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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Cove Property Group and Blue Sky Alternative Investments acquire another NY office tower.

Cove Property Group (Cove), a joint venture between Blue Sky Alternative Investments and US property investors led by Kevin Hoo, has signed an agreement to acquire its second asset, an office tower located at 441 Ninth Avenue in Manhattan, New York.

Having completed its first transaction earlier this year at 2 Rector Street, New York, this second acquisition marks a further important milestone in the development of Cove’s business.

The transaction value exceeds A$400 million and is expected to settle within the next two months. The agreement was signed on behalf of the joint venture investment vehicle managed by Cove. The majority of the equity for this investment vehicle will be provided by a North American based institutional investor.

441 Ninth Avenue is an existing eight story building located within a five minute walk of Penn Station, Hudson Yards and Manhattan West. Cove plans to fully redevelop the property into a Class A office tower in one of the Manhattan’s most rapidly expanding submarkets, which has already begun to benefit from a projected US$20 billion of private and public capital expenditure, and welcomed an influx of global blue chip tenants including KKR, Wells Fargo, Boston Consulting Group, Coach, JP Morgan and L’Oreal.

Blue Sky incoming managing director, Robert Shand, said the deal was the second high profile acquisition for Cove in just eight months.

“It’s an important milestone for Cove and for the development of our US operations, and it gives our investors a chance to gain access to New York’s real estate market,” Mr Shand said.

“This deal, paired with the expansion and venture capital we have executed in the US over the last two years, shows our New York office is gaining real momentum.”

“Partnering with Kevin gives us an insider advantage, while mitigating risk for our investors. His track record is impressive, having worked for prestigious US companies, including Savanna Real Estate,for more than a decade and closing a lot of major deals.”

Prior to Savanna, Mr Hoo was a director at Tishman Speyer Properties, one of the preeminent real estate companies in the world. Mr Hoo’s acquisition, development, design and construction roles saw him focusing on properties as iconic as Rockefeller Center and the MetLife building on Park Avenue. Before then, Mr Hoo was an associate director in the Real Estate Investment Banking Group at UBS AG in Sydney, where he was responsible for M&A and capital market transactions for REIT clients.

A University of Queensland graduate, Mr Hoo also holds an MBA from the Kellogg School of Management at Chicago’s Northwestern University

Blue Sky Alternative Investments Limited (‘Blue Sky’) holds a 38 per cent economic interest in Cove Property Group.

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