Geoff Wilson: Smoking out the doubters
This episode of Success and More Interesting Stuff features high-profile fund manager Geoff Wilson, my former boss and colleague.
I went to work for him in the 1990s — for free, at first, until he could afford to pay me — and cut my teeth in the industry as we jetted around the country seeking investors for his early funds.
Geoff has built a stunning funds management business through the listed investment company structure and today manages $5.5 billion.
In this episode he explains why he likes closed-end capital pools such as LICs. And you'll soon see why the market values his funds at more than the sum of their parts.
We take a walk down memory lane to the early days of Wilson Asset Management, revisiting some of the key steps that made Geoff and his company such a success.
We also make a few entertaining detours to laugh about the day an angry investor pinned me up against a wall, and the time we almost got stuck in Melbourne because our airline ran out of money.
Welcome to the latest episode of Success and More Interesting Stuff. Geoff Wilson is not your run-of-the-mill fund manager. He is loud, gregarious, and brutally honest at times.
All these traits, along with a heavy dose of resilience and determination, have been the cornerstone attributes in growing one of Australia's most respected funds management businesses.
Wilson did it the hard way. He decided early on that he wanted to build his funds management business through the listed investment company structure.
In 1999, with a briefcase full of WAM Capital prospectuses, he marched around Sydney, Melbourne, and Brisbane, talking to anyone who would listen.
The most common response was, "Why would we bother? It would trade at a discount to net asset backing on day one, and we will lose money."
Investors were wary of the LIC structure. Superstar manager Platinum had listed the last LIC on the ASX five years earlier, and was now trading at a hefty discount to assets.
Given Geoff was an unknown quantity, who could blame investors for the cool response? Unperturbed, Geoff kept knocking on doors until he raised his targeted $20 million.
He said at the time, "I'm not really worried how much money we raise. We just need a start."
Today WAM Capital has a market value of about $2 billion and is the cornerstone of the Wilson empire. The company has traded at a premium to asset for most of its 22-year life.
Meanwhile, Geoff has relentlessly grown his business, and today the group has eight listed investment companies and approximately $5.5 billion dollars under management.
In addition, Geoff has used the LIC structure to form the fantastically successful Future Generation group that produces tens of millions of dollars a year for charities dealing with underprivileged children and mental health.
I first met Geoff while working as a journalist at The Sydney Morning Herald in 1994. I then spent 13 years working with him at Wilson Asset Management. Welcome, Geoff. You eventually smoked those doubters out.
Thank you, Matthew. Yes, we did use that phrase a couple of times where we thought, "We're going to have to smoke some people out," but yeah, that's right. We did.
Definitely smoked them out. So, I'm going to take you back, to start off with, to June 1998. I had just left The Sydney Morning Herald.
My job at Wilson Asset Management was to book in company visits for you. You had been going for just on six months. You'd started in the January. You were a bit snowed under with the amount of work for an individual.
But when it came to the long weekend in June 1998, you said, "Over the weekend, can you please write me maybe a page or two on where you think we can take the business?"
So I went off, and I think I went to the Gold Coast that weekend, and I spent the Monday writing and writing and writing, and I got back, and on the Tuesday, I said, "Well, here's what I've got."
And you looked at it and said, "Yeah, yeah. That's fine. Here's what I've come up with. We're doing this."
And at the time it was all about, "I want to do a listed investment company," so you must have known at that time. Must have been pretty clear despite the Platinum problems, which was the last LIC, that that was the market for you.
Yes, it was, and I had seen some research that James Chirnside, who in my broking days was a successful fund manager.
It really showed how Morgan Stanley had looked at the closed-end funds in the US versus the mutual funds and looked at the performance over a 50-year period, and it showed that the closed-end pool of capital had outperformed the open-ended pool of capital.
I think it was like 2.5%. Normally when I talk to people I say 1.5 to 2, because I can't find that research any more.
You never could. You've said it plenty of times, but it's elusive.
That's right. But it made me realise how valuable as an investment vehicle a listed investment company is, because there are incredible benefits of having a closed-end pool of capital.
The mutual funds in the US, like the open-ended pool of capital, when things are going well, all the money flows in. When things are going bad, all the money flows out.
And so as a manager of an open-ended pool of capital, you're forced to buy at the top of the market and you're forced to sell at the bottom of the market.
With a listed investment company, which is a closed-end pool of capital, you're never forced to buy expensive stocks and you're never forced to sell anything. And so you can take a really medium, long-term view, and that's broadly why those vehicles have performed the open-ended pool of capital over time.
I know there's a lot of noise these days about ETFs (exchange-traded funds) and the growth of ETFs, and we might talk about that a little later, but people question where the listed investment companies go.
The first one was in the UK. Foreign & Colonial in 1868 was put together and they have prospered since then, and they will continue to grow and continue to prosper, I would say, through my lifetime.
And it was about a year later that you decided to push the button on what became WAM Capital, and we talked about it in the intro, the prospectuses.
And I remember very clearly a couple of things happening. One was that you were happy to fly anywhere, walk anywhere, talk to anyone. I lost count, but my bet was that we went to Melbourne 12 times for a meeting.
That's my best recollection. And we'd turn up at the one meeting that day to see a small broker. There'd be a few people in the room that you knew.
You had good connections. Everyone would be polite and listen, but at the end of the day, someone would say, "Well, it's probably going to trade to discount," or, "We might buy it after it trades."
We'd walk out of each meeting and I'd say, "Well, that wasn't very, very successful. Doesn't look like it's going to happen." You'd go, "That's all right. Let's get to the next one."
So it took a lot of resilience, because Platinum had buggered the market, to use your terminology back then. It wasn't working. People didn't believe in it. What were you thinking back at that time?
Well, it's just we had a goal, and I mean, the good thing is in those days you did have enormous amount of... The listing rules were a lot fairer, I'd say, and when we lodged that prospectus we had to raise a minimum of $2.5 million up to a maximum of $20 million, and as you know the history, it was oversubscribed, and so it was a great result.
So it really didn't matter for us in terms of how much we raised. What I thought was important, that we had an opportunity to tell everyone our story, and in theory, show them the opportunity.
And then effectively plough the field, so maybe at some other point in time then they'll think, "Oh, well, yeah. Matthew and Geoff came to see me, and actually it's interesting what they've been able to achieve or what they've done in that first, say, 13-year period."
A lot of times, I'm sure you can remember where we had people that called up and would say, "Look, we've been watching you for the last 10 years." Where had they been? Hiding behind a tree or watching us walk up and down Macquarie Street? But to me, it was just a way of trying to spread the word.
I remember. I think it was you read a book by the Starbucks founder, I don't know if it was Howard Schultz, and he said in that book that you want to tell people what you do and how you do it and why it's important.
And I remember you used that as you walked around and explained why we were doing it and how well we should be able to go if we were any good.
That's right. And I suppose one of the things I've experienced in life, and this is before that, when I was broking, I remember I was in New York and I was looking for somewhere to rent permanently.
My theory was, "If I tell as many people as I can what I'm looking for, then someone will know someone and it'll come to me."
And I ended up finding a fantastic place through a friend of a friend. Yeah.
It was one of your other great sayings: "You tell enough people something's going to happen and eventually it will."
Well, I remember, again, back in broking when I was at McIntosh — they were the top broker in Australia. Ended up being taken over by Merrill Lynch.
But back in those days I remember talking to John McIntosh, and that was his little bit of advice. He said that before they had worked out market shares, that he would always say that they were the number one broker. And then he said, "Eventually, everyone just said, 'You're the number one broker'."
It's a good piece of marketing. But just to round out on WAM Capital though, I know it was oversubscribed in the end, but it wasn't an easy journey.
A couple of recollections I have was, one, that we had to go out to the printer out at Alexandria and watch them, make sure that they printed the prospectuses right, and I remember going out there at seven o'clock on an August morning once, very, very cold, and watching that go over and over and over again.
But the other thing was we had a little bit of luck, if we reflect on it, that you would tell everyone, as you said, about what we're doing, how we're going to do it, and you had a fortuitous lunch with the now departed Rene Rivkin, and Rene liked what you did. He listened to your story, and he was a great supporter of that product in those early days.
Interesting comments you're making, because I'm not sure if you caught up, but more recently I've reconnected with the printer.
Is that right? It was in Alexandria or Zetland. It was one of those.
Yeah. That's right. That's right. We were very hands-on going to spend a lot of time out there, making sure, reading the proofs and making sure everything is correct.
He ended up becoming a top 20 shareholder. Eventually, he ended up selling the printing business. He was a solid partner.
He was obviously listening as well.
That's right. And then poor old Rene. That's right. I mean, a man with a heart of gold, and very sad what ended up happening with him. And yeah, that's right.
I obviously was aware of Rene. Always a larger-than-life character. Through various people I was introduced to him and explained what we were doing. And Rene and his right-hand man, in those days, who has been in the funds manager game. Nigel Littlewood. I still speak to Nigel frequently.
Yeah. I spoke to him earlier today. He's a good man. Before we leave WAM Capital, the other distinct memory I've got was your timing was perfect.
Once we'd raise the money, or were close to raising the money, you went on a holiday for a week or maybe 10 days, and every night I'd have to mail out a prospectus.
So I'd finish work at 5:00 and sit at the desk and put the prospectus in an envelope and put a stamp on it, and then cart it down to the red mailbox bin down the end of the street, and I'd go home at six o'clock. That was part of the "do things on the smell of an oily rag", but it sticks with me.
Then the next step in building the company was a few years later when it was Wilson Investment. Wilson Investment was almost the opposite to WAM Capital, because WAM Capital was a hard slug to get up and going, but once it got going, the performance was great and people believed in it very quickly, while Wilson Investment was almost the opposite.
It was the second LIC that you did, and it was on the back of some tax changes in regards to capital gains for investors. And you went to raise... I can't remember. It might have been $50 million, and you were flooded.
It was the exact opposite. The money just came through the door. Do you remember that? It was a bit of a shock at the time. Obviously, people had really listened to your story by that stage.
I do remember that, and I mean, reminiscing on the early days of a business is fascinating. I suppose like everything in life, there's people that believe you can achieve things and there's some people that believe you can't achieve things.
And I remember when we were floating WAM Capital, that some very senior investment people were just making those comments you said. "Look, why would I put money in this? It'll trade at a discount."
We've been able to deal with that. And then when we were doing Wilson Investments, I think the prospectus was $50 million to put aside for WAM Capital or our family of shareholders and the other $50 million was for the public, and so it was $100 million in total.
I think we were in Brisbane, and we met a fellow fund manager who said, "Hey, look, you'll be lucky to raise 50," and that's right. And when we finished doing the roadshow, the issue still had a month or so to run, but we had demand for over $100 million.
And then we upscaled it to $150 mil. We ended up being oversubscribed at $150 million. It was a total different scenario.
Since then we've got eight listed investment companies, WAM products now — seven that we floated and one that we took over the management of, and of them, a number of them have been oversubscribed IPOs.
In the early days, we were novices there. These days, it's making sure that when you're looking to raise an amount of equity, that you make sure the demand is greater than the supply. That's obviously part of the strategy.
Wilson Investment, which today is WAM Investment. Changed its name. But at the time, it wasn't the quickest of starts out of the blocks from an investment point of view.
It was a buy and hold scenario because of the tax changes and it differentiated from WAM Capital, which was able to trade, and the tax implications weren't the same.
But that was a lot harder to achieve, that you were looking out many, many years on what stocks to pick, and it didn't get off to a great start.
And there were some hairy moments at different times where we traded at a discount, and there were a lot of irate shareholders. One comes to mind. We were in Brisbane doing a presentation.
Yes. I could tell. I know what he's doing.
There was one guy dominating the questions from the floor and you were taking them, and then you said, "Well, you've had enough questions. Why don't you go outside, and if you've got any other questions, Matthew will take it," because we were both doing it. And you continued on and we let other people ask questions.
We went outside, and before I knew it the guy had pinned me to the wall with a finger in the chest. And he was quite loud, and you stopped the presentation and said, "Are you okay out there, Matthew?" And I stuck my head in and said, "I think so. We'll see how we go."
So it wasn't all that easy. That was a really tough time. I suppose what I'm trying to get at is resilience. We spend a lot of time trying to teach our kids and other people that you've got to be resilient. Things don't always go your way. You've got to bounce back.
And the one thing I learned from you was, no matter what the situation, you always saw it as an opportunity. You've got to be on the front foot. You can't duck away from it.
Where do you think you get that from? Is that a broking trait? Something that maybe it was instilled from your parents? Because you never seem to be overly flustered. Even though you might have been inside, it wasn't obvious on the outside.
Well, probably talking about Wilson Investment fund, which ended up becoming WAM Research, and for all those people that were concerned because it was trading at a 20% odd discount then, I think for the last couple of years it's been trading at a 40% premium, which is as unbelievable as the 20% discount.
I suppose one of the good things is I'm one of six children, so there's a bit of survival bias there. And my father, I think he was very laconic in terms of how he operated.
He was a big believer in anything is possible if you really persist and stick to it. I think the resilience comes from the survival instinct, and also seeing how your parents operate.
In my early days, my very first job in the securities industry was in funds management at Scottish Amicable in Melbourne. I was there for a couple of years.
Then I went to Potter Partners. And I was thinking about this more recently when I was talking to some younger people.
A lot of people, they don't realise how powerful their words are, adults talking to people that are starting off in industry or starting off in life in business, and I remember Laurie Cox, who was a senior partner then, I think when I got my first bonus, just giving me a bonus, I think it was $5,000, and just saying, "Hey, look, Geoff." I was in the research side. "You're doing a great job. The world's at your feet."
That was his comment, and it sort of helped me pump my chest out and think, "Oh, well, actually maybe I am in the right industry or I'm doing the right things." And in the early days, if you get some good, positive support, I think it does give you confidence.
He didn't have the saying, "Don't spend it all at once"? Where did that come from? Because that's what I remember when you used to hand out the bonuses. "Don't spend it all at once." Your Scottish frugality came back in.
Well, that's right. I think that might have been more Dad's side.
But it does go to show something, because as you've gone on and you've built the various entities within the WAM group, and it's become a much bigger business, you've been able to select very good people to run those over time, and it's important that they do engender that confidence that you're talking about.
And these days, where you sit above that group, how important is that to what you're doing today, that reinforcement of can-do, that things are possible?
Well, for a business, obviously it's trying to select high quality individuals. And to me, that's in the early days, even though I couldn't afford to pay you, I remember the logic was I know you were looking to get into the funds management industry.
The logic was to pick a high quality individual. And your background wasn't in funds management. So to me, the quality of the individual is very important, and then also, it's really trying to give people as much support as they can to achieve whatever they want to achieve and really trying to paint the picture and really help them paint the picture, and then help them achieve what they want to achieve.
And really, an organisation is just a function of what the combined people want to achieve as a combined unit. That effectively is an organisation.
Yeah, and you've done a great job on that. But if we go way, way back, even before when we talked about June '98, when you started in January '98 it wasn't necessarily just a funds management business. You'd left stockbroking.
You decided, if my memory serves me correct, three things were important to you. You were going to sit on a few boards. You were going to start off a small funds management business and run it yourself, because you wanted the freedom of not being in a bigger business with other people. And that you were going to write a book, which we started. Took a few years to conclude. It was put on the shelf for a while.
And the fourth bit was you were going to spend a fair bit of time with your family. It was a collection of goals that you'd set yourself. As we sit here today, you probably did all those things, but in the meantime, you grew a big business. At that time, did you think that was possible?
Back then, no.
Because you were 40, or you were turning 40. It wasn't as if you were coming out of the gates. It was the second half of your working life.
100%. I remember that was what I saw as, "Oh, okay. I've got to 40 now. This is my sort of semi-retirement." That's right. As you said, "I'll go on a couple of boards. What else? I'd like to write a book." Thank you, Matthew, for doing it with me, and Anthony Hughes for helping.
Yeah, so it was write the book, go on some boards, and manage my money with other people's money, because my logic was if you're seen as an institution, then you get incredible access to companies in terms of information, going and seeing management, and also when there's brokers, raising capital IPOs.
So to me, it was if I could put my money with some other people's money and have a little boutique pool of capital to manage.
It grew a little bit faster than we thought. You're probably semi-responsible for that because of course, in terms of our relationship, initially it was I think the October before that I started talking to you about, "Hey, look, one of the things I'd like to do is write a book." And we decided we would write it together.
And then, when you had thought about getting into the funds management industry, that was probably a little bit... As I mentioned earlier, I think when you started at five or six months in, I think we had $4 million of funds under management.
You told me 20.
Twenty committed. It was $20 million committed. But in terms of what was paying the bills, it was $4 million, or 1% of that was $40,000, and your salary was more than that.
Well, it was 70.
Exactly. That's right.
I remember we were in the middle. My wife and I bought a house and I'd gone to the bank and I'd left the newspaper halfway through.
I got the loan, the nod, but we hadn't bought the house. We hadn't settled. I took a pay cut. So you wrote that, "That's okay. He'll still earn what he did before," and the bank accepted. You wouldn't get away with that with responsible lending these days.
No. No. So then when you came on, then all of a sudden it was a bit more of a business because there was two people, there was opportunities, and it was a lot of fun. It was difficult. It was tough.
We had very little funds under management, but it was like the investing part as I love it. You love it. I think everyone who plays the market loves it. It's a great hobby, which luckily we've been able to do as a profession.
And as the business continued to grow, Wilson Asset Management, the plan was never to grow it into anything as large as it is now.
What was your saying? If we could get it to — was it 200?
200 was the figure. I think that's what I visualised before I started. I remember someone was saying, "It's very important to visualise what you want to get to," and so I was visualising if we get to $200 million, then that was sort of it.
And then you said, "You could take over and I can go and live in the South of France."
Exactly. That's right.
You've only lapped that by about 25 times, I think.
That's right. That's right.
We'll come back to the business, but just on investing, which is really important, I always think that the most important person in your investment career is the one you work for or work with initially. They probably impart more information than anyone else and leave the biggest mark.
When I joined, even though my primary job was to book those companies in, you spent a lot of time saying, "Look, cashflow is the key. Cashflow is the key."
You wanted an iron-tight way of calculating the cashflow of each company, and you played with that model, and then you taught me that very clearly. That stuck with me forever, that that's the key.
Recently on a Buy Hold Sell show, one of the guests said, and they were trying to pick 10 baggers, "Well, how do you identify 10 baggers?" They said at the time, "Well, the first thing you don't do is look at the cashflow, because that will cloud your view."
I don't know if you heard that, but do you think cashflow is still important? If you were to teach someone about investing today, do you think it's important, or has the world turned that much that it has changed?
To me, the more the world changes, the more it stays the same. I know at the moment cashflow mightn't be important.
If you're investing in a company, you've got to think of yourself as being a part-owner of that business. What business would you like to buy for the long-term?
Well, if you can have a really good manager, a strong cashflow business... Obviously, if it can have a whole lot of assets, that's another benefit. A good return on equity. All these factors.
And I know at the moment cashflow, making money, mightn't be in vogue. In theory, it could be revenue growth. Eventually it'll come back to that.
And buying businesses that are good businesses... I mean, we try to buy undervalued growth companies, and we buy them when we see a catalyst is going to change the valuation. That still is the case.
But we might have a whole generation of investors that don't believe that. Do you think their day of reckoning is coming? Do you think there'll be a catalyst that says, "No, cash is important"?
Yeah. There will. The market does move significantly in various directions, and this isn't the first time technology companies have gone up significantly.
I mean, for the older people that are listening to this, I remember back in the '80s there was a company called Vapour Cure which had this technology — well, supposed technology — a new way of applying paint, and I think the share price went up 10 times.
There was another one. Private One Bank, the share price went up 15 times, 20 times. When we were running in the early days we had Davnet and iSecure and Solution 6. Old two-bags Tyler with Solution 6. A number of those companies.
And eventually, the company has to make money. At the moment, you're buying something because you think the greater fool theory — that a greater fool's going to pay a higher valuation or a higher price.
But in the end, there's got to be some fundamental somewhere.
Yeah. It was interesting. The only time my kids have ever been interested in what I was doing, they asked me, "Why do you buy something, Dad, on the share market?" I said, "I try and buy the earnings of the company into the future. That's the value."
And they said, "Don't you just buy it because it's going to go higher?" Which is true, but how you get to that point is important. And I said, "I think you guys are talking about the greater fool theory." And they looked at me if I was a fool, because that just didn't make sense to them.
Yeah, yeah. But I think that's how everyone comes into the stock market. My first job at Scottish Amicable... Well, even well before that, the first share I bought was Timor Oil and Gas.
I bought it because it was the cheapest stock I could find in the paper. And the only reason I was looking at the paper is because my dad at night after he'd come home from work would sit down and read this one page with a whole lot of numbers on.
Every night he'd read it and look down the numbers. And I remember asking him, "What is this?" And he said, "That's the stock market."
I remember looking down the list and I found one, a company called Cox Brothers. It was a Melbourne retailer and it was trading at one cent.
A couple of weeks later, I looked again. The stock was half a cent. Then a couple of weeks later, I looked again and it was back to one cent. I thought," Jesus, if I had bought them at half a cent and it had gone to one cent, I'd make 100% on my money."
And then a month or so later I was looking down the list and I couldn't find it, and I said, "Look, Dad, where's the company gone?" And he said, "Oh, it's gone under." And it did.
That was in my early days, and then when I was at university, I was again talking to Dad about the market and I was looking down a list of what would be cheap, and there was one called Timor Oil and Gas trading at 10 cents.
I said, "Oh, look, I'd like to buy some," and Dad lent me $1000 dollars. I bought a thousand dollars worth. Went to 12 cents. I sold half and kept the other half and it went to 30 something cents and I sold the other half.
And I didn't know why it went to 30 cents. It ended up it was drilling for oil. They didn't find anything, and I didn't really know why it went to 12 cents.
Most people come to the stock market thinking you just want to buy the things that go up. They don't understand that when you buy a share in a company, you become a part-owner of that business. To me, that's how you want it. The best way to invest. That's the best way to look at it.
Definitely. Given the current environment that we've just talked about, how do you get your troops at WAM that manage the money, and there's quite a few of them there now doing different jobs, but all managing money, how do you make sure that they stick to that long-term philosophy that what we're actually doing is buying companies that earn money and will grow over time and not get caught up?
Because these guys have got to produce month in, month out. It's not that easy. The market takes you in certain directions and you can't always fight it.
I know the pressure is month in, month out. One of the good things about the closed-end pool of capital is we don't get inflows or outflows because of our monthly performance, so we can take a medium, long-term view.
I know that you can take that, but when you're managing the money, you do feel the pressure. You feel the minute-by-minute or the daily pressure. I think it's just in conversation.
In the end, people have to learn and they have to make their same mistakes. We know one of the things about investing is experience is excellent, and so the more you see and the more mistakes you make and things you experience, the better you'll become as an investor.
I mean, the good thing is we're trying to buy undervalued growth companies and buy them where a catalyst is going to change the valuation. Another pool of our capital, or some of the fund's capital, is just trading.
So it is a little bit of that greater fool theory and it is a little bit of picking up dollar coins on a train track. You've just got to make sure you pick enough up before the train hits you.
You've gone to dollar coins. You used to say, "If there was a $2 coin in the corner, why wouldn't I pick it up?" You've deflated it to dollar coins.
Back to dollar coins, hey?
Things must be tough.
Well, maybe the business has been a bit more successful, so I can try to be a bit humbler.
At least they're coins. You're still picking them up.
It's interesting. I left the business more than a decade ago now, and at the time I think the funds under management were $300 or $400 million, in that range, and there were quite a few vehicles. There were three of your own and a couple of others that were part-owned.
Today, as you said, there's eight vehicles in total. Seven that you built yourself. There's $5 billion. It's a big business.
Well, I think that might have been a couple of months ago. I think we're at $5.5 billion now.
Keeps going up.
120,000 shareholders. Yeah.
It's an amazing story. 120,000 shareholders. And I remember, in those days you virtually knew every shareholder. You loved talking to the shareholders. Whoever rang, you'd say, "I'll take that," and you'd bump everyone out of the way and talk to the shareholder, no matter how big or small they were, and you'd really appreciate it.
You always thought, "Well, I've got to think like the shareholder. What do they want? They want to talk to someone in the business that's in it and who knows what's going on." But it's a different journey.
I'm just trying to work out the motivation to keep growing. We talked about the early days where you said, "Oh, well, if I do four different things, I'll be happy."
Now, today it's much different, and you've got a very big business with a lot of people involved, and a lot of good people. What was your motivation for going that far?
Well, the business grows because of the people that work in it, and it's not because of me. They're managing the money. Kate Thorley is the CEO. There's Oscar Oberg and Matt Haupt and Catriona Burns running the various pools of capital, and more recently, Dania Zinurova on the alternates, with the teams under that.
We still have the annual strategy meeting. How do the people in the business want to grow the business? Am I sitting on the boat with them or at the front or the back or the side? I'm just going on the journey with them.
They would say the opposite. They would say that Geoff's created this option for us to do what we'd like to do and the infrastructure's there, and without Geoff, possibly we'd have never got to where we are today.
So I think from an outsider's point of view, you have played a bigger role than what you're letting on there. But I think just that personal ambition to grow it, because one of the things you always said at shareholder presentations and meetings was, "Well, I'm here till I'm 80," and I think you've revised that up.
Well, once we did the Future Generation vehicles, and the second one we did funds youth mental health, and all the mental health people said, "Hey, look, don't retire."
The experts are saying don't retire?
The experts. Yeah, don't retire. So I'm 80 with an option to infinity or to whatever I get to in terms of retirement. But in terms of the business, I tend to work more on the business, and what drives me is I really enjoy it.
I mean, investing is a game and you've just got to work out what the rules are, and one of the reasons why we've always wanted to go out and meet management of companies is try to understand what drives them and get a competitive advantage understanding them. To me, working on the business, it's a game.
The last float probably raised $500 million in the last nine months of fresh equity and made four takeovers, and I think we've got another couple up our sleeve before the end of the year. So I tend work more on that.
And what drives me, I think it's part of being the third child. My father was a doctor. My mother was a nurse. We had a very middle-class upbringing in Melbourne.
My eldest brother was a doctor. Eldest sister was a nurse. And I actually wanted to be a vet. My marks weren't good enough. I went and did my science degree and then could have gone into vet science after that.
I thought I'd do a bit of work while I'm waiting, and that was after working in a pub for a year. And then after that was at Scottish Amicable, my first job, which was in the investment department with Don Brinkworth and Chris Walker, who, as you were saying before, you learn a lot from, and they were big believers in going out and meeting management.
This is back in the early '80s. I remember once, Chris and myself, we both like to have a little bit of a gamble on the horses.
My mum's from New Zealand. Around that time, all the New Zealand horses used to win the Melbourne Cup, and she used to always bet on the Melbourne Cup, and I think that's where it might have come from.
But I remember, Chris and myself, we decided to do a company visit, and we drove up to Maryborough in rural Victoria to see Maryborough Knitting Mills.
We did our company visit there, and then, fortuitously, just that afternoon happened to be the Maryborough trot, so we spent the afternoon at the trots together.
But in terms of back on Scottish Amicable, they were really focused on investing in medium and smaller industrial companies, which really is the area that I've focused on.
And also, they were very, very big in meeting management and backing management. So to me, they're two investment themes that have run through my life.
You talked a bit earlier about how it's a game. You've always enjoyed it. People are always disarmed by, as I said earlier, you're gregarious, loud, seem to be laughing a lot, but once the game's on, it's win. Not at all costs, but it's good to win, and you play pretty hard.
And you mentioned before that you've taken over a number of companies and you operate in the LIC space, and you've been an aggregator of that space over time.
There's companies who've tried their best, but haven't necessarily been able to succeed like the WAM group. You always seem to be thinking about the industry.
What is the best way to win? How are the rules changing? But you've never backed away from a confrontation. Where does that willingness to butt heads, to confront something and have a go at something come from?
Yeah. I mean, that's a good question.
Because you always said, "While we're playing, we'll fight hard on the field. Once we come off, we have a beer."
But a lot of people don't see it that way. They think, "Well, the game never stops and it can't be fun." But you've always played by those rules, but you've always, while you're on the field, worked very, very hard to work out what the rules are and what's the best way to get from A to B.
I do enjoy the game, as in the strategy. Option A, option B, option C, as an intellectual game of chess, effectively.
We bid for a company. Someone else might have bid. Then what will they do? What do we do? So the scholastic part of that. Maybe it's being one of six children. You've got to fight to get your piece of Christmas cake.
I'm sure you rarely missed out.
No. I think it's the sport at school, and being brought up in Melbourne, I played Aussie rules in my younger days. Then I played basketball, and then in senior school, I ended up playing rugby. And I played rugby for a few years after school. That's a nice, competitive sport.
And you enjoyed that. So let's look forward. The WAM group, Wilson Asset Management under the branding of WAM for all the investment vehicles, where does it go?
You stopped yourself at $200 million back in 1998, and yet you blew through that and so on. Where does it go from this point, where you're obviously a much bigger group, there's a lot more people involved, a lot more energy from various sources and a lot of mouths to feed?
There's a lot of responsibility in having a big business. A lot of people depend on that business to succeed. Where do you go from that point now? Is there a lot of room for WAM to keep growing, keep doing what it's doing?
Well, there's the old saying, "If you're not growing, you're actually going backwards." I think you mentioned that a number of times when we used to work together. Was it you have to be growing by, what was it, 10% per annum, otherwise you're going back to 8%?
I remember we had that great conversation where we were trading at a discount with the Wilson Investment Fund, and you made the very logical conclusion that we buy back the stock because we can buy it a discount on LIC, and every time we buy a share, it improves the asset backing for everyone else.
But we got through one buyback, two buybacks, and we're in the third and we're still trading at a discount. And I think we sat down and we said, "Well, I think what people want to be involved in is something that grows, and shrinking the company is not that exciting, even though it might be the right thing to do." And we both agreed to that at the time.
That's right. With business, people want growth and people enjoy growth and it creates opportunities for people, whether philosophically that makes sense, because you can argue that isn't one of the problems of the world is the fact that we're all growing and consuming too much, et cetera.
But back on the business, as in Wilson Asset Management, it'll keep growing and be moulded by everyone that works there and the senior people. And the plan is to keep growing.
We had a half-day strategy meeting a couple of weeks ago. I think in our five-year plan that we did two years ago, I think we've nearly done everything, and one aim was to grow the fund to $7.5 billion.
And back then we probably would've been $3 billion and we probably would've thought that was a real stretch, but now at $5.5 billion, obviously we're a lot closer.
One of the things you talked about earlier is the investor has always been incredibly important from our perspective, the people we're managing money on behalf of, in that 120,000 investors in the listed investment companies are relying on us. And if we can find other investment opportunities, that's incredibly important.
The interesting thing is, taking over the management of Blue Sky, when we took over that, the logic about putting our hand in the ring to take over that was when we noticed that someone else had put their hand up to do that. We didn't think that was a good deal for shareholders.
We really hadn't given an enormous amount of thought to go into alternative assets, but when we looked at it and we thought we could get a lot better deal, we thought, "Well, we've got all these shareholders that of course would love access to a pool of alternative assets."
I know, personally, I wanted access to a pool of alternative assets. And how we've grown the business, it has always been logical. Going from mid to smalls to add large, and then to add global and now sort of alternative assets. So yeah, I would assume that whether I'm here or not, up in heaven or down in wherever else you go.
Well, it's interesting you say that. The cult of the individual. I remember asking Harvey Norman founder and chairman Gerry Harvey, who's now into his 80s, I said, "What happens when the founder is no longer with us, whether not at work or departed the earth?"
And he said, "Well, history tells you the businesses start to fail after that." But he said, "Let's see how it goes." So you obviously believe you've got the right people to keep growing.
Well, I think it is the people. And maybe with our business, I've stepped out of managing the money quite a period of time ago. The only pool of capital I manage these days is the discount asset plays on LICs: WAM Strategic Value.
It's really everyone else running the business. And in the funds management world, there have been brands that continue to prosper once the people have departed.
You mentioned Kerr Nielson earlier, with Platinum. John Templeton, Franklin Templeton Group, from a US global basis. So the entities can continue in funds management. They're examples of when they continue to grow and prosper.
The philosophy of being a shareholder and understanding a shareholder has been since day one. I remember, I think you might correct me here, but it was WAM Capital that we drafted the prospectus, and then you went in the newspaper and you said, "I'm going to put half a million dollars in myself."
Then we had to do a supplementary because the lawyers said, "Why wasn't that in the original prospectus?" That caused a bit of grief, so we had to do a supplementary.
But the philosophy of being an investor, and you've got quite a bit of money. I don't know — in the early days, you were always one of the big investors in each fund. Today you can tell me, but it's $30, $40-odd million. It's a lot of money. How important it is to sit beside the investor and be part of that process, do you think?
Oh, incredibly important, because the hardest thing, I think, for boards or people on all companies is getting a really good understanding of what their investors want.
That's why I'm interested to have a good conversation with any of our investors, whether they have $5 million or $10 million invested with us or $1,000 or $5,000, just to understand what they see. An alignment. I think it's very important. You walk in the other people's shoes; the alignment's important.
One of the things that continues to amaze me is that company directors sit on the boards of very large companies. They don't fully understand that the shareholders own the company. They're only there as directors to serve the shareholders. That's the challenge, I think, for all company boards, to understand that.
Definitely. And I can't imagine that with 120,000 investors, you know each one of them like you did in the old days. I remember we used to do a roadshow twice a year to Sydney, where we were based, Melbourne, Brisbane, Adelaide, and later it was Perth.
And we turned up at Brisbane in the early days, I can't remember what year, and there were seven people at the presentation, and I said, "Yeah, well, I don't think we need to come here any more." And you said, "That's okay. I'll keep coming. You can stay at home and keep an eye on the fund."
But in those days you knew just about everyone. You knew how they were thinking. You knew them by first name. An incredible effort to market that product and keep telling them what you're doing.
It must be a lot more difficult today with that 120,000. That's more than a stadium full of people.
100%. That's right. And obviously, the organisation has grown significantly since those days. There was the two of us or maybe three of us in total.
We've got a little under 50 people, and when people buy shares in our company, they do a survey when they sell shares. They do a survey. So you try to pick up information when there's something happening.
I won't be calling them necessarily. I call the larger shareholders, the top 20 shareholders in each of the vehicles. I try to call them six monthly.
Occasionally I'll speak to some of the smaller ones as well, and we're collecting information from them, or they'll ring, or they'll be concerned about something and want to speak to me directly, and then I'll speak to them.
You still really have to have a good understanding of what the shareholders are thinking and saying and doing. There's eight or nine people in the shareholder engagement communication.
It's a full-time department now. It's quite incredible. One thing you do do well is celebrate your wins. You had a 10th birthday, which was in the middle of the global financial crisis.
It didn't feel that great. There were a lot of long faces that night. But then you backed up and had a 20th anniversary, and it was a much bigger business then.
You stood up and made a speech to a fairly big gathering, and you quoted U2, "I still haven't found what I'm looking for," which suggested you were still fairly hungry to help grow the business. But this was in relation to the Future Generation products, and you were saying, "Maybe I have found what I'm looking for."
So you've used your extreme knowledge in the listed investment market to form two LICs that are both trading on the ASX, and you've been able to corral a whole bunch of fund managers, which is an effort itself because you're competitors against them in many ways, to manage money for these funds, and then they give their fees effectively to the charities rather than taking them themselves, so they're the ones giving it.
Your management company participates in Future Generation, as well as putting it together, so everyone's in it together. It's been a great venture.
You might want to give us a bit of a background. I think you got the idea from someone in the UK, but what I really want to know is how big can that be, and how big a legacy will that be?
Because what the charity's like is there's money every year, because the fees happen every year. They don't have to go out and sing for their supper every day of the week trying to raise money once they spend it.
Well, first of all, I used to listen to that U2 song all the time, mainly when in an aeroplane, flying somewhere. That was one of my favourite U2 songs.
Because you're not supposed to find what you're looking for. I think that's the idea of that.
Correct. Yeah. I hadn't found what I was looking for.
With the creation of the Future Generation vehicles, that can only be possible because of the incredible generosity of the financial services industry, whether it's from the broking side, whether it's the ASX allowing the companies to list on the stock exchange and don't charge manual listing fees, whether it's the phenomenal generosity for every fund manager, including, Matthew, yourself with Centennial, managing a pool of capital and your main fund and not charging fees.
It's really that generosity that's allowed 1% to go to youth mental health and children at risk on an annual basis, and now it's up to... I think in the next 12 months it'll be $11 or $12 million that'll go to those areas.
And what's the combined market cap? Is it about $1.1 or $1.2 billion of money being managed?
Yeah. $1.2 billion being managed. And I think those entities can be significantly larger, as a function of the generosity of the fund managers, because I think anyone in the funds management world, we're lucky. We've been very fortunate. It has created significant wealth, and they're very prepared to give back.
So if we went to your first guidepost for retirement, when you'll start considering it at 80, as you've said, what do you think the Future Gen could be managing?
Is it $5 billion? Is it a $10 billion business? It's global and it can be big cap in Australia, all cap, so there's a lot of room to move, in theory.
That's 17 years. Even just compounding. Double twice.
It's got to pay dividends. Money does come out.
Yeah. That's right. Whether it's $5 or $10 billion dollars, that's right. It could easily be that. And if it's $10 billion dollars, then there's a lot of money going to youth mental health and children at risk.
The interesting thing is, I haven't listened to that U2 song at least since the Future Generation vehicles have been operating.
That's good to hear. So we'd be remiss not to get a view on the markets, even though you said you don't manage the funds day-to-day, except for the war fund.
You're traditionally a bear. You're always sceptical of markets and the optimism that people go about the process. Can you give us a view at this point?
We're long into a cycle. Had a bit of a hiccup last year with the virus, but we've recovered at an astronomical rate.
To me, it's plan for the worst and hope for the best. It's to realise that no one can pick the bottom of the market and no one can pick the top of the market.
Looking at 1987, the reason I'm telling this story is just how important it is to be invested in the market. Over time, the market does deliver. It is technical. Like early '87, everyone knew the market was expensive.
John Spalvins, who was one of the great entrepreneurs of his time, back then he was short the market because he had these assets and he wanted to protect them.
And from the start of '87 to before the crash, the '87 crash where the market fell 20% plus in a day, the Australian market went up 50-odd percent. And after the crash, in Australia it kept falling.
I think for the year you'd actually lost 10%, but the US market actually for the year didn't fall as much and you'd actually made money.
So even though I'm bearish because I'm nervous because we are so long into the cycle... When are interest rates going to start going up? Is inflation coming?
The most brutal thing is a P/E contraction. If interest rates double, then in theory P/E should halve, so that means you lose half your money. So to me, don't overextend yourself.
You're talking about debt there. Don't come and borrow money and throw it at the market.
Well, yeah. Don't go and borrow money and throw it to the market, particularly where we are. Over the last year or so there's been a lot of people playing the market that think that all the market does is go up. This is the easiest thing in the world.
And I was taught in my early days in broking that you make your money in your second bull market. And what does that mean? That meant that in your first bull market, whatever you make, you lose. You've got to keep playing the market.
You've got to be long in the market. Don't over extend yourself. I would say that we have to be close to some reasonable adjustment. The market just can't keep going up.
Last year was the best year in the equity market to June last year for 34 years in Australia. Those very strong years tend to be followed by more difficult years.
Just quickly on some of the exotics, obviously the cryptocurrencies have come to the fore for the last three or four years, but more so in the last year, where a lot of people aren't in the share market. They're trading these currency-like things. Have you got a view on that? Does that end badly for those people?
I think so. Some will make really good money. Some have made good money, but they're just very high-risk plays. It's like going to the races and betting on the first or the second, and to me, it is high-risk.
Cox brothers. Is it similar to Cox? Hope it doesn't disappear within a few months.
Oh no. Some will survive, but there'll be a number that will go by the wayside.
Not too far away.
It's too hot for me to handle.
Very good. Well, Geoff, I want to say thank you. You've come an awful long way from those days of trying to sell WAM Capital as a product, and I remember one final memory was getting on... I think it was Impulse, the airline that went broke.
We'd been in Melbourne and no one had bought a return ticket from Sydney because they didn't know whether it was flying. We got on the plane.
I think it was just before curfew, and it was us and the staff, and we got chauffer-driven back to Sydney, and I think that was the last or next-to-last ever flight between Melbourne and Sydney. I think it was Impulse. Do you remember correctly?
Yeah. It was Impulse.
Private jet, even in those early days.
But a very cheap one. Good value. It's all about value, isn't it?
Yeah. Right. Riding in first class for not much.
That's right. Thank you, Matthew, for the podcast. And again, thank you for those 13 years of pain at Wilson Asset Management.
No, a lot of fun. A lot of fun. Keep playing the game, and keep enjoying it and keep winning. Thanks, Geoff.
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Matthew is the Principal and Portfolio Manager at Centennial Asset Management. Prior to this, Matthew was the CIO at Wilson Asset Management between 1998 and 2011, achieving 18% p.a. over the period.