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Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm

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Speaker 1: James Kirkby. Welcome aboard everybody. The biggest boom area in

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Speaker 1: investment now, believe it or not, it's not the share market.

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Speaker 1: It's the private market on listed investments, private credit, private equity.

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Speaker 1: And in the recent past, you know, wealthy investors and

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Speaker 1: big institutions like the Future Fund or universities made a

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Speaker 1: lot of money here. The issue is it for you?

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Speaker 1: What you need to know. My guest today is top

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Speaker 1: rated financial advisor Charlie Viola of Viola Private Wealth. All Ai, Charlie,

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Speaker 1: good times. I mean, broadly from what I gather, what

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Speaker 1: I read, what we've talked about in the past, I mean,

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Speaker 1: you're broadly enthusiastic about this private if I can call

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Speaker 1: it a privatizer of investment, where there's much more than

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Speaker 1: there used to be on the private markets for everybody.

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Speaker 2: Look, we're probably more than enthusiastic about it. We were

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Speaker 2: probably a very early mover in terms of using private

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Speaker 2: market investments and unlisted investments for our client portfolios. And

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Speaker 2: what we're very well known for in the market is

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Speaker 2: making sure that we find those good quality, diverse assets

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Speaker 2: for investors to allocate too. And you know, like we

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Speaker 2: sort of always say we're big ones for diversity, we're

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Speaker 2: big ones for the right type of asset allocation, and

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Speaker 2: where we're big ones for asset quality. But I guess

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Speaker 2: what's probably happened over the last I don't know, call

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Speaker 2: it fifteen years, is this private market stuff has been

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Speaker 2: democratized in a lot of ways. So once upon a time,

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Speaker 2: this was only an area that you could get to

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Speaker 2: if you were a large family office, you know, an

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Speaker 2: institutional investor or a big super fund, whereas or a

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Speaker 2: very high netwealth individual where you could hand or the

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Speaker 2: significant lock up of the capital. What's happened over the

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Speaker 2: last number of years is a lot of the funds

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Speaker 2: have sort of seen the demand and the need for

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Speaker 2: these types of investors, these types of investments in normal

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Speaker 2: investment portfolios, and therefore they've created what we call evergreen

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Speaker 2: vehicles where money can kind of go in all the time,

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Speaker 2: where your money has invested straight away, and it gives

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Speaker 2: normal investors access to those private markets. So we like it,

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Speaker 2: you know, we think it gives investors a great way

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Speaker 2: of diversifying. You know, most investors in Australia have had

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Speaker 2: lots of kind of CBA and BAGP shares over their lifetime.

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Speaker 2: You know, they've taken lots of kind of equity risk

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Speaker 2: within their portfolios and ultimately that's done pretty well. Right

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Speaker 2: Like since GFC, equity markets have basically done nothing but

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Speaker 2: go up. But what we've seen is with the democratization

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Speaker 2: of these private markets is now investors are getting access

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Speaker 2: to all the things that they couldn't before. And as

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Speaker 2: you said, before private equity, private debt, private credit, access

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Speaker 2: to markets that generally were only available to really high

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Speaker 2: night wealth individuals, family offices, institutional investors.

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Speaker 1: Have we any reason to believe that there's better value

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Speaker 1: in these markets that are understed compared to the share market.

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Speaker 2: Now about it being better value, I don't think it's

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Speaker 2: about diversity, and it's about it's about sort of having

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Speaker 2: an uncorrelated level of risk compared to equity markets. I

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Speaker 2: think lots of people will argue and their arguments are

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Speaker 2: probably not that wrong that if you actually look at

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Speaker 2: the last four or five years, public markets have done

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Speaker 2: a heap of the heavy lifting. So you know, in

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Speaker 2: the last three or four years you could have done

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Speaker 2: nothing but invested you know, megacap US stocks and large

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Speaker 2: cap domestic stocks in your returns would have been more

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Speaker 2: than acceptable, right, they would have been ten or fifteen

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Speaker 2: percent a year. It's about ensuring that you don't have

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Speaker 2: all of your money is exposed to the exact same risks.

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Speaker 2: It's about ensuring that you're generating your revenue flows in

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Speaker 2: different ways. So in lots of ways, it's about reducing

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Speaker 2: the risk in your portfolio. Some people think that when

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Speaker 2: you go and invest in alternatives, and we hate the

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Speaker 2: use of the word alternative, right, these are just normal

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Speaker 2: assets packaged in a different way. But when you go

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Speaker 2: and invest in private markets, you're taking more risk. In fact,

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Speaker 2: you're reducing your risk profile because you're starting to allocate

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Speaker 2: your moneys to different types of investments that perform differently

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Speaker 2: at different times. So, you know, we talk to investors

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Speaker 2: a lot about we will have normal public market exposures.

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Speaker 2: You know, they're there to do a job in terms

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Speaker 2: of producing earnings growth, producing us a bit of revenue

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Speaker 2: over time, and giving us some growth. But we want

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Speaker 2: other assets too. You know, we want infrastructure in our

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Speaker 2: portfolio because it's a hedge to inflation. We want good

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Speaker 2: quality private debt or private credit in the portfolio because

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Speaker 2: it generates really good quality cash flow.

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Speaker 1: I don't doubt you with your connections with your career

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Speaker 1: in financial advice at the level you have been at.

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Speaker 1: And folks, if you're not familiar with Charlie, he has

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Speaker 1: been a long time a veteran at the operank so

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Speaker 1: off the Barons Top one fifty advisors list the youngest

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Speaker 1: veteran that that might actually be true. But what I

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Speaker 1: want to ask you is, for most people, right this

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Speaker 1: is all new and their financial advisor is flooding them

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Speaker 1: with this stuff, and the market is flooding the advisors

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Speaker 1: with this stuff, and I wonder, how does an advisor

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Speaker 1: what are the dangers here? Like for instance, just let's

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Speaker 1: just look locally. For instance, we're not most people wouldn't

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Speaker 1: be used to even knowing what's going on in private equity.

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Speaker 1: There was mezzanine finance and that was that kind of stuff,

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Speaker 1: but it was marginal and it was, as you say,

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Speaker 1: for very wealthy people. Now we have we're getting When

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Speaker 1: a major private credit group like Metrics Credit Partners gets there,

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Speaker 1: some of their products downgraded, it's front page news. This

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Speaker 1: is because this is the early days in our market

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Speaker 1: for private credit, and we're not used to seeing the

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Speaker 1: ups and downs of private credit. How do you navigate

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Speaker 1: that as as an investor when it's all new to you.

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Speaker 2: So I think a couple of things are still really

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Speaker 2: important in how you build out portfolios. Asset our location

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Speaker 2: and diversity is really important. Yeah, So making sure that

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Speaker 2: not all the eggs are in the same basket and

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Speaker 2: making sure that you slice the pie up and you've

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Speaker 2: built your portfolio out of different types of investments is

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Speaker 2: really important. So the second piece is when you look

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Speaker 2: at those individual sleeves that belong with your portfolios, and

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Speaker 2: you have a sleeve for the private credit or private

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Speaker 2: debt section, you have to understand that with that sleeve

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Speaker 2: there are different types of things that make that up.

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Speaker 2: So in the private credit space, it is an entire spectrum.

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Speaker 2: Like it's an entire sphere of investments all the way

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Speaker 2: from as you say, mezzanine secondary construction debt and then

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Speaker 2: first more eage type stuff. We in our business very

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Speaker 2: much use private debt private credit as a defensive end

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Speaker 2: of the portfolio. We use it to producing comfort clients.

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Speaker 2: So we use it. We only invest in the really

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Speaker 2: defensive stuff. When you think about something like metrics, for instance,

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Speaker 2: it's important you kind of look at the signals and

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Speaker 2: not the noise. So the noise around it is that

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Speaker 2: they that they've gone and taken over a business and

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Speaker 2: suddenly they run restaurants.

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Speaker 1: Yeah, they're stock with stuff, they're stop with stuff they

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Speaker 1: didn't intend to hold it.

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Speaker 2: And what they've done is they've had to have the

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Speaker 2: debt step into the shoes at equity. But fundamentally, that

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Speaker 2: process of debt becoming equity is how they actually protect

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Speaker 2: their investor's capital. So Andrew Lockhart, the guy who runs Metrics,

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Speaker 2: is probably one of the smartest guys in the market,

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Speaker 2: does an incredibly good job in understanding how that credit

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Speaker 2: actually gets put together and how he protects the investor capital.

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Speaker 2: Every good private credit manager, every good private debt manager,

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Speaker 2: over time we'll understand their equity, we'll understand what they're

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Speaker 2: securing their debt against. It becomes incumbent upon the manager.

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Speaker 2: And this is why we're big ones around manager selection.

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Speaker 2: We're big ones around making sure you know who you're

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Speaker 2: giving your clients money to or who you're giving you

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Speaker 2: money to, because ultimately, the security that is provided becomes

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Speaker 2: really important. There is this question out there that what's

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Speaker 2: a higher risk investment, private credit or private equity. Private

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Speaker 2: equity by nature is always going to be a higher

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Speaker 2: risk investment than private credit because private credit is generally

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Speaker 2: going to be asset backed. There is generally something behind

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Speaker 2: it that can falled upon to actually get you your

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Speaker 2: money back, or you will own something at the other

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Speaker 2: end private equity again, and remember private equity is a

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Speaker 2: whole other sleeve of the portfolio and it is broken

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Speaker 2: up into different pieces. Is investing in something that you

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Speaker 2: hope will do well over a period of time. So

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Speaker 2: my message to investors and my message to advisors is

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Speaker 2: make sure you are putting these in the right parts

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Speaker 2: of your portfolio, and you're only holding the right amount

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Speaker 2: of it, and you're asking that part of the portfolio

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Speaker 2: to do a very specific job within the portfolio.

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Speaker 1: Okay, Can I ask you what question with the Lemon's

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Speaker 1: question really about private credit? But it comes up every time,

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Speaker 1: It's very simple question. If it's so good, why does

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Speaker 1: the banks do it?

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Speaker 2: Do you mean, why are they non banked lenders?

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Speaker 1: Why do the banks withdraw from certain businesses and private

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Speaker 1: credit go in there and it's unlisted and this is

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Speaker 1: a hot area now, But why do the banks retreat

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Speaker 1: from this in the first piece if it's so good.

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Speaker 2: Because of the regulations. So the capital required on the

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Speaker 2: bank's balance sheet for the lending that they make is

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Speaker 2: very different to the non bank lenders. So there isn't

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Speaker 2: there isn't a space for the major banks to be investing.

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Speaker 2: And what you tend to find is the non bank

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Speaker 2: lenders will generally do the stuff at the beginning, and

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Speaker 2: then the majors will come along afterwards when the capital

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Speaker 2: requirement isn't as high. So remembering that lots of the

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Speaker 2: projects that we see, you know, lots of the kind

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Speaker 2: of land subdivision, is all done by non baked lending.

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Speaker 2: Non bank lending is not something that's new. People have

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Speaker 2: even lending other people money for you know, virtually effect

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Speaker 2: hundreds of years. Right. The banks will only ever come

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Speaker 2: along where their regulatory restraints and constraints are absolutely met.

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Speaker 1: Okay. So it was the capital adequacy rules basically that

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Speaker 1: titans what banks could do, which open this opportunity. Okay,

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Speaker 1: I hear you. Now on the private equity here's the

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Speaker 1: thing again. So someone saying, okay, I'm used to the

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Speaker 1: share market. You know, I've always had shares. I see

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Speaker 1: this area. It looks very interesting. But are you concerned?

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Speaker 1: You must be, I imagine about what goes on. It's not

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Speaker 1: as transparent, right, private equity as the share market. By definition,

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Speaker 1: we can find out everything in the share market, we

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Speaker 1: can find out the salaries of the executives. Everything in

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Speaker 1: private equity we can't. And so there is this risk

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Speaker 1: that they will play games behind the scenes. And I

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Speaker 1: read reports all the time about what goes on and

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Speaker 1: buyout funds and how buyout funds can can these days,

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Speaker 1: for instance, go on forever without actually floating the asset

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Speaker 1: off on the share market because they can't get them

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Speaker 1: off so that they can come up with new tricks

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Speaker 1: basically continuation vehicles and that sort of thing. I mean,

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Speaker 1: you have to stay across all that. I'm sure what

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Speaker 1: are the risks and the private equity space, which you

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Speaker 1: have said in the first part of the show, is

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Speaker 1: riskier anyway.

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Speaker 2: Yeah, So remembering what you're wanting your private equity portion

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Speaker 2: of your portfolio to do. It's your highest portion of

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Speaker 2: the portfolio. You want it to generate the biggest outsized

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Speaker 2: returns within the portfolio. My answer to all that is

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Speaker 2: manager selection. So different managers do different things and different

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Speaker 2: managers will live best money and by portfolio companies across

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Speaker 2: different sectors. So we do you know, certainly in our

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Speaker 2: business we have a reasonable sleeve. In the private equity sector,

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Speaker 2: we work really hard around the due diligence on the managers,

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Speaker 2: making sure we understand, you know, who's looking after our

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Speaker 2: client money. So you are ultimately exactly right. You are

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Speaker 2: backing the jockey. You're backing that manager to do a

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Speaker 2: good job and make the right decisions with the capital

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Speaker 2: that they've got. And remembering that private equity is kind

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Speaker 2: of a homogeneous term that goes all the way from

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Speaker 2: kind of seed VC, you know, buyout and pre IPO.

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Speaker 2: You just need to and as you sort of go

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Speaker 2: up that curve, you're effectively taking less risk. Right, So

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Speaker 2: the closer you get to pro IPO, the less risk

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Speaker 2: because the companies are more well known. Just make sure

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Speaker 2: you understand what you're investing in, where you're investing, and

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Speaker 2: generally speaking, what your line of sight to liquidity actually is,

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Speaker 2: so you know, if you're investing in a VC fund

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Speaker 2: that has a period like a fund where you make

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Speaker 2: a capital commitment. They'll call it over three years, and

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Speaker 2: they'll use it over five years, and you might not

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Speaker 2: get your money back for ten or twelve. You have

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Speaker 2: to be very comfortable with that. You've got to be

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Speaker 2: really comfortable that your money is out being harvested for

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Speaker 2: eight or ten years. If you want that capital back,

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Speaker 2: you've made a bad decision in terms of the investment

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Speaker 2: that you've made. Yeah, so you have to feel really

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Speaker 2: comfortable with the risk that you're taking. So it's eyes

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Speaker 2: wide open. But it's also about understanding, like try not

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Speaker 2: to get intoxic by the returns that managers tell you

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Speaker 2: they're going to produce, and understand what it is that

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Speaker 2: they're investing in. We've met lots of private equity managers.

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Speaker 2: In fact, we probably see a deck, you know, every

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Speaker 2: other day. You've never met a dumb one. You've never

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Speaker 2: met a dumb fund manager. They're all the smartest blokes

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Speaker 2: of the room. So you know, understanding what you're investing,

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Speaker 2: how long they're going to have your capital for, you

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Speaker 2: know what sector of the market, what the risks are,

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Speaker 2: and what the liquidity constraints will be is like so

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Speaker 2: super important. And remember these these are intended to be

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Speaker 2: Remember these are intended to be small parts of big portfolios.

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Speaker 1: Okay, yeah, very good, put it in proportion. Folks. See

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Speaker 1: you as part of diversification. I suppose it's a new

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Speaker 1: charity to most people. Is it's a new diversification, it's

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Speaker 1: a new avenue. And it's interesting that, of course your access,

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Speaker 1: the access in your case at least, is strictly through

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Speaker 1: managers rather than direct Okay, we'll take a short break.

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Speaker 1: We'll be back in a moment. Hello, Welcome back to

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Speaker 1: the Australians Money Puzzle podcast. James Kirby here with a guest,

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Speaker 1: Charlie Viola, who has often been on the show. In fact,

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Speaker 1: the last time he was on the show, he was

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Speaker 1: so close to starting his new operation Viola Private Wealth,

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Speaker 1: but he couldn't tell me. I remember, because it was

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Speaker 1: literally I think it was weeks, wasn't it before you started?

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Speaker 1: How long are you up and about now as a

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Speaker 1: new entity? A year?

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Speaker 2: Yes, yeah, so we completed on the management buyer about

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Speaker 2: October last year, so we still getting you brand, you know,

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Speaker 2: almost a year ago we did a management buyer though,

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Speaker 2: so it was very much sort of same shop, new sign.

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Speaker 2: But yeah, it's been sniting, it's been great. We're doing

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Speaker 2: really well.

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Speaker 1: So yes, well, of course you're unleashed. Tell me, speaking

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Speaker 1: of unleashed, unleashing oneself into the world of new age investments,

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Speaker 1: where do you stand on crypto?

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Speaker 2: So you know, I'm probably quoted on this before that

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Speaker 2: once upon a time, crypto was probably the place for

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Speaker 2: you know, people that are lawned the money or it

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Speaker 2: felt like a bit like a game, et cetera. The

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Speaker 2: reality is that crypto probably carries a bunch of the

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Speaker 2: underlying fundamentals that all currency carries. You know, it's separable,

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Speaker 2: it's rare, you know, it can be used as an

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Speaker 2: exchange for goods, et cetera. I think one of the

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Speaker 2: I think one of the concerns with you know, crypto

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Speaker 2: generally is that there's still no kind of logical use case,

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Speaker 2: or at least we haven't kind of got to the

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Speaker 2: answer in terms of it being a logical use case.

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Speaker 2: So the thing that's driven its price over time has

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Speaker 2: just been the demand, like the supply versus demand or

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Speaker 2: the scarcity of it over time, so we kind of

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Speaker 2: see it, you know, like I think over time it's

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Speaker 2: probably started to act a bit more like a sort

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Speaker 2: of digital gold proxy. You know, we still don't put

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Speaker 2: it as a specific piece into client folios. We don't

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Speaker 2: put gold in the client portfolios generally either unless they

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Speaker 2: ask for it. You know, we're big ones for hold

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Speaker 2: really good, normal traditional assets that generate revenue. And you

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Speaker 2: know I said before about diversity, but you know, what

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Speaker 2: we've seen is that you know, probably for the first

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Speaker 2: time in the last four or five years, bitcoin and

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Speaker 2: gold probably traded in lockstep over the past sort of

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Speaker 2: few years, over the fast past few months. But remember

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Speaker 2: that big cooin was meant to be the kind of

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Speaker 2: ultimate kind of decorrelation from markets. Bgcoin really has just

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Speaker 2: correlated itself to the NASDAK over the last number of years.

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Speaker 2: So you know, when risk assets have gone up, it's

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Speaker 2: gone up. When risk assets have gone down, it's gone down.

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Speaker 1: So in your reviewer doesn't have what gould has, which

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Speaker 1: is the ability to be non correlated to go up

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Speaker 1: when basically when everything goes after eels God will go up.

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Speaker 1: Do you think bitgoin will go down with the market basically.

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Speaker 2: Yeah, correct, because it still feels like a scas set

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Speaker 2: in our view. So do I think that crypto like

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Speaker 2: and you know, I'm going to preserve my comments to bitcoin.

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Speaker 2: Do I think bitcoin is going to disappear? No, I don't. Like.

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Speaker 2: I think that it's been around for long enough. Now

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Speaker 2: there's enough investors, there's enough institutional support for it. You know,

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Speaker 2: we've obviously seen a bunch of these kind of exchange

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Speaker 2: traded funds and kind of access vehicles created, especially in

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Speaker 2: the US. The inflows into those vehicles have been just

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Speaker 2: you know, off the planet over a period of time.

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Speaker 2: So I don't think it'll disappear. Do I think it

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Speaker 2: is what people say it is, where it is this

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Speaker 2: kind of protection mechanism of your capital. I don't think

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Speaker 2: that at all. Are we putting it into client portfolios

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Speaker 2: as you know, the same way we would with you know,

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Speaker 2: private debt or private equity or you know, public market equities,

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Speaker 2: where they absolutely have to have that as part of

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Speaker 2: a good diverse portfolio. We're not because we can't track

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Speaker 2: the fundamentals of that class, so we don't want to

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Speaker 2: expose client moneys to it.

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Speaker 1: Just one nase thing which I'm deeply intrigued by. At

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Speaker 1: least there is now crypto going back into gold. There is,

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Speaker 1: for instance, gold backed crypto there is deeply intriguing Teather,

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Speaker 1: which is one of the very biggest so stable coin

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Speaker 1: groups buying gold miners. So it's like they are, well,

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Speaker 1: what do you think they're doing?

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Speaker 2: Yeah, I don't know. I mean, I think in reality

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Speaker 2: what you're seeing is just sort of an increase in

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Speaker 2: relevance because of the size of the crypto market. So

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Speaker 2: I think I've read somewhere the other day that the

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Speaker 2: crypto market and bitcoin alone is the eighth largest global

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Speaker 2: asset by market cap. So now what you've got is

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Speaker 2: you've got a number of really smart people, you know,

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Speaker 2: these kind of beautiful mind type people who are putting

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Speaker 2: together derivative style arrangements to try and back the underlying

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Speaker 2: growth and bad asset class over time. And you know,

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Speaker 2: whenever it it's momentum, you find that it continues to

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Speaker 2: grow quite quickly. And you know, the bitcoin market cap

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Speaker 2: is bigger than better right now, right, So there's obviously

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Speaker 2: a level of relevance. There's a level of relevance there.

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Speaker 2: So in terms of kind of you know, are we

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Speaker 2: a picks and shovels or should we be buying the

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Speaker 2: asset itself. Look, I think we've probably swayed over time

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Speaker 2: on that. You know, we were at picks and shovels

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Speaker 2: type business where we like those operating businesses that we're

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Speaker 2: generating revenue as a result of going in mining the bitcoin.

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Speaker 2: You now, I think if you want the exposure to it,

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Speaker 2: because you believe it's going you know, if you believe

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Speaker 2: the harving theory, you believe it's going to keep going up,

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Speaker 2: they just go and buy it and you kind of

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Speaker 2: hope for the best. But again, make sure it's very

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Speaker 2: small parts of your overall wealth position. So and don't

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Speaker 2: forget those people who got really rich off this stuff.

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Speaker 2: They are the absolute exception. They're not the rule. Like,

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Speaker 2: just because one blow boarded at four dollars and now

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Speaker 2: it's one hundred and sixteen thousand or whatever the price is,

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Speaker 2: that's not going to generally happen for most people. Right,

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Speaker 2: You've got to get away from the noise associated with that.

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Speaker 1: Okay, very interesting, Charlie, And there is that theory of

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Speaker 1: course that the paradox for a lot of investors is

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Speaker 1: that as it does become mainstream, its volatility lessons and

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Speaker 1: the days of it doubling overnight are probably gone. Where

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Speaker 1: that was happening, you know easily in the early days.

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Speaker 1: All right, okay, terrific. Now I've got some great questions

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Speaker 1: that kept for you. Stay with us. We'll be back

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Speaker 1: in a second. Hello, Welcome back to The Australian's Money

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Speaker 1: Puzzle podcast, James Kirkby with Charlie Viola. A couple of questions. Carl,

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Speaker 1: I was watching the news. I noticed PHP shares fell

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Speaker 1: after going ex dividend. It makes me wonder whether there's

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Speaker 1: a broader pattern of shares losing value after going X dividends.

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Speaker 1: Do you know if there's any research on this phenomenon, Carl,

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Speaker 1: there's buckets of research on it.

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Speaker 2: It's probably not a phenomenon. Cal Simply what's happening is,

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Speaker 2: obviously all of the profits have been banked up in

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Speaker 2: the company and then they've paid them out, so naturally

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Speaker 2: it's going to go down in value when you obviously

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Speaker 2: pay those out. So it's the theory of kind of

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Speaker 2: you know, the company breathes in, it creates all the profit.

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Speaker 2: It then has a dividend policy to pay that out

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Speaker 2: to investors. It pays it out, and naturally the share

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Speaker 2: price goes down as a result of the dividend being

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Speaker 2: paid out. So and that's why you'll find that generally,

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Speaker 2: you know, we talk about cumulative share price and then

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Speaker 2: X ex dividend ex dividend price being the share price

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Speaker 2: after the dividends being paid.

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Speaker 1: So yes, so that's basically it's simple maths. And remember

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Speaker 1: this is not advice information only, but if HP was

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Speaker 1: worth X plus five and they had a dividend payout

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Speaker 1: and it was five, well then they've dropped the five.

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Speaker 1: So you can see that's how it goes. Do you

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Speaker 1: have this team? Was it a common dividend ex dividend?

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Speaker 1: Wasn't that it? You don't hear it very often anymore.

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Speaker 1: But basically it's it's simple match. There's less money in

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Speaker 1: the company than there was because they've paid out the dividends,

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Speaker 1: so so the value drop. It's no mystery and no

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Speaker 1: dok secots. Basically, it's entirely conventional but has been happening

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Speaker 1: for a lot. A lot always happens. It's just worth

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Speaker 1: knowing how it happens. Thank you, Carl. Very good question. Okay, Steve,

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Speaker 1: I have a quick question. If you were aiming to

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Speaker 1: buy the five best run, best value stocks across five industries,

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Speaker 1: and you'd already identified them, would you also apply financially,

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Speaker 1: What would you apply financial ratios to gain a deeper understanding,

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Speaker 1: and if so, what are the key ratios you would

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Speaker 1: want to apply. Well, it's interesting, we were talking most

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Speaker 1: of the show about unlisted investments, but I imagine the

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Speaker 1: key ratios are nearly they are universal really in some

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Speaker 1: respects to all businesses.

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Speaker 2: But generally speaking, the way that you value an unlisted

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Speaker 2: investment or an unlisted company is the exact same way

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Speaker 2: that you would value a listed company. To come up

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Speaker 2: with what is kind of a fair valuation offered. Market sentiment,

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Speaker 2: you know, drives the prices outside of those fair valuations,

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Speaker 2: but you know, Steam's right. Ratio analysis in our should

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Speaker 2: be part of any good company specific due diligence that

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Speaker 2: you do, because it gives you that ability to sort

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Speaker 2: of do the like for like. So I don't think

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Speaker 2: any analyst in the market, and you know I'm not

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Speaker 2: an analyst, but the way our CEO sort of talks

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Speaker 2: all the time is, you know, looking at the EBADA

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00:23:21,720 --> 00:23:25,679
Speaker 2: margin or EBADA to revenue or the price to earnings ratio,

432
00:23:25,760 --> 00:23:28,840
Speaker 2: et cetera. Is used in the valuation of every company,

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00:23:28,880 --> 00:23:31,560
Speaker 2: and really it's the only way that you can get

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00:23:31,600 --> 00:23:34,679
Speaker 2: a like for like if you're comparing I don't know,

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00:23:34,720 --> 00:23:38,800
Speaker 2: Woolworth's to d HP or Woolworths, BHP and CBA, three

436
00:23:38,840 --> 00:23:42,160
Speaker 2: stocks that are probably in everybody's They've got different drivers

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00:23:42,200 --> 00:23:45,439
Speaker 2: of revenue, but the thing that's the same is what

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00:23:45,520 --> 00:23:48,240
Speaker 2: is their their revenue to their profit? What is their

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00:23:48,280 --> 00:23:50,960
Speaker 2: profit to their price? And that'll give you an indication

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00:23:51,080 --> 00:23:54,080
Speaker 2: as to how expensive that company is when you're going

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00:23:54,119 --> 00:23:54,880
Speaker 2: in and buying it.

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00:23:55,400 --> 00:23:58,960
Speaker 1: And the managers you use in the private equity space

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00:23:59,000 --> 00:24:02,080
Speaker 1: and the on list, can they get those numbers as

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00:24:02,080 --> 00:24:03,800
Speaker 1: easy as they can from a stock.

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00:24:05,440 --> 00:24:07,879
Speaker 2: You would think that, and certainly the private equity managers

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00:24:07,920 --> 00:24:10,760
Speaker 2: that we talk to, you know, obviously they're looking at

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00:24:10,760 --> 00:24:13,239
Speaker 2: they're looking at profit and loss statements, they're looking at

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00:24:13,240 --> 00:24:15,919
Speaker 2: balance sheets, they're having a look at earnings, they're normalizing

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00:24:15,960 --> 00:24:18,919
Speaker 2: those earnings over time, and therefore they're coming up with

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00:24:18,960 --> 00:24:21,439
Speaker 2: what the EBIDA numbers are and then they're applying a

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00:24:21,520 --> 00:24:25,520
Speaker 2: multiple to that. And generally speaking, the private market multiples

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00:24:25,520 --> 00:24:28,440
Speaker 2: are lower than the public market multiples will be. Which

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00:24:28,480 --> 00:24:31,400
Speaker 2: is why ultimately the theory is a value in going

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00:24:31,480 --> 00:24:34,920
Speaker 2: and being becoming a listed company because in the unlisted market.

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00:24:35,119 --> 00:24:37,080
Speaker 2: You know, depending upon what it is, it might have

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00:24:37,160 --> 00:24:40,080
Speaker 2: a eight to twelve times multiple where in the listed

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00:24:40,119 --> 00:24:42,920
Speaker 2: market because generally capital is there for a lot longer,

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00:24:43,119 --> 00:24:45,760
Speaker 2: it'll trade at you know, eighteen to twenty two times,

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00:24:45,800 --> 00:24:46,440
Speaker 2: for instance.

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Speaker 1: So that's the ascendency basically into the blue sky of

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00:24:50,920 --> 00:24:53,240
Speaker 1: the wider public markets. And that's the game, really, isn't

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00:24:53,280 --> 00:24:54,080
Speaker 1: it to move them through.

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Speaker 2: You make the point before about opacity or the opaque

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00:24:57,720 --> 00:25:02,760
Speaker 2: nature of private equity. It's the manager's job to understand

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00:25:03,000 --> 00:25:04,800
Speaker 2: the p and L and the balance sheet of the

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00:25:04,840 --> 00:25:07,720
Speaker 2: company that they're buying and making sure that everything there

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00:25:07,800 --> 00:25:12,120
Speaker 2: is real and true, because the regulatory and compliance overlay

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00:25:12,600 --> 00:25:15,400
Speaker 2: for a for a private company is not the same

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00:25:15,600 --> 00:25:17,919
Speaker 2: as it is for a public company. You lie with

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00:25:18,000 --> 00:25:19,520
Speaker 2: the you live with the p and L and the

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00:25:19,560 --> 00:25:22,000
Speaker 2: earnings numbers. On a public company, you go to jail,

472
00:25:22,359 --> 00:25:24,560
Speaker 2: you lie on a private company, and you know the

473
00:25:24,600 --> 00:25:27,639
Speaker 2: reality is that the outcomes probably aren't that bad. So

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00:25:28,160 --> 00:25:31,159
Speaker 2: you know, it is innate in the managers and the

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00:25:31,200 --> 00:25:35,240
Speaker 2: private equity guy's job to actually understand what they're looking

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00:25:35,280 --> 00:25:38,440
Speaker 2: at and really interrogate where those earnings are coming from

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00:25:38,520 --> 00:25:40,880
Speaker 2: and who the customer base is, and what the subscription

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00:25:41,000 --> 00:25:43,119
Speaker 2: numbers are and whatever else it is that sort of

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00:25:43,200 --> 00:25:44,240
Speaker 2: drives that company.

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00:25:44,840 --> 00:25:48,840
Speaker 1: Okay, very good, really interesting, deep down over there into

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Speaker 1: the unlisted market space. Thanks very much Charlie Bila for

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00:25:52,880 --> 00:25:53,919
Speaker 1: coming on the show today.

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Speaker 2: Always lovely to be here.

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Speaker 1: Great to talk to you again, and we'll have you

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Speaker 1: on again soon. That was Charlie Vierl of the Ola

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Speaker 1: Private Wealth, who is of course a financial advisor, now

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Speaker 1: leading a financial advice group of his own. Okay, folks,

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Speaker 1: let's have some more emails the money puzzle at the

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Speaker 1: Australian dot com dot au. Talk to you soon,