Andrew Smith

Perennial’s Private to Public Opportunities Fund No.2 (PPP2, the Fund) has closed its capital raising fully subscribed – attracting $125 million from a wide range of wholesale investors.

PPP2 will invest in high-growth equity opportunities through an actively managed portfolio of 30-45 unlisted, pre-IPO and listed Australian companies.

The launch of the second PPP fund by Perennial follows the success of its first private companies fund PPP1, which has delivered a total return of 31.1%[1] net of fees since inception in August 2019 (including a 5% distribution in July 2020).

PPP2 will employ the same investment strategy as its predecessor fund, with the aim to generate superior returns over a five-year period.

Head of Smaller Companies and Microcaps, Andrew Smith, said “We appreciate the support from investors for our initial PPP fund, as well as the strong demand experienced for PPP2. We are very pleased to reach the maximum fund target size of $125 million for our second PPP fund.”

According to Head of Private Investments, Brendan Lyons, investors have been supportive of the Fund’s investment strategy, which focuses on the Last Private Offer (LPO) undertaken by founder-led companies prior to an IPO or other liquidity event. “Our systematic process, coupled with a large and growing pipeline of private opportunities, provides a diversified investment exposure which is otherwise difficult to access. In addition, increased volatility in global equity markets this year has prompted many investors to seek out alternate sources of return,” said Mr Lyons.

The Perennial team has already identified several private and pre-IPO investments for PPP2, with the deployment of capital to commence immediately. Deputy Portfolio Manager Ryan Sohn commented “We are really excited at the prospects of the companies that PPP2 will be invested in. Two of our initial investments include an e-commerce businesses with significant scale as well as a health technology company with unique IP. We have followed the growth of these businesses for a significant period of time and are delighted to now be part of the journey with them”.

Some of the businesses the first PPP fund invested in include soft tissue regeneration business Aroa Biosurgery, diagnostic testing business Atomo Diagnostics and lung imaging technology firm 4D Medical – all of which have successfully listed on ASX this year.

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Andrew Smith

The Perennial Value Microcap Opportunities Trust has been added to the IOOF Pursuit platform, providing investors with access to some of Australia’s fastest growing companies.

The Trust invests in a range of listed and unlisted companies comprised of small and microcap stocks which the fund manager believes has sustainable operations and whose share prices offer good value.

Since its inception on 1 February 2017 to 31st December 2018, the Trust has delivered an annualised return of 24.3%, net of fees, outperforming the S&P/ASX Small Ordinaries Accumulation Index by 18.0% and a cumulative return of 51.6%.

Perennial Value Management Head of Smaller Companies and Micro Caps, Andrew Smith, said having the Trust included on the platform’s investment menu would provide investors with more opportunities to access Perennial Value’s microcap strategy.

“We are pleased that a growing number of investors will now be able to access our Trust. We see vast opportunities in the microcaps sector to unearth investment opportunities that are missed by the broader market,” said Mr Smith.

“The cornerstone of the fund’s approach is a strong emphasis on company research – we aim to develop a detailed understanding of each company before committing investors’ funds,” he said.

“The strategy also has a strong focus on early stage companies which are growing earnings strongly, and can provide important diversification for investors in tough market conditions.”

The Perennial Value Microcap Opportunities Trust has received a ‘Recommended’ rating from both Lonsec and Zenith. The Trust is also available on Asgard, BT Wrap, Macquarie Wrap, BT Panorama, Hub24, NetWealth, Mason Stevens and uXchange platforms.

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Bruce, who has been with Perennial Value since its inception in 2000, has previously held several portfolio management positions, including as co-portfolio manager to company founder John Murray in Perennial Value’s Australian Share Trust.

Bruce is lead portfolio manager for Perennial Value’s Shares for Income Trust and its recently launched eInvest Income Generator Fund. In his new role, Bruce will be responsible for the management of all broader cap Australian equities portfolios within the Perennial Value business.

Andrew King also joins the Perennial Value team as Mid-Caps Portfolio Manager.

King was a Founder and Director of Investments at Melbourne-based equities investor Concise Asset Management and previously held roles at Paradice Investment Management and Investors Mutual. He will join Perennial Value in mid-July 2018 and will assume portfolio management and analytical responsibilities for the firm’s forthcoming dedicated mid-caps capability.

Additionally, Andrew Smith who joined Perennial Value in 2008, is Head of Small and Micro Companies and manages the firm’s Smaller Companies Trust and Microcap Opportunities Trust.

In the changes being announced today, Smith will take responsibility for co-ordination of the stock research effort across the Perennial group, co-ordinating its analyst and research team to ensure quality investment opportunities are identified and reflected in clients’ portfolios.

Finally, long-term Perennial Value employee Damian Cottier has been promoted to the role of Portfolio Manager in the firm’s broader cap portfolios. Cottier joined Perennial Value in 2002 and has held a number of roles across dealing, research co-ordination, analysis and most recently as Portfolio Manager within the firm’s micro caps capability. His new role will see him provide a key pivot point linking Perennial Value’s smaller and larger capitalisation businesses.

The changes form part of a strategic transitional process in the management of Perennial Value’s large cap Australian share portfolios, which will see Perennial Value Founder and Managing Director John Murray gradually step down from day-to-day management responsibilities for these portfolios.

The transition, which has been long planned by the business and is expected to occur in an orderly fashion over the next 12-18 months, will see Murray remain as Managing Director of Perennial Value and continue to contribute his insights and perspectives to the investment management team.

Perennial Value Director Anthony Patterson said the changes would provide further opportunity, responsibility and career advancement to the senior investment executives of the business.

“Perennial Value has been focussed on succession planning and building depth across our 16-member investment team for many years. In addition to addressing our succession plan for John, the Board is taking the opportunity to position Perennial Value for the future,” Patterson said.

“Perennial Value recognises that investors’ needs are evolving and that we must ensure we are well positioned to adapt, whilst meeting the core objective of our firm – to deliver outcomes that exceed our investors’ expectations.

“Our future, supported by the appointments announced today, sees us renew our commitment to being recognised as the leading value manager in the Australian market.”

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Perennial portfolio managers are each investing alongside clients’ monies.

“Investors are perhaps rightly cynical about fund managers’ interests being truly aligned with their own and our portfolio managers have stepped up to the challenge in this new portfolio”, said Brian Thomas, General Manager – Investment Services at Perennial.

“Apart from their investments being aligned, the managers will close the Trust to new investors when funds exceed $150 million.

“It is not in anyone’s interest to have funds grow too large in the microcap sector, and the ability to remain nimble and move in and out of microcap companies starts to become increasingly hindered over this level, Thomas added.

The decision to create the new Trust was based on a painstaking review of 10 years’ worth of data from the Perennial Smaller Companies Trust.

“The results were positive and humbling at the same time” said Andrew Smith, the lead portfolio manager. “Positive in that it showed that the overall return was strong. Humbling because it forced us to reflect on certain decisions that detracted from the fund. On the positive side, this gave us the opportunity to create new processes and metrics to avoid making similar decisions in the new portfolio,” he said.

Mr Smith said the key method of reducing risk was to focus on those companies with minimal debt or ideally large net cash balances (particularly if the company has a limited financial history). Given the almost 2000 companies in our universe we run several screens (on historical and broker forecasts if available) to filter out concept stocks so we can then focus our research efforts on quality ideas in growing sectors.

“In addition to these screens, we are on the road a lot, as a team we conducted over 600 company visits last year. Once we have identified the best ideas we do detailed modelling and put together the best value portfolio of close to 50 stocks,” he said.

Perennial’s preferred stocks at present are RPM Global (software to mining companies), PWR Holdings (high end technology for racing cars) and Imdex (drilling technology provider).

Lonsec rated the Trust Recommended in its review, stating: “Lonsec has strong conviction the financial product can generate risk-adjusted returns in line with relevant objectives. The financial product is considered an appropriate entry point to this asset class or strategy”

The Trust is also available to investors through the HUB24 platform.

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Andrew Smith

Perennial Value’s (Perennial) Smaller Companies team has unveiled a new investment trust aimed at delivering excess returns from the large and growing Microcap end of the market.

The Perennial Value Microcap Opportunities Trust (the Trust) strategy marshals the experience and skill of Perennial’s highly successful Smaller Companies Team.

Portfolio Manager Andrew Smith said the product was created following discussions with investors and their advisers, in which they expressed interest in accessing Perennial’s experience to invest in Microcap opportunities.

“These investors want a proven, professional manager able to conduct detailed in-house research, as well as bring the capability to seize opportunities as they present themselves,” he said.

The Microcaps universe is both large and under-researched, creating plenty of opportunity for Perennial to add value.

Grant Oshry, Head of the Perennial Small Companies team for over a decade said: “The number of available opportunities helps explain why a professional manager is required for this market segment. At a macro level, there are 2,092 ex-100 listed companies – but only 401 or 20% of these are researched by major brokers*”.
Importantly, the Trust can invest in Pre-IPO opportunities.

“We have significant experience in assessing IPO’s and adding value via our selection process. In this Trust we can take this one step further and invest in Pre-IPO opportunities if we believe the investment case will appeal to the market. We can also provide strategic input given our experience in listed markets,” he said.

Examples of quality Microcap stocks, included by Perennial in its Smaller Companies Trust, include:

• SeaLink Travel Group. Perennial Value was a cornerstone investor at IPO priced at $1.10 in late 2013, the share price has now surpassed $4.30.
• EML Payments (a card technology player). First purchased at 50 cents in September 2014 it is currently trading close to $1.50.
• National Veterinary Care was purchased at the IPO for $1.00 in August 2015 and is currently trading close to $2.50

These stocks traded below $100 million market cap at time of investment and thus had little or no research coverage from brokers at the time of investment. As a result, Perennial utilised its in-depth research process to identify these opportunities before they became popular with the market.

Perennial will also leverage the skills of the team’s dedicated small cap resources analyst Sam Berridge. Sam will manage the resources component of the portfolio and brings a ‘hands-on’ approach.

A trained geologist, Sam is based in Perth where many smaller resources companies are located. He currently sees good opportunities in companies servicing the mining exploration space, which bottomed in July last year. Volume and margins in the sector are steadily increasing off a low base. In many cases, this recovery is not fully captured in the market’s forecast.

To remain nimble and opportunistic, the Trust will hard close when it reaches $150 million. The Trust will invest in a portfolio of up to 70 stocks with a market cap of less than $500 million at the time of purchase.

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