Alternative asset growth supports Blue Sky’s 130 per cent profit surge

Robert Shand

Blue Sky Alternative Investments (ASX: BLA) have announced its results for the half year ending 31 December 2016, reporting a significant rise in revenue, profitability, cash flow, margins and fee-earning assets under management (AUM).

Highlights include:

• underlying net profit after tax (NPAT) for 1H FY17 up 130 per cent to $10.1 million (1H FY16: $4.4 million);
• underlying EBITDA margins for 1H FY17 expanding to 41 per cent (1H FY16: 28 per cent)
• underlying income for the period up 53 per cent to $36.4 million (1H FY16: $23.8 million); and
  net operating cash flow for 1H FY17 up 200 per cent to $9.3 million (1H FY16: $3.1 million).

The company maintained it was on track to deliver underlying NPAT of $24 to $26 million in FY17, representing approximately 50 per cent growth on FY16.

Blue Sky’s fee-earning AUM at 31 December 2016 was $2.7 billion, with the company adding $1 billion in the last twelve months. The fund manager saw a significant rise in investments from Australian and overseas institutional investors, from 25 per cent to 37 per cent of its fee-earning AUM during the period – a trend that has continued in 2017 with Blue Sky announcing a new significant mandate in January.

Fee-earning AUM is expected to be between $3.1 and $3.3 billion by 30 June 2017. The company confirmed it was on track to meet or exceed its longer-term target of $5 billion by 30 June 2019.

The alternative asset manager outperformed market benchmarks in each of its asset classes – private equity and venture capital, private real estate, real assets and hedge funds – delivering investment performance of 16.4 per cent per annum net of fees since its inception more than ten years ago.

Blue Sky reported a robust balance sheet with net tangible assets of $134 million including a net cash position of $52.1 million. The strength of Blue Sky’s balance sheet has become a key strategic asset for the business attracting and investing alongside institutional investors, seeding new ventures, and moving quickly to secure new investment opportunities.

Blue Sky managing director Robert Shand said the company’s strong financial performance came down to three key drivers: the mainstreaming of alternatives, the company’s compelling ten-year track record and institutional backing.

“We have returned 16.4 per cent per annum net of fees over ten years to investors, and have won the endorsement of major institutions,” Mr Shand said.

“Long-term trends have seen investors increase their allocation to alternatives and we are benefiting from the same structural tailwinds as global alternative asset managers such as Blackstone and Partners Group.[1]

“While we have done well to grow to $2.7 billion in fee-earning AUM in our first ten years, we have barely scratched the surface. Australia’s funds management industry has $2.8 trillion under management, and with alternatives forecast to be our largest asset class in the next decade, the opportunity in front of us is enormous.” [2]

A McKinsey & Company report noted growth in alternative investments continued to outstrip that of traditional assets.

“The alts boom is likely to be one of the richest asset management growth opportunities in the years to come,” the international report states.[3]

Closer to home, Australia’s Future Fund allocates nearly 40 per cent of its portfolios to alternatives.[4]

“We continue to […] seek out and access pockets of opportunity particularly in our private market and
alternatives programs,” Future Fund managing director David Neal said.[5]

ABS data shows that over the last decade, the value of listed equities has treaded water, increasing from $1.66 trillion to just $1.69 trillion. Over the same period, the value of unlisted equities has increased by almost 50 per cent, from $1.96 trillion to $2.95 trillion. The size of unlisted equities in Australia today is approximately 74 per cent more than listed equities. [6]

“What investors have experienced in Australia over the last decade is that growth in private markets has far outstripped growth in public markets. As a business that has specialised in investing in private markets, we are uniquely positioned to capitalise on this growth,” Mr Shand concluded.

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