1 00:00:03,990 --> 00:00:06,359 Sean Aylmer: Welcome to the Fear and Greed daily interview. I'm Sean 2 00:00:06,450 --> 00:00:09,599 Sean Aylmer: Aylmer. It's not uncommon in the world of investing and 3 00:00:09,599 --> 00:00:13,799 Sean Aylmer: funds management to see rockstar investors emerge, but what happens 4 00:00:13,799 --> 00:00:17,760 Sean Aylmer: when a rockstar picker is no longer picking stocks? Blackwattle 5 00:00:17,760 --> 00:00:21,840 Sean Aylmer: Investment Partners is a new Australian fund manager launching this 6 00:00:21,840 --> 00:00:24,600 Sean Aylmer: year with the backing of some of Australia's wealthiest families. 7 00:00:24,840 --> 00:00:27,929 Sean Aylmer: It's aiming to take a different approach, removing the key 8 00:00:27,929 --> 00:00:30,900 Sean Aylmer: person risk. So what's this look like and how do 9 00:00:30,900 --> 00:00:33,479 Sean Aylmer: they find the opportunities in the market? Remember, this is 10 00:00:33,479 --> 00:00:36,510 Sean Aylmer: general information only and you should seek professional advice before 11 00:00:36,510 --> 00:00:39,870 Sean Aylmer: making any investment decisions. Michael Skinner is the Managing Director 12 00:00:39,870 --> 00:00:44,280 Sean Aylmer: and Chief Investment Officer at Blackwattle Investment Partners. Michael, welcome 13 00:00:44,280 --> 00:00:45,090 Sean Aylmer: to Fear and Greed. 14 00:00:45,960 --> 00:00:48,300 Michael Skinner: Hi, Sean. Nice to be here. Thanks for the time. 15 00:00:50,490 --> 00:00:54,810 Sean Aylmer: A bit of history, why do we have rockstar stock 16 00:00:54,810 --> 00:00:58,080 Sean Aylmer: pickers? I've been a journalist for 25 years, and there's 17 00:00:58,080 --> 00:01:01,920 Sean Aylmer: always been the sort of Hamish Douglass more recent times, 18 00:01:01,920 --> 00:01:05,459 Sean Aylmer: people like Peter Morgan, Chris Mackay many years ago. Some 19 00:01:05,459 --> 00:01:11,100 Sean Aylmer: of these people have always been considered rockstar stock pickers. Why? 20 00:01:12,330 --> 00:01:15,209 Michael Skinner: They probably get that title built over a number of 21 00:01:15,209 --> 00:01:20,850 Michael Skinner: years of marketing themselves and their business, and generally periods, 22 00:01:20,880 --> 00:01:25,020 Michael Skinner: short or long of really positive returns. That's how the 23 00:01:25,020 --> 00:01:29,549 Michael Skinner: market's really gravitated to those individuals. We think it's not 24 00:01:29,549 --> 00:01:33,000 Michael Skinner: necessarily the best way to run a business, having a 25 00:01:33,000 --> 00:01:35,970 Michael Skinner: rockstar, in your words, at the top making the decisions 26 00:01:35,970 --> 00:01:38,760 Michael Skinner: and there's a number of risks that come associated with 27 00:01:38,760 --> 00:01:41,850 Michael Skinner: having such concentration of decision making. 28 00:01:43,020 --> 00:01:46,379 Sean Aylmer: Absolutely. Let's go into that. Tell me about those risks. 29 00:01:47,910 --> 00:01:51,870 Michael Skinner: I suppose they're multifaceted in our opinion. If you've got 30 00:01:51,930 --> 00:01:56,400 Michael Skinner: concentrated equity ownership of a business or a fund, a central 31 00:01:56,400 --> 00:02:00,030 Michael Skinner: figure making all the decisions, that is fraught with risk 32 00:02:00,030 --> 00:02:03,599 Michael Skinner: and reputational risk. Similarly, if you've got a fund manager 33 00:02:03,599 --> 00:02:06,900 Michael Skinner: or a stock picker, in your words, deciding the direction 34 00:02:06,900 --> 00:02:10,980 Michael Skinner: of one or multiple portfolios, there's risk that they underperform 35 00:02:10,980 --> 00:02:14,970 Michael Skinner: across all of their portfolios or that they won't be 36 00:02:14,970 --> 00:02:16,770 Michael Skinner: there to run the funds, and then suddenly there's a 37 00:02:16,770 --> 00:02:19,830 Michael Skinner: big hole left in the management team that has to 38 00:02:19,830 --> 00:02:20,309 Michael Skinner: be filled. 39 00:02:21,360 --> 00:02:24,659 Sean Aylmer: How does Blackwattle think about it? Take me through how Blackwattle operates. 40 00:02:26,730 --> 00:02:30,090 Michael Skinner: Blackwattle truly is a partnership. We don't believe in the 41 00:02:30,150 --> 00:02:33,660 Michael Skinner: concentrated equity ownership. We don't believe that one person should 42 00:02:33,660 --> 00:02:36,840 Michael Skinner: be making all the investment decisions. So we are a 43 00:02:36,840 --> 00:02:39,508 Michael Skinner: partnership and that is at our heart. At the heart 44 00:02:39,508 --> 00:02:43,410 Michael Skinner: of Blackwattle is alignment. We are all owners of our 45 00:02:43,410 --> 00:02:47,730 Michael Skinner: business. We've all committed significant personal capital to the business 46 00:02:48,090 --> 00:02:52,080 Michael Skinner: and to the portfolios, and we've really spread out the 47 00:02:52,080 --> 00:02:56,340 Michael Skinner: decision making. We'll be launching four portfolios in our phase 48 00:02:56,340 --> 00:03:00,870 Michael Skinner: one, all with outstanding teams and individuals within those portfolios. 49 00:03:01,800 --> 00:03:06,179 Michael Skinner: They will be responsible for managing their own equity investment 50 00:03:06,180 --> 00:03:10,800 Michael Skinner: universe, and delivering returns for our clients within those universes. 51 00:03:12,000 --> 00:03:14,280 Michael Skinner: One period of time or another, you might have our 52 00:03:14,280 --> 00:03:16,949 Michael Skinner: small cap fund doing well, or our mid- cap fund 53 00:03:16,949 --> 00:03:19,859 Michael Skinner: or our large cap fund, but the key point is 54 00:03:20,130 --> 00:03:23,340 Michael Skinner: they're all discreet decision makers. There's not one person, there's 55 00:03:23,340 --> 00:03:26,340 Michael Skinner: not myself as the CIO, dictating how we invest across 56 00:03:26,340 --> 00:03:30,690 Michael Skinner: the four portfolios. Rather, their highly experienced teams make their 57 00:03:30,690 --> 00:03:32,489 Michael Skinner: own decisions with oversight of course. 58 00:03:34,559 --> 00:03:36,540 Sean Aylmer: Is there a common methodology or anything? 59 00:03:37,890 --> 00:03:40,410 Michael Skinner: Absolutely. We think we're going to be different in the 60 00:03:40,410 --> 00:03:43,590 Michael Skinner: market for a few reasons. I suppose the first point 61 00:03:43,590 --> 00:03:47,250 Michael Skinner: is our alignment. We think we are the most aligned 62 00:03:47,250 --> 00:03:50,639 Michael Skinner: fund management company in the country, day one, but the 63 00:03:50,639 --> 00:03:54,059 Michael Skinner: second point of difference is quality. We really want to 64 00:03:54,059 --> 00:03:57,900 Michael Skinner: own the quality space, the quality investing space. We don't 65 00:03:57,900 --> 00:04:01,740 Michael Skinner: subscribe to the fact, the biases of growth investing or 66 00:04:01,740 --> 00:04:06,330 Michael Skinner: value investing or momentum, those styles are great for certain 67 00:04:06,330 --> 00:04:10,889 Michael Skinner: seasons and certain market cycles. Rather, we look at investing 68 00:04:10,889 --> 00:04:13,920 Michael Skinner: differently. We just want to buy the best quality businesses 69 00:04:13,950 --> 00:04:16,589 Michael Skinner: within a given industry, so that might be the best 70 00:04:16,589 --> 00:04:22,500 Michael Skinner: quality technology play, mining service company, food or retailer. We are 71 00:04:22,500 --> 00:04:25,319 Michael Skinner: just looking at business quality and owning that for the 72 00:04:25,320 --> 00:04:28,378 Michael Skinner: long term and letting that quality really compound returns for 73 00:04:28,379 --> 00:04:29,489 Michael Skinner: our portfolios. 74 00:04:30,990 --> 00:04:33,960 Sean Aylmer: We're primarily talking about equities here as opposed to other 75 00:04:33,960 --> 00:04:35,700 Sean Aylmer: assets, well, and real assets too? 76 00:04:36,000 --> 00:04:40,170 Michael Skinner: Correct. Blackwattle will be launching four equity portfolios from July. 77 00:04:40,320 --> 00:04:45,270 Michael Skinner: They're all ASX domestic portfolios. We think there's significant demand 78 00:04:45,299 --> 00:04:48,660 Michael Skinner: in those equity classes that we're launching. We will move 79 00:04:48,660 --> 00:04:52,109 Michael Skinner: into global equities at the right time. We'll walk before 80 00:04:52,110 --> 00:04:55,770 Michael Skinner: we can run, but probably in year two, maybe year 81 00:04:55,770 --> 00:04:59,159 Michael Skinner: three, we'll be launching one or two global equity portfolios. 82 00:04:59,759 --> 00:05:04,078 Michael Skinner: We think there's a real opportunity to deliver strong outperformance 83 00:05:04,230 --> 00:05:06,690 Michael Skinner: in those equity classes and there's a gap in the 84 00:05:06,690 --> 00:05:09,060 Michael Skinner: market at this point. A lot of the incumbents are, 85 00:05:09,540 --> 00:05:12,029 Michael Skinner: or there's either a few incumbents or the incumbents aren't 86 00:05:12,029 --> 00:05:16,589 Michael Skinner: doing particularly well from a performance perspective. So global equities 87 00:05:16,589 --> 00:05:18,959 Michael Skinner: are phase two, and then if we continue to do 88 00:05:18,960 --> 00:05:21,388 Michael Skinner: well, as we hope we will, we'll move into other 89 00:05:21,389 --> 00:05:22,859 Michael Skinner: asset classes in phase three. 90 00:05:23,520 --> 00:05:25,620 Sean Aylmer: Stay with me, Michael, we'll be back in a minute. 91 00:05:31,440 --> 00:05:34,320 Sean Aylmer: I'm speaking to Michael Skinner, Managing Director and Chief Investment 92 00:05:34,320 --> 00:05:39,719 Sean Aylmer: Officer at Blackwattle Investment Partners. What is it about Blackwattle 93 00:05:40,080 --> 00:05:41,999 Sean Aylmer: that you've got, because there are lots of fun managers 94 00:05:42,000 --> 00:05:46,678 Sean Aylmer: out there. Is it about the people primarily, why I 95 00:05:46,680 --> 00:05:48,660 Sean Aylmer: should put money with you, or is it about the 96 00:05:48,660 --> 00:05:49,650 Sean Aylmer: methodology? What is it? 97 00:05:51,750 --> 00:05:54,389 Michael Skinner: There's a lot of great funds in Australia and they've 98 00:05:54,389 --> 00:05:58,260 Michael Skinner: all got great people running them. Just having great people 99 00:05:58,260 --> 00:06:01,950 Michael Skinner: isn't necessarily enough or really a point of differentiation. We've 100 00:06:01,950 --> 00:06:04,440 Michael Skinner: got great people, so do our peers and our competitors. 101 00:06:05,640 --> 00:06:10,080 Michael Skinner: Our advantage and our differentiation is really multifaceted. How this 102 00:06:10,080 --> 00:06:12,660 Michael Skinner: journey started really, if we take a step back is 103 00:06:12,660 --> 00:06:15,479 Michael Skinner: two years ago, myself and some of my partners today, 104 00:06:15,870 --> 00:06:19,199 Michael Skinner: we looked at the industry, we recognized where our peers 105 00:06:19,199 --> 00:06:22,529 Michael Skinner: did things well, but we really recognized a number of 106 00:06:22,529 --> 00:06:25,980 Michael Skinner: inadequacies of funds management. It was a lack of alignment. 107 00:06:26,160 --> 00:06:30,690 Michael Skinner: It was style biases, it was inadequate fee structures. It 108 00:06:30,690 --> 00:06:33,928 Michael Skinner: was a lack of information flow to underlying investors, and 109 00:06:33,928 --> 00:06:38,070 Michael Skinner: it was poor governance and operational practices. We really set 110 00:06:38,070 --> 00:06:40,979 Michael Skinner: out to design a better funds management model, and I 111 00:06:40,980 --> 00:06:43,980 Michael Skinner: think that's what we've managed to achieve. As an example, 112 00:06:45,300 --> 00:06:48,299 Michael Skinner: our alignment is at our heart, as I mentioned. As 113 00:06:48,300 --> 00:06:50,909 Michael Skinner: a group, we've committed over $ 10 million of our personal 114 00:06:50,910 --> 00:06:55,020 Michael Skinner: capital to our portfolios, and every year we're contractually bound 115 00:06:55,020 --> 00:06:58,979 Michael Skinner: to invest more in our portfolios, alongside our investors. It's 116 00:06:58,980 --> 00:07:01,738 Michael Skinner: the fact that we've got an independent board helping us 117 00:07:01,740 --> 00:07:05,070 Michael Skinner: govern our decision making. It's the fact that we've got 118 00:07:05,730 --> 00:07:10,410 Michael Skinner: young, highly experienced teams. Everyone is between 34 and 46, but they 119 00:07:10,410 --> 00:07:13,830 Michael Skinner: have on average 20 years of investment experience. If there's 120 00:07:13,830 --> 00:07:17,310 Michael Skinner: no personal trading in our business, it's too commonplace in 121 00:07:17,310 --> 00:07:19,860 Michael Skinner: the industry for fund managers and analysts to be trading 122 00:07:19,860 --> 00:07:24,000 Michael Skinner: personally whilst not investing in their own funds. At Blackwattle, 123 00:07:24,000 --> 00:07:27,630 Michael Skinner: there's no personal trading, we're only invested our own portfolios. 124 00:07:28,260 --> 00:07:29,879 Michael Skinner: Then if we do turn to the people and the 125 00:07:29,879 --> 00:07:33,360 Michael Skinner: teams, we've lifted out teams that are in most cases 126 00:07:33,360 --> 00:07:37,710 Michael Skinner: top quartile or decile in their given equity universe over 127 00:07:37,710 --> 00:07:41,339 Michael Skinner: long periods of time. Then finally, it's the fact that 128 00:07:41,340 --> 00:07:45,660 Michael Skinner: we are constraining all of our portfolios capacity. In funds 129 00:07:45,660 --> 00:07:49,650 Michael Skinner: management, as you invest more capital returns will degrade. We 130 00:07:49,650 --> 00:07:53,520 Michael Skinner: are aggressively capping the capacity of all our funds, in 131 00:07:53,520 --> 00:07:58,889 Michael Skinner: some cases 50, 60, 70% below our peers to really preference performance 132 00:07:58,889 --> 00:08:00,300 Michael Skinner: over gathering management fees. 133 00:08:02,280 --> 00:08:04,079 Sean Aylmer: Is it a high net worth individual that you're hoping 134 00:08:04,080 --> 00:08:05,100 Sean Aylmer: to attract money from? 135 00:08:06,119 --> 00:08:09,780 Michael Skinner: We have quite a targeted investor strategy. It is high 136 00:08:09,780 --> 00:08:15,960 Michael Skinner: net worth individuals, it's that sophisticated investor, wholesale, family offices, 137 00:08:16,139 --> 00:08:20,250 Michael Skinner: advisor groups, they're really our target market. We have a 138 00:08:20,250 --> 00:08:24,419 Michael Skinner: number of conversations started with super funds, well known Australia 139 00:08:24,420 --> 00:08:28,200 Michael Skinner: super funds. We will look to represent their capital at 140 00:08:28,200 --> 00:08:31,230 Michael Skinner: some point in time, but it's really that wholesale market 141 00:08:31,260 --> 00:08:33,480 Michael Skinner: and high net worth individuals that we'll be targeting. 142 00:08:34,469 --> 00:08:37,080 Sean Aylmer: What about ESG? I know you are introducing something called 143 00:08:37,080 --> 00:08:39,900 Sean Aylmer: the ESG Review Council. How are you thinking about that? 144 00:08:39,900 --> 00:08:42,780 Sean Aylmer: Because that is certainly something which investors are thinking about. 145 00:08:44,429 --> 00:08:49,230 Michael Skinner: We want to be forward- thinking in ESG and continually 146 00:08:49,230 --> 00:08:52,889 Michael Skinner: push ourselves to be better, so we will have developed 147 00:08:52,889 --> 00:08:57,870 Michael Skinner: clearly defined ESG policies. Our investment teams and process will 148 00:08:57,870 --> 00:09:03,120 Michael Skinner: have ESG considerations built in throughout, whether that be simplistically 149 00:09:03,120 --> 00:09:08,490 Michael Skinner: negative screening for ESG ranking companies or more sophisticated, looking 150 00:09:08,490 --> 00:09:11,189 Michael Skinner: to discount our valuations and our increase our cost of 151 00:09:11,190 --> 00:09:15,208 Michael Skinner: capital in our valuation models to represent ESG risk factors. 152 00:09:15,900 --> 00:09:19,860 Michael Skinner: We'll also extend that into quite a lot of time 153 00:09:19,860 --> 00:09:24,840 Michael Skinner: committed to ESG considerations with corporate Australia. We'll hold regular 154 00:09:24,870 --> 00:09:28,530 Michael Skinner: ESG meetings with our underlying investments, really to make sure 155 00:09:28,530 --> 00:09:31,620 Michael Skinner: that we're across the ESG risks that are present within 156 00:09:31,620 --> 00:09:36,029 Michael Skinner: a company. Then finally, something we think that's quite unique 157 00:09:36,029 --> 00:09:40,050 Michael Skinner: to Blackwattle is we've installed an ESG Review council and 158 00:09:40,050 --> 00:09:44,610 Michael Skinner: also an Investment Review Council actually. Our ESG Council is 159 00:09:44,610 --> 00:09:49,199 Michael Skinner: made up of six diverse, highly experienced individuals from a 160 00:09:49,200 --> 00:09:56,220 Michael Skinner: range of differing backgrounds: environmental, climate, risk, governance, audit. Those 161 00:09:56,220 --> 00:09:59,728 Michael Skinner: individuals come into our company, into our portfolios at least 162 00:09:59,730 --> 00:10:03,360 Michael Skinner: once a quarter, really pushing our teams on their ESG 163 00:10:03,360 --> 00:10:07,440 Michael Skinner: thinking. They'll be provided with data on our portfolio holdings 164 00:10:07,799 --> 00:10:10,889 Michael Skinner: that will assess the ESG risks that are emerging within 165 00:10:10,889 --> 00:10:13,770 Michael Skinner: a given stock investment or within the portfolio as a 166 00:10:13,770 --> 00:10:17,070 Michael Skinner: whole and push our teams to be mindful of the 167 00:10:17,070 --> 00:10:20,820 Michael Skinner: risks that are emerging, reporting to our board. Really the 168 00:10:20,820 --> 00:10:23,339 Michael Skinner: next step is if there's a risk that's unacceptable to 169 00:10:23,340 --> 00:10:26,970 Michael Skinner: us, we'll then approach our company that we're invested in 170 00:10:27,299 --> 00:10:28,560 Michael Skinner: and advocate for change. 171 00:10:29,070 --> 00:10:34,439 Sean Aylmer: Okay. You're kicking off next month, I believe. The first 172 00:10:34,440 --> 00:10:37,078 Sean Aylmer: couple of funds, are they a small cap, mid, large, 173 00:10:37,230 --> 00:10:37,800 Sean Aylmer: one of each? 174 00:10:38,280 --> 00:10:41,309 Michael Skinner: Our first three funds that we'll launch in July are 175 00:10:41,309 --> 00:10:45,299 Michael Skinner: an ASX midcap quality fund, a long- short quality fund, 176 00:10:45,299 --> 00:10:48,598 Michael Skinner: and a large cap quality fund. Two months later in 177 00:10:48,600 --> 00:10:51,510 Michael Skinner: September, we'll be launching a small cap quality fund. That'll 178 00:10:51,510 --> 00:10:54,449 Michael Skinner: be our first four funds that launch, and then we'll 179 00:10:54,450 --> 00:10:58,800 Michael Skinner: move into other, as I said, in year two, global equities. 180 00:10:59,040 --> 00:11:01,110 Sean Aylmer: Michael, good luck with it, and thank you for talking 181 00:11:01,110 --> 00:11:01,949 Sean Aylmer: to Fear and Greed. 182 00:11:02,250 --> 00:11:03,930 Michael Skinner: Thank you very much. Pleasure to be here. 183 00:11:04,799 --> 00:11:07,860 Sean Aylmer: That was Michael Skinner, Managing Director and Chief Investment Officer 184 00:11:07,860 --> 00:11:11,040 Sean Aylmer: at Blackwattle Investment Partners. This is the Fear and Greed 185 00:11:11,040 --> 00:11:13,950 Sean Aylmer: daily interview. Remember, you should get professional advice before making 186 00:11:13,950 --> 00:11:16,708 Sean Aylmer: any investment decisions. Join us every morning for the full 187 00:11:16,710 --> 00:11:19,800 Sean Aylmer: episode of Fear and Greed, Australia's most popular business podcast. 188 00:11:19,889 --> 00:11:21,689 Sean Aylmer: I'm Sean Aylmer. Enjoy your day.