Transcription of Finance News Network Interview with Fairview Equity Partners executive director and portfolio manager, Michael GlenaneRebecca Richardson: Hello Rebecca Richardson for the Finance News Network. Joining me from Fund Manager Fairview Equity Partners is executive director and portfolio manager, Michael Glenane. Michael welcome back.
Michael Glenane: Thank-you.
Rebecca Richardson: It’s been a few months since we spoke. Given changing global demands, which sectors do you have your eye on at the moment?
Michael Glenane: We’re very interested in the shale plays in the States at the moment. There was a great report out by BP last week and it forecast that about two thirds of American gas demand, would be supplied by unconventional sources which is either shale or coal seam gas, versus very little at the moment. And within a few years that America will become a net exporter of gas - that’s a big geopolitical ramification. One thing is, is that we’re trying to find liquid plays for the shales. There would be a lot of gas around, but we are very interested in finding liquid plays and putting them in the portfolio.
Rebecca Richardson: Private equity has been a hot topic lately. What does private equity bring to the table in small caps?
Michael Glenane: Not a hell of a lot, we’ve got really a very jaundiced view from fund managers. What’s happened is that in the past before the GFC, the private equity modus operandi was - have a management stake put into the company. Cut costs, cut CAPEX and really look to actually wait for the right time to float it back, either through the IPO mode or through actually a trade sale. Since the GFC that’s changed and the old modus operandi with regard to loading up with lots of debt, is no longer feasible. And fund managers having been burnt many times over the last few years, are very jaundiced with regard to their views as far as being a private equity IPO.
Rebecca Richardson: For those watching who are unfamiliar, Fairview is an Australian fund manager focused on investing in Australian listed small companies. Michael how did Fairview perform in the last quarter of 2011?
Michael Glenane: Yes well it was a pretty tough quarter for the market. With regard to our index, it’s a small ordinaries accumulation index, so that includes dividends. We’re up about 3.7 per cent net after fees and the market itself was down 0.6 per cent.
Rebecca Richardson: So what were the key contributors and detractors to that performance?
Michael Glenane: Regis Resources was our biggest positive attribution and that’s a goldminer with one development well, or one sorry, development mine north of Kalgoorlie and also mining production. That put together another announcement with regard to the Rosemont deposit, that was very well received by the market, well over half a million ounces there. Bit of a surprise, but a nice positive surprise.
Our second largest positive contributor was Red Fork Energy and that’s in The Lime, the Mississippi Lime in the States. That’s one of those shale plays we were talking about before. Our third biggest contributor was actually in Texas and that’s Aurora oil and gas, and that is also a liquid which is a shales play. As far as on the negative side we had Beadell (BDR.ASX), now Beadell (BDR.ASX) is a goldminer. A couple of other key negative contributors for us were Karoon Gas (KAR.ASX), we are very happy not to own that one in the long term. And also Flinders Mines which was taken out by a Russian consortium.
Rebecca Richardson: Fairview Emerging Companies Fund began in 2008. What has its net performance after fees being, since then?
Michael Glenane: It’s been a bit over three years now. We’ve delivered back to our investors 14.2 per cent versus our index at 3.4 per cent. So we’re very happy with that outperformance.
Rebecca Richardson: So what are some of the key themes you’ll be looking out for in the upcoming reporting season?
Michael Glenane: It all starts for us. There’s two months of the year where the fund managers really earn their money, and that’s February and August. There’s a lot of work in those times. What we’re interested in is the biggest sector for us with regard to our overweight, is the mining services area. You start to see a couple of upgrades come through there, for instance we had Ausdrill (ASL.ASX) an index recently upgrade. It’s our biggest overweight, we’re looking forward to seeing some good outlook statements and these stocks trade on the depth of their CAPEX pipeline. And that’s as deep as it’s ever been in our history.
Rebecca Richardson: There’s also a lot of macro events like the US presidential elections coming up this year. Do you have any strategies in place to take advantage of events like this?
Michael Glenane: Generally we’re stock pickers. We look at individual companies; go out visit them, work out their valuation upside and if they’ve got an investment thesis. But the world of macro events is always an important backdrop to being an investor. I think generally the Australian media will probably over-focus on the US election. There’s another critical election this year and that is the Chinese Standing Committee of the Politburo, where there’s going to be westerners in charge who will look to develop the western provinces, or actually people looking at social cohesion or classic populace. That’s really important; we’ll be looking at that.
Rebecca Richardson: Michael Glenane thanks for sharing your views. We look forward to speaking with you again soon.
Michael Glenane: My pleasure Rebecca.
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