While much ado is made of the science that goes into fund manager research, real assessment puts comparable weight on the art as well according to investment leaders.
While financials and materials dominated trades leading into 2024, the popularity of other sectors like healthcare and information technology followed generational, and even demographic, lines.
HMC capitalises on public/private hybrid approach to equity investment
HMC Capital (ASX:HMC) is stretching the boundaries of both public and private equity investment, blending the two capital channels into a hybrid fund that aims to take the best features of each to “capitalise or crytalise” value.
The listed property group launched by former UBS banker David Di Pilla (pictured), which made waves early by flipping the old Woolworths Masters portfolio of real assets into a retail property group giant, is now launching a fund that combines the best features of private and public investing to create a pro-active management style equity fund.
The HMC Capital Partners Fund is an unlisted fund that seeks to find value in both traditional liquid equity investments and the private equity sphere. The key to the fund, explained managing director Victoria Hardie, is that HMC Capital is taking the active management strategy investors use for private equity, and overlaying that onto the public equity sphere to untap hidden value pockets.
“Typically, when investing in listed markets you would see a portfolio with a number of stocks, maybe it’s 50 or 75 stocks, and taking small positions in each of those stocks… but maybe not extremely deep due diligence on each of them and typically leaving the market to deliver the return for you” Hardie explained in a recent INDepth interview.
“A private markets approach tends to be more influential, where you try to exert more control over the investee companies and actually use the skills of the manager to try and deliver returns,” she continued, adding that the approach being taken with the HMC Capital Partners Fund is “a bit of a hybrid on that”.
“So we invest in listed equities, but we’re taking a private market style approach; so taking significant stakes, and looking to influence the strategy and direction of our investing companies more akin to a private equity-style manager.”
The fund was launched on August 31, 2022 with an initial $150 million stake from HMC and has recorded a 7.6 per cent performance since inception as at June 2023.
According to Hardie, the ‘secret sauce’ to identifying value gaps in investee companies is a matter of looking out for common indicators.
“They might be undervalued because of conglomerate discount, because strategy might need some tweaks due to cyclical factors, because management or the board might need some change,” she said.
“We use our background and expertise, which comes primarily out of investment banking, to try and capitalise or crystalise the value that we see through creative deal making or causing those businesses to be split up, or selling assets or changing direction, whatever we see as the the way best to close the value gap that we see.”
There is one indicator that comes up, in terms of identifying undervalued assets, more than others, she revealed.
“Most typically we see there’s just been some mis-steps from management on the strategy,” Hardie said. “And having some clear, clear minded, active investors on the register might help to redirect the strategy in a better direction.”
