Why this global manager backed L1 Group with $50m

On paper, there’s plenty to like about capital-light, high-returning businesses with big margins. But for Greg Dean of Langdon Equity Partners, these widely prized traits are a source of paranoia.

In light of the rout unfolding across global technology stocks, Dean argues that the same metrics that fuelled incredible share price gains over the past decade should also be viewed as vulnerabilities - magnets for competition, disruption and regulation.

Some will argue that the de-rating of these companies is being driven by the arrival of AI at scale. Dean’s view is more direct: many of these businesses were already priced for perfection and ripe for disruption.

“I think that we’re just in the midst of a very big regime change in the market, way bigger than AI. I think AI is catalysing a lot of the rethinking of some of these things, but you could replace AI disruption risk with just simple overvaluation.”

Existential questions about industries are not new. SaaS stocks may be facing their moment of reckoning, but Dean is quick to remind investors that markets have short memories.

In 2020, during COVID, the questions were: "Will we ever travel again? Will anyone stay in a hotel?"

When robo-advice emerged, it was framed as the death of traditional financial advice. Today it accounts for just 10% of the market.

Now the questions are different, but the tone is familiar: "Will I ever pay for software again? Will I need a mortgage broker?"

Dean says the outcomes are rarely black and white, humans are poor forecasters and a big dose of humility is required.

“Find me somebody who was on record four years ago saying gold’s going to $5,000, hardware is going to outperform software by 100%, we’re going to re-arm the developed world and defence contractors are the new growth stocks. They almost were put out of existence during very intense scrutiny of ESG. Now they’ve gone from untouchable and uninvestible to everybody’s top pick.”

Rather than declaring the death of an industry, Dean believes we’re witnessing what he calls “the world’s most uncomfortable rotation” - away from the stocks that have fuelled returns for more than a decade and into areas that have been neglected for just as long.

“People are calling it a broadening. I don’t think it’s a broadening — it’s a rotation. It’s a rotation out of these very large, very long well-performing areas into some areas that hadn’t performed well for a really long time.”

Backing L1 Group and staying with Johns Lyng

Langdon Equity Partners was founded in 2022 with a mandate to invest in global small and mid-cap stocks. The Pinnacle-backed boutique has delivered 13.9% per annum since inception, although performance has lagged its index over the past year.

Dean says both the team and key clients have been adding to the strategy in recent months, with internal capital up 30% since November. That willingness to lean in during periods of discomfort reflects the firm’s long-term orientation.

It’s rare for ASX-listed stocks to feature heavily in the top holdings of a global equity manager. Yet Langdon’s largest position, at 7.6% of the fund, is Melbourne-based L1 Group (ASX: L1G).

Dean estimates he and his team have met more than 150 listed asset management firms globally over the past 15 years. Only two stood out as genuinely worth owning. L1 is one of them.

“In theory, asset managers should be great businesses,” Dean says. “But in practice, very few are.”

What differentiates L1 is alignment and ambition. The founders, Mark Landau and Raphael Lamm, have 100% of their net worth invested in their funds. They are not diversified entrepreneurs. Their capital and reputations are tied directly to performance.

Dean was also struck by the strategic intent behind listing the business. Why would you take a successful private firm and put it into public markets?

His conclusion: you only do that if you have a plan.

That plan, to use the listed vehicle as a platform to seed and partner with other managers, backed by meaningful balance sheet capital, echoes models that have worked elsewhere, but with founders firmly in control.

Langdon participated as a cornerstone investor in L1’s recent capital raise, writing a $50 million cheque, which was the second-largest in the deal.

“We’re in this for five to ten years,” Dean says. “We love that they have control. You’ve got investors at the helm with their reputations and capital at risk.”

Despite strong recent performance, Dean says he’s come away from his latest trip to Australia even more bullish.

Perhaps even more telling of Langdon’s long-term mindset is its decision to retain exposure to Johns Lyng Group after its take-private by Pacific Equity Partners (PEP).

Dean had been invested in Johns Lyng for some time and believed it was trading below intrinsic value. Rather than simply accept the privatisation and redeploy capital elsewhere, Langdon approached PEP directly and negotiated to reinvest as a co-investor in the private vehicle.

The thesis is straightforward. Johns Lyng operates in the restoration and insurance building services market - a sector underpinned by recurring, non-discretionary demand. Climate-related events, ageing housing stock and insurance claims are not cyclical fads. They are structural drivers.

Langdon has owned similar restoration platforms in North America for more than a decade. The economics are attractive: fragmented industry structure, recurring revenue streams, and operational leverage as scale increases.

Dean felt the take-private occurred at a point in the cycle that understated the long-term earnings power of the business. By reinvesting alongside PEP, Langdon maintains exposure to a high-quality operator with strong industry tailwinds - without being forced into a rushed redeployment of capital.

It seems like an odd move. In light of the reverberations running through markets surely there's a listed stock that can meet Langdon's criteria. But Dean draws on advice from a former boss that speaks to the patience and discipline that he applies to the firm's investment process.