John Murray

Leading boutique fund manager Perennial Value Management Limited (Perennial Value) has announced that its senior executives planned to acquire the remaining 42.4 percent economic interest in the business from IOOF Holdings (ASX: IFL).

Perennial Value is a specialist, active investment management firm. Established in 2000, Perennial Value invests $5.6 billion on behalf of institutional and retail clients through a suite of trust products and discrete portfolios.

John Murray, Managing Director of Perennial Value, said: “We’re delighted to announce our intention to acquire the remaining IOOF interest in our business. This represents a further significant alignment of interests between our staff and our clients, and is a strong vote of confidence in our continuing commitment to delivering investment excellence, fostering a specialist investment management culture, and building a successful and sustainable funds management business.”

Perennial’s investment products will continue to be offered through IOOF platforms as well as other leading platforms and wrap accounts.

Anthony Patterson, Executive Director of Perennial, said: “This transaction will see the positioning of the Perennial Group as a multi boutique investment firm. We currently operate six boutique investment businesses, three under the Perennial brand, large cap Perennial Value, Perennial Value Smaller Companies and the Perennial Solutions Group, and three boutique affiliates Daintree Capital, an absolute return fixed income business, Fairlight Asset Management, a Global Small Mid Cap specialist and eInvest a provider of active exchange traded managed funds”.

“Our focus for the immediate future is as always on delivering good outcomes for our investors, but with an eye to the longer term, “Patterson said.

“In recent years, we have had a strong focus on building actively-managed niche capabilities.  We recently closed our Micro caps Trust at $200m on the back of very strong performance (total net return of 97.4% since inception in February 2017) and investor demand and also completed a capital raising for our Perennial Private to Public Opportunities fund, a wholesale offer taken up predominantly by higher net worth and family office investors.

“A major focus of this fund is investing in well-managed, strongly growing unlisted companies. We are very optimistic about the prospects for both Daintree Capital and Fairlight, which are both run by top-shelf investment executives who are passionate in their aim of delivering strong returns for their investors. Our ongoing development of eInvest reflects our view of growing investor demand for actively-managed exchange traded funds.”

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John Murray

Strong demand from wholesale investors seeking to invest in the unlisted space has seen Perennial Value attract $50 million only weeks after the firm announced its plans for a new Private to Public Opportunities Fund. The Private to Public Opportunities Fund will close on 16 August 2019.

“We’ve been very pleased by the strong demand from wholesale investors for this new Fund, in particular high net wealth and family office investors. They recognise there’s a gap in the market for opportunities to invest in early-stage companies requiring growth capital,” said Perennial Value Managing Director John Murray.

The new fund is an extension of the Perennial Value Microcap Opportunities Trust, which has a successful track record of investing in private companies that have since become public. This microcap fund has now hard closed after reaching the targeted capacity of $200 million, having returned 30.4% p.a. net of fees since inception.

Examples include EcoFibre (ASX: EOF), Atomos (ASX: AMS), and Uniti Wireless (ASX: UWL). These stocks have generated returns of 444%, 360% and 538% respectively from Perennial’s unlisted investments as at the end of July 2019.

Ahead of the fund’s launch, Perennial’s investment team has identified six unlisted opportunities for wholesale investors. These include:

• Equiem, is a global leader in tenant experience software and is gaining strong traction in the US and UK.
• Lumitron, a low dose x-ray company born out of the California-based Lawrence Livermore National Laboratory.
• Nutricare, a producer of bamboo-based, plastic-free wound care protection products.

Andrew Smith, Perennial’s Head of Smaller Companies and Microcaps, said they are leading the second round of investment into Nutricare.

“Nutricare is fast becoming a substantial player in the global wound care market under the brand name Patch. Following the success of our investment last year, we’re providing further expansion capital to help the company continue its rapid growth in all regions including Australia, the US, Europe, Middle East and South Africa,” Mr Smith said.

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John Murray

The award-winning Perennial Value Small & Microcap team*, led by Andrew Smith is releasing a new strategy – the Perennial Private to Public Opportunities Fund (Fund), exclusively available to Wholesale Investors.

The new Fund’s objective is to generate superior, absolute returns, above a hurdle rate, from an actively managed portfolio of typically 30-45 unlisted growth capital, pre-IPO investments, IPOs and placements over a five-year period.

The Fund will be managed by the seven-person Perennial Value Small Cap team, led by Head of Smaller Companies and Microcaps Andrew Smith with Ryan Sohn a co-portfolio manager.

“Based on our observations in the small and microcaps sector, we have identified a gap in the market and there are tremendous opportunities to invest in companies requiring growth capital,” said Mr Smith.

The Fund will target companies that meet a range of critical investment criteria (including quality management, scarcity, scalable business model with growth potential, and valuation discount). The universe of unlisted companies meeting this criteria are typically hard to access for most investors.

Perennial Value Managing Director John Murray said strong opportunities exist for wholesale investors seeking value in the pre-IPO sector, citing the scale and strong network of the firm.

“The Perennial Private to Public Opportunities Fund offers investors access to capture upside potential of companies early in their growth cycle, whilst avoiding early stage risk associated with seed and venture capital,” said Mr Murray.

The launch of the new Fund follows the success of the Perennial Value Microcap Opportunities Trust, which has delivered 67.2%** cumulative return since inception (February 2017) net of fees to investors and is soft closing (closing to new investors) at the end of June as it reaches the targeted $150M capacity. This capacity limit was set so the team can continue to be a nimble investor in the microcap space.

“We have been pleased with the strong demand for our Microcap Opportunities Trust and it serves to affirm that there are great opportunities for investors in the microcaps universe as brokers find it increasingly difficult to research the growing sector,” said Mr Smith.

“Over recent years we have begun to also deliver impressive returns in the under-researched and difficult to access sector of pre-IPO opportunities/unlisted growth companies – hence our desire to establish this new fund,” he said.

Morgan Stanley Wealth Management has completed due diligence and is partnering with Perennial on the launch of the Perennial Private to Public Opportunities Fund.

Head of Product for Morgan Stanley, Shaun Bornstein says, “We would expect to give a firm commitment of AUD$25 million plus once the documents are finalised. We continue to have a longstanding relationship with Perennial and have confidence in Andrew Smith and his team to continue to deliver alpha throughout any market cycle.”

“The Perennial Private to Public Opportunities Fund is innovative with multiple sources of alpha and has a 5-year lockup period which is consistent with the objectives of the Fund. The team has a proven track record of successfully negotiating deals and driving a private to public premium,” said Mr Bornstein.

The minimum investment for the Perennial Value Private to Public fund is $100,000.

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*Perennial Value’s Small Caps team recently won the Australian small cap equities category in the 2019 Money Management – Lonsec Fund Manager of the Year Awards for the Microcap Opportunities Trust
**As at 30th April 2019

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John Murray

In a new year that has begun with share market volatility, continued falling property prices and increased talk around recession both in Australia and the US, Perennial Value Management (Perennial Value) cautions against over-negativity on the Australian economy and says the recent market sell-off is opening up opportunities for patient investors to invest in quality companies at attractive prices in 2019.

Investors have begun the year with a high level of nerves due to the fall in the share market in the December quarter, where the sell-off mirrored that seen in offshore markets as a result of heightened political uncertainty around issues such as US-China trade and Brexit, as well as rising interest rates.

Perennial Value Managing Director John Murray says that with all the negative sentiment floating around, it’s easy to lose sight of the fact that the Australian economy is arguably in better shape than many other economies.

“We have strong population growth, albeit it is easing; favourable demographics, with a relatively young population compared to most other developed economies; our government debt levels are low by global standards; and we are one of the few countries boasting a AAA credit rating. The budget is heading back into surplus and both interest rates and inflation remain at low levels,” Mr Murray said.

“Unemployment is low, activity is robust in the infrastructure sector on the back of a large number of major projects and there is likely to be increased investment in the resources sector. The weaker Australian dollar is also acting as a buffer, benefitting export industries and our key education and tourism sectors,” he said.

Looking to the share market in 2019, Perennial Value’s Director of Portfolio Management Stephen Bruce says the recent sell-off has taken the Australian stockmarket P/E to slightly below the long-term average of 14.0x. Further, the overall market gross yield of 6.5% remains compelling compared to term deposit rates.

Mr Bruce said, “Within the market itself there remains a wide valuation dispersion, with many growth and momentum stocks remaining expensive while many value stocks are trading at cheap levels.”

“History shows that at some point these large valuation dispersions normalise and, when they do, there is the potential for a value style portfolio to deliver significant outperformance,” Mr Bruce said.

Australian companies looking strong

“In terms of the market more broadly, our forecasts are for continued, moderate earnings growth over the coming year. In addition, corporate Australia has been paying down debt and balance sheets are in very good shape, which provides the flexibility to reinvest for growth, pay healthy dividends and weather any economic headwinds that may arise,” Mr Bruce said.

Interestingly, this theme was reinforced in late 2018 when Perennial Value analysts visited a wide range of companies in the US.

“What struck us is that, in comparison to US companies, Australian companies’ growth prospects seemed relatively solid and our balance sheets generally seemed to be in better shape too,” Mr Bruce said.

Mr Murray says the global macro environment remains challenging and for investors the investment timeframe is a critical piece to consider.

“Market sell-offs inevitably provide buying opportunities for the more patient investor and I believe that 2019 will provide such opportunities for those looking to build a robust share portfolio for the longer term,” Mr Murray said.

“Many of these opportunities are to be found at the value end of the market and the key is to be seeking companies which are well-managed, possess strong balance sheets, have sound earnings growth prospects and are delivering reasonable dividend flows. These are the companies that will inevitably carry investors through tougher times,” he said.

Perennial Value’s more favoured stock holdings currently include gaming stocks, Tabcorp and Star Group, Link Holdings, Nufarm, fund managers Janus Henderson and Perpetual and Event Hospitality and Entertainment.

Discussing Perennial Value’s resource holdings, Mr Murray said, “We are holding a spread of gold producers – Newcrest, Evolution and Northern Star – who are benefitting from an A$ gold price which is trading at an all-time high. We also see a lot of value in a range of mining services companies, including Ausdrill, ALS and Monadelphous.”

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Tisdell will have a hybrid role – a national focus for Daintree Capital and a state (NSW & ACT) focus for Perennial.

Tisdell joins Perennial Value following a 20-year career in financial services business development, including senior distribution and product roles at Macquarie Bank, RBS, BNP Paribas and Citibank.

Perennial Value Managing Director John Murray said Tisdell’s wealth of experience in capital markets and funds management would make him a welcome addition to the fund manager’s distribution capacity.

“We are confident that Mark’s in-depth knowledge of the dynamics of wealth management and the financial adviser channel will quickly have a positive impact as we gear up for a busy 2019,” Murray said.

“We welcome Mark to the Perennial Value team and look forward to seeing him play a key role in growing our relationships with high-quality advice and wealth firms.”

In his new role, Tisdell will have accountability for distribution channels in NSW and the ACT, with a key focus on third party and intermediary relationships including national and independent dealer groups, independent financial advisers, stock broking, private wealth segments and platforms.

“I have great respect for Perennial Value’s investment approach and am excited to be joining a team of such high calibre,” Tisdell said.

“I welcome the opportunity to work closely with advisers and wealth managers at a time in the market cycle where the case for value investing is becoming especially strong.”

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John Murray

Valuation dispersion in domestic shares is nearing record levels as Australia approaches its tenth year of a bull market, meaning the conditions for value investing to outperform could be near, according to a new white paper from Perennial Value Management (Perennial Value).

The white paper; Time to shift gears from Momentum to Value Investing, notes that the top quintile of Australian shares are currently trading at a price-to-earnings ratio 40% higher than their long-term average, compared to the bottom quintile of shares which are trading very close to their long-term averages.

These divergence levels are higher than those seen in the global financial crisis (GFC) and approaching those of the early 2000s dot-com boom, meaning market dynamics are likely to shift in favour of value stocks, according to Perennial Value Managing Director John Murray & Director Portfolio Management Stephen Bruce.

“Previously when valuation divergences have reached this level, there has been a reversion – often an aggressive one – towards cheap value stocks and away from expensive growth stocks. In both instances, solid and stable value companies outperformed significantly as the former market darling growth stocks fell from grace,” Mr Murray said.

The white paper argues that the years since the GFC have been characterised by low economic growth and low interest rates, meaning investors have been less concerned with the time value of money and prepared to pay more for growth stocks even through their cash flows are further away.

Mr Murray said that with growth returning to the broader economy and interest rates rising, investors’ preference was likely to swing towards value investing as it had in the past, as paying such a high premium for growth would no longer make sense.

“Although every new situation is different, it’s worth remembering that while history doesn’t always repeat exactly, it usually rhymes. With a generally improving earnings growth outlook and rising interest rates, we see an inflection point in the rate cycle where the era of easy money is largely over and the conditions for value to outperform could be near,” Mr Murray said.

As this inflection point approaches, Perennial Value sees fertile ground when it comes to investment opportunities in the local market, with a range of good quality Australian companies offering strong balance sheets, attractive dividend yields and reasonable medium to long term prospects.

“We believe it would be prudent for investors to lock in profits from growth and momentum stocks and rebalance some of their portfolio towards value,” Mr Bruce added.

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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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John Murray

Perennial Value Management is set to launch the eInvest Income Generator Fund  (Managed Fund) (ASX: EIGA), an exchange traded managed fund (ETMF) designed to meet the needs of investors seeking a regular, reliable, tax-effective income stream, as well as capital growth over time.

The investment philosophy of the eInvest Income Generator Fund will be based on the proven track record of the Perennial Value Shares for Income Trust, which was launched in December 2005. This Trust has generated an 8% per annum gross distribution yield after fees, as well as outperforming the market on a total return basis over its 12 year track record.

John Murray, Perennial Value managing director, said “The eInvest Income Generator Fund will   provide investors with regular, reliable monthly income payments, as well as the benefits of active management and diversification, accessed through an efficient, low-cost listed structure.”

“The fund will invest in a diversified portfolio of 30-35 quality Australian shares which we believe have the ability to both pay an attractive level of dividend income and grow in value over the long-term,” said Mr Murray.

“We are aiming to provide investors with an attractive, tax efficient income stream, greater than that offered by alternatives such as term deposits and fixed income and the overall stock market. The portfolio is initially aiming to target a 7% per annum dividend yield including franking credits and after fees.[1]”

The ETMF structure will offer investors greater liquidity than an unlisted managed fund, as units can be bought or sold on the Australian Securities Exchange, just like buying or selling shares.

The lead portfolio manager of the fund is Stephen Bruce, who has 17 years’ experience in Australian shares funds management with Perennial Value.  The team comprises 15 investment professionals with an average of 16 years’ experience managing and analysing Australian shares.

The fund will be offered via a general offer and also through an initial public offering (IPO) which will open in Q2, seeking to raise a minimum of $50 million and up to $250 million from investors in Australia and New Zealand at an application price of $4.00.

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[1] This is a target in the first financial year but may change over time.

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Based in Sydney, Birch joins from OTCX where he was Asia Pacific Managing Director. Prior to OTCX, Birch was with Russell Investments as a Senior Business Development Manager responsible for institutional relationships.

Managing Director, John Murray said “We welcome Dan to the Perennial and Daintree team. His depth of experience will benefit us greatly. We look forward to seeing Dan play a pivotal role in expanding our investment capabilities throughout the Australian market.”

Birch said he is excited to be starting with the Perennial Group and is looking forward to working with the talented people within its boutique managers.

“The depth of talent within the Perennial Value and Daintree investment teams are second to none. Given the ownership structure, where the investment professionals interests are aligned with our investors, we are well suited to partner with super funds and institutions to build investment solutions that best suit clients’ needs” he said.

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John Murray

The vast majority of stocks in the Australian microcap equities market are still lacking in formal coverage by brokers and analysts, leaving vast opportunities for value investors to uncover hidden gems in the sector.

That is the view of leading equities manager Perennial Value, whose Microcap Opportunities Trust recently marked its one year anniversary by delivering 50.0% (net of all fees) compared to a 22.4% return for the S&P ASX Small Ordinaries benchmark over the same period.

Perennial Value managing director John Murray said the firm’s disciplined value approach was working in investors’ favour given the under-researched nature of the microcap universe.
“Looking at many of the key stock drivers over the last year, most had little or no broker coverage at the time of our investment and we were able to find an edge using our in-house team of analysts,” Mr Murray said.

Perennial Value head of small and microcaps Andrew Smith added that the funds management team found no shortage of opportunities in the sector, with some 1451 of nearly 2000 companies in the microcap universe not covered by brokers.

“Much of our focus is on those companies that are poorly researched, which enables us to gain an edge given our internal analytical capabilities,” Mr Smith said. “We can then build a position in the stock before it becomes more mainstream, and our investors enjoy the re-rating through this process.” “It really was a team effort with strong contribution from my Co-Portfolio Managers Sam Berridge and Damian Cottier”.

Perennial Value’s approach covers a diverse range of sectors and stocks, with an average of almost 60 stocks in the portfolio at any one time.

Top performing holdings included Kogan.com, Galena Mining and Alliance Aviation, all of which returned in excess of 120% for the year.

“In Galena Sam saw the mispricing of an established resources company which was spun out of a major miner, while Damian added Kogan.com when the market was overly concerned about the Amazon threat because we actually saw it as an opportunity,” Mr Smith said.

“We also thought the market was underappreciating the earnings leverage from the deal between Alliance and Virgin, as well as the recovery in aviation demand from mining customers.”
Meanwhile the team’s disciplined strategy saw it avoid the more speculative themes in the market such as lithium and infant formula, while favouring companies where management had large personal shareholdings.
Looking forward, Mr Smith said microcaps would continue to offer strong value opportunities for investors, with brokers finding it increasingly uneconomic to effectively research the growing sector.

“The microcap space is also likely to appeal to private clients with a small business background in particular, as they understand the risk and reward in the sector,” he said.

The Perennial Value Microcap Opportunities Trust has an estimated capacity of $150 million, with current funds under management at almost $20 million.

The fund has also been recently added to Macquarie and BT platforms following adviser demand.

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