WEBVTT - Plundering the ASX: Is private equity a problem? 0:00:10.280 --> 0:00:13.080 Hello, and welcome to the Australians Money Puzzle podcast. 0:00:13.080 --> 0:00:15.200 I'm James Kirkby. Welcome aboard everybody. 0:00:15.600 --> 0:00:19.520 As a private investor in shares, you're probably already realized 0:00:19.840 --> 0:00:21.640 that you're at the back of the queue when things 0:00:21.640 --> 0:00:24.520 go wrong, and I think we almost expect to be 0:00:24.560 --> 0:00:26.480 dotted out of the best deals. 0:00:26.680 --> 0:00:28.360 In some ways. It's often been like that. 0:00:28.840 --> 0:00:31.760 It's infuriating as well to watch really good stocks being 0:00:31.880 --> 0:00:36.120 cherry picked, you know, by overseas takeover merchants as time 0:00:36.159 --> 0:00:39.240 goes by. But something on a whole other level has 0:00:39.280 --> 0:00:41.760 been happening on the share market this year. It's what 0:00:41.840 --> 0:00:44.320 I would call the plundering of the ASX by private 0:00:44.320 --> 0:00:48.040 equity groups and it's come to a head with this week. 0:00:48.159 --> 0:00:48.760 There was a. 0:00:48.760 --> 0:00:52.360 Stock folks called health Scope, which was an extraordinary story, 0:00:52.680 --> 0:00:55.240 a small company that literally became a five million dollar 0:00:55.280 --> 0:00:58.680 company and then it was taken over by private equity 0:00:59.040 --> 0:01:01.360 and this week it went into receivership. But thirty seven 0:01:01.400 --> 0:01:04.560 hospitals might I add attached to that. Joining me on 0:01:04.600 --> 0:01:08.200 the show today is Eric Johnson. He's Associate editor Business 0:01:08.200 --> 0:01:10.120 on The Australian. He's been on the show before and 0:01:10.160 --> 0:01:12.240 he's been following this from the very beginning. 0:01:12.800 --> 0:01:16.039 Hawai, Eric, gooday, James, thanks for having me on. 0:01:16.600 --> 0:01:17.360 Good to have you on. 0:01:17.760 --> 0:01:21.560 We might briefly explain the importance of this story to 0:01:21.680 --> 0:01:25.160 all our listeners because it's the backdrop here is about 0:01:25.240 --> 0:01:27.600 the share market we know in which we expect to 0:01:27.680 --> 0:01:30.600 invest getting hollowed out right, and we mentioned a few 0:01:30.640 --> 0:01:33.080 things there. Takeovers is one and great company has been 0:01:33.080 --> 0:01:36.679 taken over. But could you explain to everyone just briefly 0:01:37.400 --> 0:01:40.760 about health Scope, what's happened, where are we at there? 0:01:43.120 --> 0:01:47.160 So the name Healthscope is probably not that widely known, 0:01:47.360 --> 0:01:51.000 but people would know the local hospitals like a Knox 0:01:51.040 --> 0:01:55.400 private hospital. There's a Sydney clinic and people would know that. 0:01:55.720 --> 0:01:59.320 So it's a pretty important part of the health sector 0:01:59.360 --> 0:02:03.000 in terms of it's the second largest private hospital operator 0:02:03.680 --> 0:02:08.359 and it also operates the Northern Beaches Hospital that's relatively 0:02:08.440 --> 0:02:12.680 new one up in Sydney as well. And it's a 0:02:12.680 --> 0:02:15.359 really important part because it's a lot of the well 0:02:15.400 --> 0:02:19.560 the elective surgery, so non critical stuff but still really important. 0:02:19.639 --> 0:02:23.040 So James, you'll get your hip operation done there or 0:02:23.080 --> 0:02:27.959 your knee operation done there and other things that non 0:02:28.040 --> 0:02:31.760 life you know, threatening but still pretty important for your 0:02:31.880 --> 0:02:36.119 lifestyle now that it was listed on the AX. Previously 0:02:36.160 --> 0:02:40.320 listed back in twenty nineteen, it was subject of a 0:02:40.320 --> 0:02:44.760 pretty aggressive takeover battle. Initially, Australian Super was part of 0:02:44.800 --> 0:02:47.919 a consortium looking to buy it out. So Ossie Super 0:02:47.919 --> 0:02:49.919 wanted to buy it and park it just seeing the 0:02:49.960 --> 0:02:53.720 long term potential of this operator. However, they were edged 0:02:53.760 --> 0:02:55.840 out by a Canadian company and we've heard of this 0:02:55.880 --> 0:03:01.000 company before, called Brookfield, a huge asset manager in terms 0:03:01.000 --> 0:03:05.720 of funds under management. Yes, so yes under management. Brookfield 0:03:05.919 --> 0:03:09.640 were the ones making the chase for Origin Energy about 0:03:09.639 --> 0:03:11.639 two or three years ago ago to and that was 0:03:11.720 --> 0:03:15.920 ultimately unsuccessful. Ironically, it was Ozzie Super that blocked that 0:03:15.960 --> 0:03:16.919 deal from going out here. 0:03:16.880 --> 0:03:18.840 They blocked them. Yeah, so they often work in tandem. 0:03:18.840 --> 0:03:20.960 But so this company, like. 0:03:20.960 --> 0:03:24.359 Health Scope, it was a big six billion dollar company. 0:03:24.600 --> 0:03:27.840 It owned hospitals and obviously these guys bolted because they 0:03:27.840 --> 0:03:30.120 thought they could make more money out of it. Listeners 0:03:30.120 --> 0:03:32.239 would know, like listed on the stock market still something 0:03:32.280 --> 0:03:35.040 like Ramsey Health, nothing like the company it was a 0:03:35.040 --> 0:03:37.440 few years ago, but still a big company, multi billion 0:03:37.480 --> 0:03:39.760 dollar company making you know, half a billion dollar profits. 0:03:39.800 --> 0:03:43.560 Those profits are arising, it can be done. So you 0:03:43.600 --> 0:03:46.680 were onto this fairly early, and I remember reading, I 0:03:46.680 --> 0:03:48.520 don't know, maybe ten days ago you did a piece 0:03:48.880 --> 0:03:53.040 and you called the Brookfield people barbarians, and then you 0:03:53.080 --> 0:03:55.720 said there was two sort of scenarios that were possible, 0:03:55.880 --> 0:03:58.120 and then you know one was receivership, and you said 0:03:58.160 --> 0:04:00.160 that was the most likely, and I remember thinking. 0:04:00.320 --> 0:04:04.160 That's a bit strong, But it's come to passer. 0:04:04.280 --> 0:04:06.600 First of all, when you say barbarians, would you explain 0:04:06.840 --> 0:04:09.440 for people who aren't familiar, what is the's the game 0:04:09.520 --> 0:04:10.680 of these people in Brookfield? 0:04:10.680 --> 0:04:11.280 What do they do? 0:04:11.960 --> 0:04:13.640 Why do they buy the companies in the first place. 0:04:13.720 --> 0:04:16.760 If it's ended up in receivership, something's gone terribly wrong. 0:04:17.279 --> 0:04:20.119 What was their plan and what went wrong? 0:04:22.279 --> 0:04:25.240 To be fair to the barbarians, they didn't plan for 0:04:25.279 --> 0:04:28.400 it to blow up to the extent it did. But 0:04:29.040 --> 0:04:30.960 remember these are meant to be the smartest people in 0:04:31.000 --> 0:04:34.560 the room, and they enjoy telling everybody that they are. 0:04:35.279 --> 0:04:41.080 They badly misread what was happening, but also they undermined 0:04:41.080 --> 0:04:43.719 their own business models. So they came in twenty nineteen, 0:04:44.040 --> 0:04:48.880 overpaid for it, borrowed heavily, so leveraged up the business 0:04:49.200 --> 0:04:54.119 borrowed heavily. Initially, they broke their business, the operating business 0:04:54.200 --> 0:04:57.760 up from all the hospitals they're actually operated, So they 0:04:57.839 --> 0:05:01.080 sold off the physical hospitals, so the building. So what 0:05:01.200 --> 0:05:03.720 was left was a fairly asset like business with a 0:05:03.720 --> 0:05:07.400 lot of debt. So that sale or the hospital was 0:05:07.440 --> 0:05:10.440 partly used to fund the acquisition, so some of that 0:05:10.480 --> 0:05:13.520 distribution went well, that went back to shareholders that previously 0:05:13.520 --> 0:05:16.520 owned it. However, as you know, it's always good to 0:05:16.560 --> 0:05:20.200 have a strong balance sheet for unexpected and in health care. 0:05:20.400 --> 0:05:23.239 Health care is a really complicated industry, and any happened 0:05:23.720 --> 0:05:26.640 what happened a couple of months later, COVID hit and 0:05:27.440 --> 0:05:33.280 all the private hospital sector shut down. Elective surgery effectively 0:05:33.320 --> 0:05:37.160 stopped that starved off the funding the revenue stream, so 0:05:37.560 --> 0:05:39.760 that was a crisis. Yet these hospitals still had to 0:05:39.760 --> 0:05:42.560 pay rent for their overheads and so on. 0:05:42.720 --> 0:05:45.800 Because these guys had leveraged it up right before the 0:05:45.839 --> 0:05:49.719 sort of calamity of COVID, they had no balance sheet 0:05:49.839 --> 0:05:52.360 strength when things went wrong. 0:05:52.400 --> 0:05:54.640 Well, look and just to sort of finish that thought 0:05:54.680 --> 0:05:57.599 as well, so they're also paying off debt, but then 0:05:57.800 --> 0:06:00.479 coming out of COVID was another crist It says, we 0:06:00.520 --> 0:06:04.880 all know for the health sectors, so staff shortages, wage inflation, 0:06:05.279 --> 0:06:10.200 and then also input costs, so spiraling costs for that. Sorry, 0:06:10.279 --> 0:06:12.400 you know, there were people falling out of the system, 0:06:12.520 --> 0:06:15.080 so you know, people paying more for wages. So there 0:06:15.120 --> 0:06:19.080 was just huge pressure on their cost side. Yet the 0:06:19.120 --> 0:06:22.640 revenue about getting from like if surgeries just wasn't covering 0:06:23.440 --> 0:06:27.240 this new sort of real world. 0:06:26.600 --> 0:06:29.599 So everything went wrong and it's now in receivership. And 0:06:29.600 --> 0:06:31.360 I suppose to the people on the street are people 0:06:31.360 --> 0:06:34.559 who use the hospitals. It's pretty scary. So there's thirty 0:06:34.560 --> 0:06:37.599 seven hospitals and anyone listening to the show will know 0:06:37.680 --> 0:06:39.400 one of them for sure. When I looked at the 0:06:39.400 --> 0:06:41.280 listener and I had been in two of them, and 0:06:41.320 --> 0:06:44.440 they're major hospitals in the cities. But the question it begs, 0:06:44.440 --> 0:06:47.279 I suppose, is to one extent, the wider market is 0:06:47.360 --> 0:06:50.320 vulnerable to this sort of thing. You mentioned how Brookfields 0:06:50.320 --> 0:06:52.359 when they came in, they geared up. They leveraged up 0:06:52.400 --> 0:06:55.080 the balance sheet pretty fast. In some ways they used 0:06:55.120 --> 0:06:58.080 the asset they bought to finance the purchase that they did, 0:06:58.120 --> 0:07:00.960 and that rings a bell for me, that reminds me 0:07:01.000 --> 0:07:06.560 of the buccaneers of yesterday, Alan Bond, Christophersquise, etc. It's 0:07:06.800 --> 0:07:10.360 not exactly the same, but there's parallels, is there. 0:07:12.520 --> 0:07:15.280 And we spoke about it at the top about the barbarians. 0:07:15.280 --> 0:07:17.440 So that's not my term. It's not our term. It's 0:07:18.280 --> 0:07:20.960 made famous by a book. A couple of former Wall 0:07:20.960 --> 0:07:24.560 Street Journal reporters wrote the book about Barbarians of the Gate. 0:07:25.200 --> 0:07:31.000 That was the US company KKR acquiring it's been to 0:07:31.840 --> 0:07:35.960 acquire US food company conglomerate at a time called an 0:07:35.960 --> 0:07:40.360 Abisco and tracking that coming in, stripping the assets, selling 0:07:40.360 --> 0:07:43.080 it off and leaving a very capital light business. 0:07:44.640 --> 0:07:44.840 Yeah. 0:07:44.880 --> 0:07:47.240 So this was the benchmark if you like this, when 0:07:47.240 --> 0:07:49.160 everyone's realized what the game was. 0:07:49.200 --> 0:07:51.040 And KKR they're still around. 0:07:51.120 --> 0:07:54.280 In fact, they have funds listed on our share market, 0:07:54.600 --> 0:07:56.440 and that might be listeners on the show that even 0:07:56.480 --> 0:07:58.920 have investments in them. So it's a two sided thing. 0:07:58.960 --> 0:08:00.600 But I don't want to go to that just now. 0:08:00.720 --> 0:08:02.760 I just want to capture a few other things about this. 0:08:03.440 --> 0:08:06.080 So for most people when they look at the share market, 0:08:06.400 --> 0:08:08.600 most of the intention and most of the action is 0:08:08.600 --> 0:08:11.240 in a small number of companies. The top fifty and 0:08:11.280 --> 0:08:14.720 one of the things we've seen is how private acuity 0:08:14.760 --> 0:08:17.000 will come in. I think in our country or in 0:08:17.040 --> 0:08:19.160 our market, the benchmark, the NJO and the. 0:08:19.160 --> 0:08:21.640 BISCO of our area was Meyer. 0:08:21.800 --> 0:08:23.800 Once upon a time, I think it was TPG if 0:08:23.840 --> 0:08:26.360 I've got that right, who came in and did an 0:08:26.400 --> 0:08:29.160 amazing deal for themselves, and there was all sorts of 0:08:29.200 --> 0:08:31.520 controversy later as to what they did and how they 0:08:31.520 --> 0:08:35.400 did it. More recently, had Sydney Airport a beautiful stock, 0:08:35.559 --> 0:08:40.400 a fabulous asset that investors loved, long term infrastructure play 0:08:40.920 --> 0:08:43.560 again that was shipped off the market and that was 0:08:43.760 --> 0:08:47.480 big super funds playing with private equity again, correct me 0:08:47.480 --> 0:08:48.160 if I'm wrong on this. 0:08:48.480 --> 0:08:50.079 And then this most recent one, this. 0:08:50.120 --> 0:08:53.240 Health scope, which is when everything went wrong, is private 0:08:53.240 --> 0:08:56.200 equity getting it wrong themselves, But it seems to be 0:08:56.240 --> 0:08:59.840 a process that's accelerating now. Is the ASEX particularly vulnerable 0:08:59.880 --> 0:09:02.920 to this? And as ordinary shareholders, how do we deal 0:09:03.000 --> 0:09:08.800 with this fact that these marauding you know, global companies 0:09:09.080 --> 0:09:10.200 just cherry pick like this. 0:09:11.440 --> 0:09:14.680 Well, I was just thinking, well, look there's phrase my 0:09:14.760 --> 0:09:17.920 old economics teachers to drum into me. He said that 0:09:18.240 --> 0:09:20.280 in order for someone to buy something. Someone has to 0:09:20.320 --> 0:09:26.040 sell something. So if somebody is paying over the odds 0:09:26.040 --> 0:09:29.000 for an asset, well you know that's they've got to 0:09:29.000 --> 0:09:32.520 wear the risk. But it does come back to some 0:09:32.559 --> 0:09:35.480 of the issues. I mean, can you know this is 0:09:35.480 --> 0:09:38.080 a broader question. Can someone come in by a hospital 0:09:38.160 --> 0:09:40.360 and sell off all the furniture and cut all the 0:09:40.400 --> 0:09:44.240 stuff and then there's a lot of consequences around that too, 0:09:44.320 --> 0:09:47.720 because that ultimately puts pressure back onto the public system. 0:09:47.800 --> 0:09:50.320 And we don't have time to talk about all that 0:09:50.720 --> 0:09:55.040 what's going on in there. But your earlier point about 0:09:55.280 --> 0:09:58.160 these quality companies, I was just checking out a list, 0:09:58.200 --> 0:10:01.679 so you're right. Sydney Airport Minerals. These are companies that 0:10:01.720 --> 0:10:04.600 have left the AX in the last few years. City Airport, 0:10:04.640 --> 0:10:07.640 Odds Minerals. There were Spark Infrastructure, so that was a 0:10:07.679 --> 0:10:09.960 pretty boring company that no one had ever heard about. 0:10:10.280 --> 0:10:13.960 Boring but nice, nice sort of yield stock. We've seen 0:10:14.000 --> 0:10:17.000 a whole bunch of holding out of industrials and through 0:10:17.160 --> 0:10:20.960 other companies. This is not all private equity acquisitions. Borrel 0:10:21.320 --> 0:10:24.640 CSR James Hardy. There's a drama about it. 0:10:24.920 --> 0:10:29.440 Relocated builders, isn't it, Eric, That's the entire building materials sector. 0:10:29.640 --> 0:10:32.040 Yeah, and of what was the a SX, which were. 0:10:31.960 --> 0:10:34.599 All Greek companies and popular with private investors up to 0:10:34.760 --> 0:10:36.199 the time they were taken US. 0:10:36.240 --> 0:10:38.680 So look, you know that happens, and as long as 0:10:38.720 --> 0:10:41.800 there's stock markets, there's always acquisitions. Nothing wrong with acquisitions. 0:10:42.000 --> 0:10:45.400 But what's the structural sort of issue that's been happening 0:10:45.520 --> 0:10:48.560 is that Australia or the ASEX hasn't been able to 0:10:48.600 --> 0:10:53.800 replenish the companies that are leaving the AX and that's 0:10:53.800 --> 0:10:56.360 starting to become an issue. And that's why you're started 0:10:56.360 --> 0:10:59.600 to see companies like CBA, you know, you know trading 0:10:59.600 --> 0:11:02.120 at your that are wise sky high because it's just 0:11:02.200 --> 0:11:05.640 not the man is just not the avenues to pack 0:11:05.679 --> 0:11:06.120 your money. 0:11:06.400 --> 0:11:09.360 Really interesting, Yes, that is an interesting explanation of what's 0:11:09.400 --> 0:11:11.400 going on. Look, take a short break because I want 0:11:11.400 --> 0:11:13.199 to come back, and what I want to do is 0:11:13.200 --> 0:11:15.679 try and guide our listeners to how to deal with 0:11:15.720 --> 0:11:19.520 this and particularly what's going to happen next in terms 0:11:19.520 --> 0:11:22.840 of private equity and takeover merchants on the ASEX and 0:11:22.880 --> 0:11:34.199 how you play this. Hello, welcome back to The Australian's 0:11:34.200 --> 0:11:37.760 Money Puzzle podcast. I'm James Kirby talking to Eric Johnson, 0:11:37.840 --> 0:11:39.200 my colleague on The Australian. 0:11:39.240 --> 0:11:40.320 He's been on the show before. 0:11:40.520 --> 0:11:44.920 He's been covering this really interesting area of large Australian, 0:11:45.920 --> 0:11:49.560 famous Australian shares basically disappearing. 0:11:49.000 --> 0:11:51.120 Off the market for one reason or another. 0:11:51.320 --> 0:11:54.920 And this share markt is actually shrinking, that is, the 0:11:54.960 --> 0:11:58.040 asex is shrinking. Now, if you are an investor to 0:11:58.080 --> 0:12:00.200 some extent your interest here, as Eric said, do you 0:12:00.200 --> 0:12:01.800 take the money and run? Why wouldn't you if someone 0:12:01.880 --> 0:12:04.319 offers you, you know, forty percent more than they did 0:12:04.320 --> 0:12:07.000 the day before for a stock and why wouldn't you 0:12:07.040 --> 0:12:10.600 take that cash? Each deal in and of itself is 0:12:10.640 --> 0:12:14.000 logical at the time. I just wonder, Eric, particularly about 0:12:14.080 --> 0:12:19.960 health Scope. You wonder, without getting into social or cultural conversation, 0:12:20.240 --> 0:12:25.320 just strictly as an investment question, whether the troubles you know, 0:12:25.400 --> 0:12:31.040 in age care stocks which have been severe, health care 0:12:31.120 --> 0:12:34.640 stocks which are exceptionally severe now with the receivership of 0:12:34.679 --> 0:12:38.400 a company that was once worth six billion dollars, You wonder, 0:12:39.120 --> 0:12:43.480 as an investor, is this area just too much trouble 0:12:43.600 --> 0:12:44.720 as long term investment. 0:12:46.760 --> 0:12:49.280 It's a really difficult one because one of the big 0:12:49.679 --> 0:12:52.400 themes that you speak to the likes of, you know, 0:12:52.480 --> 0:12:55.440 the global asset managers, you know, your black Rocks, your 0:12:55.480 --> 0:13:00.560 black styles, saving macquaries and so on. The big several themes. 0:13:00.600 --> 0:13:04.280 They talk about digitization, they talk about technology and AI. 0:13:06.000 --> 0:13:09.600 Health and aging always comes up as a big theme 0:13:10.040 --> 0:13:13.000 as an area to invest in. Yet the names that 0:13:13.120 --> 0:13:15.439 you've sort of pointed out, and the sectors you pointed out, 0:13:15.440 --> 0:13:18.760 they're really difficult. They're really difficult. They like it as 0:13:18.760 --> 0:13:20.360 a theme because we're all getting older. 0:13:21.000 --> 0:13:25.120 Yeah, it's top down, a top down thematic sounds good 0:13:25.559 --> 0:13:26.600 right bottom. 0:13:26.360 --> 0:13:29.880 Up, it sounds really good. But we are getting older 0:13:29.960 --> 0:13:33.920 and we're demanding more services. However, we're not seeing private 0:13:34.000 --> 0:13:37.360 organizations aren't seeing that. It's again, I think it's a 0:13:37.400 --> 0:13:44.240 complicated because we're also confusing heavily regulated sector with you know, 0:13:44.600 --> 0:13:47.960 we're coming against regulation right rightly. So there should be regulation, 0:13:48.040 --> 0:13:51.720 there should be minimum staffing in age care, there should 0:13:51.760 --> 0:13:54.840 be certain standards and so on. That's a given. However, 0:13:55.640 --> 0:13:58.000 where those themes are coming in, they're not sort of 0:13:58.080 --> 0:14:02.080 compatible with that heavy re agent. So that's where it's going. 0:14:02.400 --> 0:14:06.760 I think health scope and this is all private hospitals too, 0:14:07.080 --> 0:14:12.080 facing another challenge in that when even back in twenty 0:14:12.200 --> 0:14:15.640 nineteen or twenty seventeen, or you know last decade, when 0:14:15.640 --> 0:14:19.040 you went in for your knee repair, James, so you 0:14:19.040 --> 0:14:22.320 could play football on the weekend, you were in usually 0:14:22.360 --> 0:14:25.280 for about four or five days. You're in, you stayed 0:14:25.320 --> 0:14:29.640 in and your health insurer, because you have the Gold coverage, 0:14:29.880 --> 0:14:32.680 was paying it all. However, today you go in the 0:14:32.720 --> 0:14:35.800 morning and you're out by three pm in the afternoon. 0:14:36.280 --> 0:14:38.840 You're playing footy on the weekend too, And that's the 0:14:38.880 --> 0:14:42.320 advance of changes in technology. 0:14:42.560 --> 0:14:47.840 Right, productivity inside healthcare has had the surprise I'll come 0:14:47.880 --> 0:14:51.280 that it's just explaining for my that's a problem financially. 0:14:51.600 --> 0:14:54.840 Well because then me as health Scope, I own this heavy, 0:14:55.120 --> 0:14:59.560 huge hospital that is no longer in full demand all 0:14:59.560 --> 0:15:05.160 the time. So there's another area like also, surgeons are 0:15:05.200 --> 0:15:08.400 not tied to specific hospitals. As you know, you went 0:15:08.440 --> 0:15:12.760 to your surgeon to get your knee fixed, he referred 0:15:12.800 --> 0:15:15.200 you to this day to a day care clinic down 0:15:15.240 --> 0:15:19.040 the road, so that you're not even going to the 0:15:19.040 --> 0:15:21.240 health hospital. So they're sitting there with empty rooms and 0:15:21.240 --> 0:15:24.560 empty beds, still paying their debt and their bills. 0:15:24.640 --> 0:15:26.680 That also happened, So that came on the back of 0:15:27.000 --> 0:15:29.200 post COVID almost or at least the same time. 0:15:29.520 --> 0:15:31.720 So you have those two things working against them. 0:15:31.880 --> 0:15:34.360 I suppos a big question then, Eric is from again 0:15:34.400 --> 0:15:41.880 from an investment perspective, Maybe an investor can simply choose 0:15:41.920 --> 0:15:44.960 to play the other side. You mentioned KK or you 0:15:44.960 --> 0:15:47.240 can now invest in they all have, all the big 0:15:47.600 --> 0:15:53.560 players have ASX listed funds. And in recent times by 0:15:53.560 --> 0:15:55.440 that I mean the last two years, there's been a 0:15:55.480 --> 0:15:59.280 really big push by private equity funds to the average 0:15:59.280 --> 0:16:01.640 retail investor, to mom and dad, and to say, look, 0:16:01.720 --> 0:16:03.960 your super fund has always been in here, They've done 0:16:04.000 --> 0:16:06.760 really wear private equity come and join us, and you 0:16:06.800 --> 0:16:09.640 can just simply buy, you know whatever, a thousand dollars 0:16:09.640 --> 0:16:12.000 both of private equity fund number one, two or three. 0:16:12.160 --> 0:16:18.920 They're very common. They health scope crisis facing brook Field 0:16:20.360 --> 0:16:22.680 is that What does that tell us about private equity 0:16:22.680 --> 0:16:25.600 funds and the risks that they might put in front 0:16:25.600 --> 0:16:28.120 of the average investor that aren't so obvious. 0:16:28.600 --> 0:16:34.800 Yeah, Look for the average investor, the punter, the retail investor. 0:16:35.280 --> 0:16:38.240 As you always to your listeners, you have a broad mix, 0:16:38.360 --> 0:16:40.400 you have your low risk, you have your mid risk 0:16:40.480 --> 0:16:43.720 and maybe just a fraction too of higher risk, and 0:16:44.080 --> 0:16:48.160 private equity as an asset class is expensive. It's high cost, 0:16:48.200 --> 0:16:49.920 but it promises higher return. 0:16:50.000 --> 0:16:52.080 Yeah, right, high risk hy return or at least they're 0:16:52.440 --> 0:16:53.920 elevated risk elevator return. 0:16:54.080 --> 0:16:57.040 Yeah, and for every sort of health scope, which is 0:16:57.120 --> 0:16:59.800 a spectacular disaster, and even Maya and there's a lot 0:16:59.840 --> 0:17:02.800 of high profile Dick Smith was another that was a 0:17:03.120 --> 0:17:07.000 disaster for private equity. There's probably about one hundred little 0:17:07.040 --> 0:17:10.080 no name companies that are actually that are actually that 0:17:10.240 --> 0:17:14.320 actually works, and these aren't necessarily listed companies. And private 0:17:14.359 --> 0:17:17.640 equity it does have a role, and we can't say 0:17:17.720 --> 0:17:20.000 as a rule private equity is all bad. It does 0:17:20.040 --> 0:17:24.040 provide funding at funding source and alternat funding source and 0:17:24.320 --> 0:17:28.920 potentially a pathway for a more established and sophisticated sort 0:17:28.960 --> 0:17:32.440 of investment case. Where it does go bad is when 0:17:32.480 --> 0:17:34.720 they come in they sell off all the furniture and 0:17:34.840 --> 0:17:40.320 leave a very light, heavily leveraged business. And look, that's 0:17:40.400 --> 0:17:42.919 really short term. That's a really short term model. And 0:17:43.000 --> 0:17:44.720 if you keep doing that, you're going to run out 0:17:44.720 --> 0:17:46.440 of run away pretty quickly. 0:17:46.600 --> 0:17:49.119 Which seems to be exactly what happened at the school. 0:17:49.359 --> 0:17:53.000 Tell me the big super funds, what are they good 0:17:53.000 --> 0:17:56.240 guys or bad guys here depending on. 0:17:56.160 --> 0:17:58.640 The day I'd see of the day. 0:17:59.080 --> 0:18:01.200 Really so like some of that list that we spoke about, 0:18:01.320 --> 0:18:04.280 so Spark and Sydney Airport, I mean that they were 0:18:04.320 --> 0:18:09.440 super fun led acquisition, so they're buyouts. Their investment horizon 0:18:09.720 --> 0:18:13.440 is different, so generally it looks to like three to 0:18:13.560 --> 0:18:22.199 five year turnaround case. Another one with Virgin Australia at 0:18:22.200 --> 0:18:25.560 the airline was on the cusp of listings that was 0:18:25.600 --> 0:18:28.720 brought from administration where no one wanted to touch it by 0:18:29.200 --> 0:18:33.000 private equity and it's held onto it for now. What 0:18:33.119 --> 0:18:35.960 is it about five years? Bang on at times times 0:18:36.000 --> 0:18:38.520 spot on. I don't think that the great guys they've 0:18:38.520 --> 0:18:41.320 made it. They've made an absolute windfall on the back 0:18:41.320 --> 0:18:43.159 of this, but they took the risk. They took the 0:18:43.240 --> 0:18:44.560 risk when no one wanted to. 0:18:44.840 --> 0:18:47.240 That was an example where it brooks really nicely. 0:18:47.760 --> 0:18:50.040 I mean we get to retain a second major airline 0:18:50.080 --> 0:18:54.960 domestically and investors took the risk, as you see, and anyone. 0:18:54.720 --> 0:18:57.040 Who was in on that did very well well. 0:18:57.440 --> 0:19:00.199 This is to some extent dependent on the flat what 0:19:00.200 --> 0:19:02.840 would happen soon enough, you would expect if they got 0:19:02.880 --> 0:19:04.160 their docks in a role there, haven't they? 0:19:04.800 --> 0:19:07.480 Yeah? And look, you know, is to the original question 0:19:07.520 --> 0:19:10.560 about is superis of the bad guys? So their investment 0:19:10.560 --> 0:19:13.760 horizon that they buy and hold for the long term 0:19:13.800 --> 0:19:19.280 ten ten to twenty years. So if Ozzie Super came in, 0:19:19.359 --> 0:19:22.760 they did team up with a private equity fund and 0:19:23.720 --> 0:19:25.760 in doing that there aim was to be patient capital. 0:19:25.840 --> 0:19:27.679 We're going to buy this thing and hold on to it. 0:19:27.720 --> 0:19:31.720 So they probably wouldn't have flogged the assets to the 0:19:31.760 --> 0:19:32.480 extent it did. 0:19:33.080 --> 0:19:36.520 They probably mentioned in your piece that they did intervene 0:19:36.560 --> 0:19:39.000 one time and save what's it origin from? 0:19:39.080 --> 0:19:42.600 Yeah, so, and that that's a really interesting sceory. And 0:19:42.600 --> 0:19:45.520 that was a case of where investors, Australia investors, some 0:19:45.640 --> 0:19:47.359 Australia investors. I was in Super and there was a 0:19:47.400 --> 0:19:50.840 couple others behind it stood up and said no. Because 0:19:51.080 --> 0:19:54.440 often when private equity comes in and offers that forty 0:19:54.440 --> 0:19:57.440 percent premium for something, it's not doing it in our 0:19:57.480 --> 0:20:01.159 the goodness of its heart and often jumps on companies 0:20:01.280 --> 0:20:04.640 when they're trading at cyclical lows or you know they've 0:20:04.680 --> 0:20:06.720 had they've made some bad calls or something. So so 0:20:06.720 --> 0:20:09.200 there's shares a way off, so footy percent premium looks 0:20:09.200 --> 0:20:11.359 pretty healthy to to where it is today, but it 0:20:11.359 --> 0:20:13.600 looks pretty ordinary to where it was five years ago. 0:20:14.840 --> 0:20:19.240 So so in that case, Brookfield did come up its 0:20:19.280 --> 0:20:22.560 plan for Origin, big energy company. The plan was to 0:20:22.600 --> 0:20:24.480 buy it and carve it up and flip it into 0:20:24.560 --> 0:20:30.800 several funds. Ironically, Canadian Prime Minister Mark Corney was was 0:20:30.840 --> 0:20:33.280 the face, the friendly face of one of these funds, 0:20:33.320 --> 0:20:35.720 and he was he was leading the acquisition. So that 0:20:37.119 --> 0:20:40.680 Bank of England, Bank of England, that's right, I see. However, 0:20:41.119 --> 0:20:44.240 Australian Super stood up and said, look what you're offering 0:20:44.320 --> 0:20:46.600 is I was it was around about nine dollars mark 0:20:46.960 --> 0:20:50.880 what you're offering for Origin. We think over the long 0:20:51.000 --> 0:20:53.520 term Origin is worth a lot more. It has these 0:20:53.600 --> 0:20:57.600 key key quality assets, key quality attributes about it. I was. 0:20:57.600 --> 0:20:59.800 He Super had it it was able to to sort 0:20:59.840 --> 0:21:02.760 of and asked what's called a blocking the stake just 0:21:02.880 --> 0:21:06.080 under it, and had a couple other friends. It was determined, 0:21:06.240 --> 0:21:09.080 we're not interested in negotiating. We think this business is 0:21:09.080 --> 0:21:12.440 great for we're buying and holding, so see you later. 0:21:12.520 --> 0:21:15.639 And Brookfield tried everything and tried every trick in the book, 0:21:16.080 --> 0:21:18.919 but ultimately had to take its bat and ball and 0:21:18.960 --> 0:21:20.520 go home. It could not buy it. 0:21:20.600 --> 0:21:24.040 Right, Interesting, So they can the big super funds can 0:21:24.160 --> 0:21:28.360 exercise enormous power obviously in these situations and the episodes 0:21:28.359 --> 0:21:30.399 where they were very useful to the local market. 0:21:31.040 --> 0:21:33.560 And the postcript to that is that Ossie Super was 0:21:33.680 --> 0:21:38.240 right that the shares ultimately increased over the offer price 0:21:38.400 --> 0:21:40.840 over time. It didn't happen straight away, but it gradually 0:21:40.840 --> 0:21:42.000 stopped having that direction. 0:21:42.760 --> 0:21:46.280 That's the ultimate test, isn't it really? Very interesting? Very interesting? Okay, 0:21:46.320 --> 0:21:49.680 So Origin is an example. Really, Origin Energy is an example. 0:21:49.720 --> 0:21:54.840 Folks for private equity might have done awfully well and 0:21:55.040 --> 0:21:57.600 in some extent plunder the AESX. Again, in that case, 0:21:57.600 --> 0:22:00.920 Australia Super came in and saved the day. We now 0:22:01.000 --> 0:22:03.520 know because of the movement and price since that time. 0:22:03.600 --> 0:22:06.240