Blue Sky talks investments and growth strategy

Interviews

Transcription of Finance News Network Interview with Blue Sky Alternative Investments Limited (ASX:BLA) Managing Director, Mark Sowerby
 
 
Natalie MacDonald: Blue Sky Alternative Investments (ASX:BLA) is an alternate assets manager with more than $1.35 billion in assets under management. I’m Natalie MacDonald and joining me at the CEO Sessions in Brisbane is the company’s founder and Managing Director, Mark Sowerby. Mark welcome back to FNN.
 
Mark Sowerby: Thanks Natalie.
 
Natalie MacDonald: Could you start by perhaps providing an introduction to Blue Sky Alternative Investments?
 
Mark Sowerby: We started the business in 2006 as Blue Sky Private Equity, so we were investing into venture capital private equity deals. And then we saw an opportunity to follow the US model, which was round moving into a more alternative asset. So we saw the opportunity, we grabbed it; we listed ourselves in January 2012 with a market cap of $33 million. We’ve grown I think $180 million under management at the time and 25 staff.
 
So now we’ve got about 80 in the team, as you said more than $1.35 billion under management. We’re across four asset classes, so it’s really grown tremendously over that period of time. Obviously the market cap is reflecting that, we’re about $350 million market cap now and I suspect in the ASX 300, sometime soon.
 
Natalie MacDonald: Firstly, what are alternative investments and what makes them attractive to investors?
 
Mark Sowerby: I think there’re a couple of things. So most alternatives aren’t necessarily correlated with equity markets. So when you invest in alternatives, by and large with the exception of hedge funds, you’re giving up liquidity. But what you’re investing in are private markets. I think in Australia in particular, the private markets are much more interesting. There’s a lot of growth. That’s where all the growth is coming from, all the innovation, all the new ideas, new companies.
 
So you’re investing into liquid markets, investing into private deals, so it could be private real estate, it could be residential. Right now we’re doing a lot of student accommodation as an example. In real assets, we’re investing into water rights, which I think is a really great way to play the agriculture theme. So you can follow the themes. What you give up is you give up liquidity. But by giving up liquidity, you should get higher returns and I think the really good managers in this space, demonstrate that they can make money over a long period of time.
 
Natalie MacDonald: How much interest is there for alternative investments in self-managed super funds, and also more broadly?
 
Mark Sowerby: More broadly, it’s actually the fastest growing asset class by some margin in Australia, which is an actual evolution that we’ve seen in the US and the UK and Europe, where they’ve got now 20/25 per cent of their money is in alternatives. Australia’s now at about 17 per cent, when we started our business it was six. And I think a lot of the stuff that was in there were the leftover pieces, it certainly wasn’t on anyone’s radar. But now we’ll be at 20/25 per cent in the next three or four years.

Self-managed super funds are a big deal that’s really changed the way people invest, Natalie. So we’re seeing people who’re looking at their super, they’re in charge of their own superfund. And they’re making a decision to invest into these private markets and private opportunities, because they can invest for the long term now. They’ve gone from being traders to investors. I think self-managed super’s a really big deal. That’ll be half the superannuation money in our country, in the next five or 10 years. So it’s a big play.
 
Natalie MacDonald: How have your funds performed and what is the situation with regards to liquidity?
 
Mark Sowerby: So there’s no liquidity in a lot of what we do. So our hedge funds are totally liquid and hence their popularity, because people think they need liquidity. But our returns have been 15.4 per cent, net of fees compounding, since 2006. And the stock market’s about the same level it was when we started our business. So the returns have been excellent. Where we’ve made our most money is in the least liquid investments, as you’d expect.
 
So private equity venture capital we’ve done more than 20 per cent compounding net of fees. Our real estate’s done about 16 per cent compounding net of fees, our real assets about 14. There’s some liquidity in the water rights and the hedge funds have done about 10. So that liquidity curve I think is really interesting. It tells you that we’re making good decisions around where we invest for the risk we’re taking, to get the right reward.
 
Natalie MacDonald: Let’s take a look then at some of the financials. What were your highlights as it were for FY15?
 
Mark Sowerby: I don’t think there’ve been any surprises really. For such a long-term trend, the structural tail winds we’ve got are huge. And I think the prize for us is that we can become Australia’s leading alternative asset manager. And if you think about that big pool of capital and where it’s got to go, and there aren’t many managers to dial into, and we’re seeing that flow through each and every year. So we’re seeing more input and more assets under management. We certainly grew more than I expected with our assets under management.Returns are great, we lifted net profit by 80 per cent and revenues obviously were up as well, at the same time as paying a dividend and building up the team.
 
So I think if we can continue to do that, obviously we’re going to be a popular business, but there’s a long way to go. This is a 10/20/30 year play. If you look at Blackstone Group (NYSE:BX) in the US, they hit a billion dollars after 10 years and we’ve done it after nine, this was 1995 for them though. They’re at $400 billion under management today and one of the best companies in the world. I’m not suggesting that we’re Blackstone, but certainly the opportunity is there for us to be Australia’s leading manager.
 
Natalie MacDonald: What are you expecting then from FY16?
 
Mark Sowerby: I think more of the same. I think we’ve reached the inflection point where we’re actually scaling now. So I don’t think we need to be heroes, we just need to continue to grow the areas that we’re growing. The tail winds are there, keep our nose clean, keep doing the right thing and keep doing it well and we’ll be fine. And we’ll see more and more growth in assets under management. It’s probably a bit of an AUM play now.
 
We are seeing that growth and you do need to grab that spot. And we’ve used for example the listed investment company, which we have our listed stock for our funds, which is called the Blue Sky Alternative Access Fund (ASX:BAF). And that’s the way for people to get access to all the things that we do, and we’ll see that scaling as well. So I think it’s mostly about building scale and keeping the team happy, and doing a good job. And investment opportunities are enormous, so I don’t think we’re short of deal flow.
 
Natalie MacDonald: Last question then Mark. Where do you hope to see the company 12 months from now?
 
Mark Sowerby: I mean we provide a forecast or guidance I guess, in February each year. But more than anything else, I think it’s going to be just AUM growth. At some stage in the next year, we’ll go through to $2 billion under management. It’s sticky money, so I think that’ll flow through to our bottom line in future years as well. So look 12 months is not far out enough for me, I’m thinking about where we’re going to be in five and 10 and 20 years. And so I think this is going to be a really big business and next year, it’ll just be a small stepping-stone for that.
 
Natalie MacDonald: Mark, many thanks for the update.
 
Mark Sowerby: Thanks Natalie.
 
 
Ends

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