen over the last few months means we think this crop forecast will get upgraded again. Now what you generally see after periods of long drought is that when you have a big crop or a lot of rain like we've seen in the La Niña period, it will extend for a number of years. So we're still very positive on the sector. Our 2 biggest holdings would be Elders and GrainCorp. Elders will benefit as more farmers buy crop protection products. GrainCorp is the most leveraged to an increase in the crop size. We also think that a number of the efficiency gains and cost savings implemented by management over the last few years will come through in the numbers. But we do also see a number of other companies that will benefit over the medium term. One company that's under the radar a little bit is Select Harvests, which is one of the largest almond processors in Australia. And they've been impacted by COVID and a lack of demand for almonds in regions such as India and China. If we have a vaccine, we see some small support in the almond price. We see a significant upside to the share price of Select Harvests.

The ag sector, it is so cyclical. You sort of outlined a bit of a bull thesis there. What are some of the things that you look out for, what can derail the thesis there?

Well, it's a fascinating one. I just went to Byron Bay and Yamba. I really like Yamba by the way, it's a great spot. And I was looking at the weather, quite a lot going into it and all I saw was thunderstorms. And maybe that's just a part of my personality. I probably shouldn't do that. I was really annoying my family, but anyway, but it's clear the weather, and particularly for something like GrainCorp, which, yes, we're on the verge of harvesting what was a record crop, and we're seeing the onset of hailstorms. It was a big risk, and we actually sold some GrainCorp going into it because the hailstorm forecast were actually going to be quite large. Now as it turned out, it wasn't as bad as what perhaps we had thought. We actually bought back in a week or so later. So definitely, the weather is the biggest impact for these ag stocks. But as I said, it's a record crop. It generally will have a good few years after this. So we're very positive on the sector.

We can't talk about small caps without talking about the high-flying technology names. And they're not so small anymore. A number of these WAAAX stocks are moving up into the top couple of hundred. What's your view on technology and if you can talk specifically around valuations? And then I guess, how do you get exposure to that technology in a sensible way?

So the WAAAX companies are the tech leaders on the ASX. The challenge for us is that often these companies are always fairly valued. So as a team, we spend more of our time trying to identify the undervalued growth companies that could be the future tech leaders. So there are 2 themes that we like. The first theme is around the disruption to traditional retail by the e-commerce companies, which we have spoken extensively about over the last 12 months. The recent share price appreciation and the volatility has garnered a lot of interest. However, we continue to be strong believers in the e-commerce names because we believe the structural shift is here to stay. Now the key for us is to be very selective. Companies like Temple & Webster and Adore Beauty, we believe, are exhibiting very strong unit economics and strong customer loyalty. And so as a result, we believe they are very well positioned to continue to grow in the future. For example, both of these companies were growing at more than 50% in a pre-COVID lockdown environment. And that's a signal to us that these companies can continue to generate those strong revenue growth in the future.

We're sitting at a point where the prospect of travel is becoming more real than it has been in the past. We've had news about a vaccine and people are talking about the prospect of even heading offshore. We're going to see, I suspect, some more movement domestically as well. What's the opportunity in tourism? Is it a local opportunity? Is it a global opportunity?

We think it's a mixture of both. If we start with domestic tourism, and I think I've talked about this back in May, probably thought we were all mad to be investing with those companies at that point in time. But I guess when you're looking forward, yes, analysts' projections were very negative for these companies and really forecasting a doomsday scenario. But as it's turned out, Australia has done a fantastic job to stop COVID effectively. And with borders reopening, we do see a very strong period for these companies. So companies such as SeaLink, which is the largest bus and ferry operator in Australia; Ingenia, which is a provider of manufactured homes and tourist parks; and also Tourism Holdings, which is the largest rental company of motor homes in New Zealand, Australia and the United States. I think actually really interesting anecdote was around June, ourselves and WAM Global caught up with Thor and Winnebago, which is the largest manufacturers of campervans effectively in the world. And at the time, they were flying. They couldn't get enough stock on the ground. Effectively, pricing was going up. And they said to us, they said, look, this is a very similar scenario environment that we saw back at September 11 back in 2001, where you saw a period of 2 or 3 years where people didn't want to fly and they wanted to drive. And so if you look back at Winnebago and Thor, their revenue growth over that period of time was very, very strong. And that was a big catalyst for us really to invest in a number of those companies that were exposed to driving. And hence, why we're positive on domestic tourism.

Okay. And what about globally, I've got a trip to the Maldives to go surfing, has been put on hold indefinitely. And I'm itching to go surfing. That's not an opportunity for me at the moment. Are you thinking about playing offshore players?

Yes. So we also invested in Flight Centre and Corporate Travel Management. I mean, the initial thesis was that these companies and their cost-out management programs were going better than expected, which gives them ample liquidity to navigate the next 24 months from a COVID environment perspective. More recently, the potential vaccine has potentially pulled forward the revenue profile. So we continue to be bullish with these companies.

So you've really looked at how those companies have got themselves in good shape and sort of looked out a bit further?

100%.

Well, I think the interesting thing was when we went to the August reporting season was there was a number of companies that had done well into various sectors, but there's one sector that had not done well, and that was international tourism effectively. So I think Webjet, Corporate Travel, Flight Centre. And the short interest were building in those companies, and we did a lot of extensive work around their balance sheets, and we thought at the time they were fine, and they could really get through this period. And that was the time when we invested in those companies. As Tobias said, they've done quite well for us. So we've now seen the next leg, which is a potential vaccine. And what that means is that when people are forecasting the earnings for these companies, they might have been saying, well, we think in 5 years' time it's going to be similar to what it was in 2019. Well, maybe it's not 5 years' time now, maybe it's 4 years' time, and that's what's brought it forward. So that's why we quite like the sector.

You mentioned a road trip and it's been a really big theme is domestic travel. You hear stories about people not being able to get access to new cars. The Toyota Prados are out of stock, all this sort of business and it was something that we talked about. Auto has been strong. Is it still an opportunity or is that something that's rolled over now?

Yes. Auto has been a fascinating sector for us. We really did position the portfolio in a number of names back in May. And I think when I had this interview last time, we talked about the fact that we saw the potential for increased driving or kilometers driven just as people prefer to drive a car instead of use public transport when they go to work and also to drive a car when they go on a holiday instead of use a plane or a cruise. Now while that's partly driven the auto sector, I actually think what's been more important is the fact we can't travel overseas. And Australians spend around $50 billion to $60 billion every year offshore. So a big portion of that money is now coming domestically and a big beneficiary has been the automotive sector. So companies such as Bapcor, Super Retail, GUD Holdings, AP Eagers, MotorCycle Holdings have done very well for us. And we actually saw very strong updates over October, and we did take the liberty to reduce our positions in these companies. Now in saying that, we are actually very positive on this sector still. And I think what's been lost in the market is the cash flow these companies are generating right now is at record levels. So there's going to be a lot of cash on these balance sheets with minimal debt. So we do see the potential for earnings accretive acquisitions going forward, which we think will be the next leg for growth in the sector.

So sort of if you were to, I know we've talked about a few of the things that you do, but if I could get you to kind of summarize what you think some of the compelling opportunities that are in the fund right now, how you give people a sense of how you're positioned for the next period?

So housing is definitely one of them. I think this time last year, we talked about our positive outlook on housing. Unfortunately, due to the COVID market volatility, we had to significantly reduce our housing exposure in the last financial year. More recently, though, we've started to invest back into housing on the back of our view that the historically low interest rates, the strong government fiscal support and over time, lenders will relax lending criteria is going to drive housing activity. So companies we like include Brickworks, which is a brick manufacturer in Australia and the U.S. and AFG, which owns the largest network of mortgage brokers.

I think child care is an interesting industry as well. I mean, you could have gotten a more impacted industry through COVID. It's a very important industry for the government, in particular, to get people back working. So we think the government will support the industry. But probably more importantly is this industry for the last 5 or 6 years has been really impacted by an increase of supply of child care centers. We don't expect to be seeing that over the next few years. So we do think the incumbent operators, which is our G8 Education, which is the largest in Australia; and also Evolve Education, which is the largest in New Zealand, are poised to benefit.

What are some of the things that you think are not grabbing headline attention that might be getting overlooked?

Yes. I think over the last 10 years, we've seen companies exposed to the housing market underperform the ASX by about 50%. We think this will turn around in the next few years, and this is due to record low interest rates, fiscal support for the industry as we think Australia will basically have a housing boom over the next 2 to 3 years.

If you have a message for shareholders, opportunity, we didn't get to get face-to-face with them again in November, what message would you leave them about the opportunity in WAM Capital and WAM Micro at the moment?

Yes. I mean it's a great opportunity to thank everyone for their support. I mean, it has been a very difficult time. It's nice to be back in the office and seeing everyone. I think, yesterday, I had my first meeting with an analyst from a stock broker since January. So it's great to be going back to normality. The team is doing very, very well. That's just a wider team, the guys in WAM Leaders and WAM Global. So yes, all of the shareholders have been very supportive. And fingers crossed, we can catch up with you all in May 2021.

Great. Well, thank you both for taking time to sit down and talk us through how you're putting their money to work.

Thank you.

Thank you.

If you have a portfolio that has a specific target to infrastructure, you'll be forced to continue buying these assets regardless of the price. It's all about understanding the macro fundamentals and understanding the megatrends. Leases are structured in a way that rents have annual fixed increases and you're getting the stable income return that is growing over time. At the same time, you're getting fairly good capital appreciation. These are essential services that people have been using. They are using them. And they will be using them in the future. Look at an average super fund, you would see that 20% to 25% of the total portfolio would be invested in alternative assets. Alternative asset classes have lower and in some cases, negative correlation to equities than any other asset class. When you talk about private equity and public equity market, how some opportunities, they don't even reach equity markets. If you do want as an investor to get access to those growth opportunities, it is important to add alternatives to your overall portfolio.

Could you tell me and tell shareholders a little about your own background and your philosophy for investing?

I am a strong believer in more of a holistic approach when it comes to investing in alternative asset classes. So what I mean by this is that rather than building a portfolio that has very specified sleeves like real estate, infrastructure, agriculture, timber, et cetera, and very specific allocation targets, I like to think about alternative asset portfolio as a very flexible portfolio. Yes, you do need to have a strategy. You do need to have long-term targets. But because the market is changing and the opportunity set is changing, valuations are changing, you do need to be very flexible and assess the relative value of different sub-asset classes within alternatives. So for example, 3, 4 years ago, more traditional infrastructure looks really expensive. We saw some transactions, in particular, in sectors like airports and ports are happening at the highest historical levels in terms of their equity multiples. Where do you allocate your capital during this time? So if you have a portfolio that has a specific target to infrastructure, you'll be forced to continue buying these assets regardless of the price. But if you have more flexibility within the portfolio construction, then you can look at other sectors. Let's look at real estate. Let's look at private debt, private equity and see where we can find more attractive opportunities in terms of the enterprise. And that's how I think about this. It's important to have this bigger picture, understand the driving fundamentals across sub-asset classes, understand the megatrends that are driving those asset classes.

You've talked about a few different asset classes that sit within alternatives. I think for people that are getting exposure for the first time, could you just talk through the sort of asset classes that you'll be looking to invest in?

Just let's take a step back and think about alternative assets. It's a very broad universe, very broad term as well, used differently by many investors. Alternative assets are tangible assets. Most of them are tangible assets that have substance and this substance has value. Asset classes that have very specific investment characteristics that define them from other asset classes like inflation hedge, very strong income return potential, capital appreciation potential, very strong diversification benefits, but also something that gives you access to unique trends in terms of the macroeconomic shifts. The way we see it, alternative assets include asset classes like real estate, infrastructure, private equity, venture capital, asset classes like debt, private debt, real estate debt and real assets. Real assets, we talk about agriculture, water rights, timber, et cetera, so very broad universe. And within the current portfolio, we already have exposure to private equity, venture capital, real assets and a little bit of real estate in the portfolio as well. Going forward, we will be looking at expanding it into new asset classes like private debt. And when I think about private debt, this has been an asset class over the last 2 years that has attracted a lot of attention from investors because banks, not only in Australia but also globally, they are under a lot of regulatory pressures. And they are stepping back more and more in terms of providing lending opportunities to businesses. So we do see more private lenders coming in both on the business side, like small, medium-sized enterprises, but also on the real estate side.

In terms of the framework that you use for identifying opportunities, I think you talk about trying to identify megatrends or super trends. Could you just talk to me a little bit more about that framework? You sort of talked about infrastructure. Explain that process that you use for finding opportunities.

Investment process for us is a mix of this top-down approach and bottom up, very common phrase. When you talk to equity investors, they would use very similar terms. In terms of the top-down, it's all about understanding the macro fundamentals and understanding the megatrends. Now I use this word a lot, megatrends.

It's popular.

It's popular. It sounds very exciting and it is exciting. But basically, these are the major macro shifts that have very strong tailwinds. So in our current environment, those megatrends would be aging population, increasing demand for food on the back of the growing global population. It will be trends like digitalization of our economy, of our society, innovation trends like climate change. I think aging population is something that concerns many economies and many governments. So we start seeing more and more this trend translating into investment strategies. Probably real estate might be a good example, like if we think about real estate in Australia. Again, traditionally, you would think about asset sectors like office, retail, logistics, industrial, et cetera. Now there are other sectors that are less traditional and they have those, they are supported by those strong tailwinds. And one of these sectors is health care real estate. Now I'm not talking about buying a hospital and operating this hospital. This is something different. This is more of an infrastructure strategy. I'm talking about an asset itself, actual property. While office, retail and logistics, they are going through major structural changes, in particular, on the back of COVID-19, it really is changing the universe. It's changing how investors are seeing those sectors. It's changing the income and capital appreciation profile. It changes the risk profile. Sector like health care real estate continues to thrive even through this economic downturn that we are experiencing. Why is it happening? Because these are essential services that people have been using, they are using them, and they will be using them in the future. We have aging population in Australia. I can give you some statistics. In 2013, we had, I think it was data published by Australian Bureau of Statistics. We had a population of about 14% of the total population aged 65 years and over. They project that by 2050, this will reach 21% of the total population. This puts a lot of pressure on the health care system. This puts a lot of pressure on the government. So there is a lot of support to health care service providers to improve their services, to expand their services. Where do they do this? They do this in hospitals. And hospitals, they are property assets. So a strategy here is really to go and find those assets or develop them and then leave them to an operator, operators like Ramsay Health Care, et cetera, like large names, like good brands. Or you go, look, you have young kids. I'm sure you take them during the spring season to see the GP. Where do you go? You go to a medical center. Again, this is a property asset. Or you need to do a blood test. You go to a lab. This is a property asset. So the strategy here is really to go and build a portfolio of those property assets, leave them to operators. The attraction here is that those leases are very long-term leases. We are talking about 10 to 15 years leases. Leases are structured in a way that rents have annual fixed increases and you're getting the stable income return that is growing over time. At the same time, you're getting fairly good capital appreciation because there is restricted supply on these assets. So this puts health care real estate as a very attractive asset class versus some more traditional sectors within real estate. And we have strong relationship with one investment team in Australia that is now implementing the strategy and building the portfolio.

I was wondering if you could explain to people the role that alternative asset plays within a broader portfolio. And I think for a lot of investors, accessing these opportunities hasn't been so easy in the past. So I guess, maybe just talk about why people might not have had exposure to alternatives before.

Alternative asset classes, they do form a very big part of an investment portfolio. So you mentioned institutional investors. A look at an average super fund, you would see that 20% to 25% of the total portfolio would be invested in alternative assets. So it's a very important asset class for institutional investors, and I would add, for any investor because it provides very strong diversification benefits. Alternative asset classes have lower, in some cases, negative correlation to equities than any other asset class. It also gives or has some certain investment characteristics that are not easily accessible in other asset class, for example, an inflation hedge. When we talk about infrastructure, real estate and other asset classes, they all would be serving very strong inflation hedge. They have very strong income return components, not all of them, and we can talk about this later, like, for example, private equity strategy would be predominantly focusing on capital growth and capital appreciation. Real estate and infrastructure, agriculture, water rights, they would be predominantly delivering income return over time. And these are the asset classes where you can access the themes and trends that we talked about. And often, those things, they are not accessible in equity markets. So I really like examples when you talk about private equity and public equity market, how some opportunities, they don't even reach equity markets. Like, for example, Facebook or Uber, initially, they were venture capital investments. Same with Spotify, this application that you use on your iPhone for music, it actually never really went through IPO because it was so successful raising capital from private investors. So if you do want as an investor to get access to those growth opportunities, it is important to add alternatives to your overall portfolio. You did ask this question why historically it hasn't been easy to access this asset class. There are several reasons for this. One is that it's an asset class where you need to have scale when you go and build a portfolio. By scale, I mean, if you look at an institutional quality offering, the minimum ticket size would usually start from $5 million to $10 million. So you do need to have scale to build the diversified portfolio. You do need to have very strong network, very strong relationships with the investment teams in order to access it because the capacity is limited.

And so you've named a broad universe of investment opportunities. As we sit here today, where are you seeing value?

Value. Where do I see opportunity? That's the question for me. Very exciting time because so many things are changing now in the economies globally, not only in Australia in our society. And really, the opportunities I'm focusing on are the ones that have or are supported by strong tailwinds. Factors like aging population, increasing demand for food on the back of the growing global population, digitalization of our economy, of our society, innovation. I think these are all the trends I'm focusing on. And then within each of those trends, I would select strategies that are implementable in alternative asset classes.

And you've been with Wilson Asset Management a relatively short time. How has that experience been?

It's been excellent, absolutely fantastic. I am very excited to work alongside people like Geoff Wilson and Kate and the rest of the team. I think it's the team that has such a strong integrity. And when I observe the interaction between the investment team and shareholders, I can see that there is strong and deep trust. The relationships also have been spanning over many years, and the shareholders are very loyal to Wilson Asset Management. But also what I really like, and it's in line with my beliefs because when I manage capital on someone's behalf, I have fiduciary duty to advocate on behalf of my investors, on behalf of my shareholders. And this is what Wilson Asset Management is excellent about. They are advocating on behalf of the shareholders. They are prepared to fight through for any regulatory changes that might not be beneficial for the investors or for shareholders. They are innovative in the way the investment strategies are structured or the investment offerings are structured. And they are thinking forward. The example that we now have WMA as part of our business, it's an example of forward thinking. It's an example of vision because alternative asset classes has a very strong future.

A final message on a personal note? An opportunity to say something to Wilson Asset management investors. What would you like to say to them at a personal level?

At a personal level. Well, I would like to say that I am truly passionate about this asset class. I really believe it can make a significant difference to the investment outcome of the overall investment portfolio. And I am excited to be working together with Wilson Asset Management team because their way of operating, their way of working with shareholders is very much in line with my personal beliefs as well. And so I am looking forward working together with the shareholders, advocating on their behalf and delivering the financial outcomes that will support their financial well-being over long term.

Great. Well, listen, it was lovely to meet you today. Thank you very much for hosting us.

Thank you, Jim.

And best of luck in your new role.