Wilson Asset Management

Geoff Wilson has a habit of swimming against the tide.

The stockbroker-turned-champion of the retail investor ploughed all of his cash in to start Wilson Asset Management just as markets were going haywire with the Asian currency crisis more than two decades ago.

Then his listed investment fund, WAM Capital – his flagship small to mid-cap investor – debuted on the stock exchange months out from the dot.com bubble bursting.

“And I’d seen instances previously, whether it’s the 1987 crash or various other times where money would flow out of markets. And that’s when you want to be buying. When people are withdrawing their money, that’s when you want to be invested,” he says.

Wilson says the intention of setting up Wilson Asset Management in 1998 was to provide a vehicle for smaller investors to have the clout of a big investor. He put $500,000 of his cash into Wilson Asset Management and this was quickly matched by television tsar Reg Grundy, taking funds to $1m.

“The logic behind it was that I would put my money in with other people’s money,” he says.

“And we get access to what big institutions get access to. We get allocations in IPOs; we get the placements. We saw the institutions were at a greater advantage compared to the average investor.

“I wanted to put my money with everyone else’s money and say ‘let’s be an institution’.”

Wilson has built his investment house to today have more than $5.2bn under management with the funds spread across eight listed funds he chairs ranging from WAM Capital, WAM Leaders (large caps), a hedge fund WAM Active and even a listed alternative asset fund.

The growth of Wilson Asset Management has delivered Wilson a personal fortune of more than $500m. Much of this has been put into his philanthropic foundation that funds research for both mental and physical health – a driving passion of Wilson.

Wilson is chatting to The Australian in Sydney as he prepares to start on a national roadshow for his investors, where he and the fund management team take questions on all aspects of the market and fund performance. It’s been a packed few weeks, during which Wilson has hosted a series of webinars that have thousands of viewers at any time.

Full circle

Over the years, Wilson has built a devoted investor base of more than 130,000 retail or smaller shareholders – many of these are self-managed super funds. To put this in perspective, a large cap like Qantas has about 200,000 retail investors.

Now Wilson is about to see Wilson Asset Management turn full circle to its early days with the launch of a new unlisted investment trust that invests directly alongside the $1.8bn listed WAM Leaders fund.

Headed by Matt Haupt, WAM Leaders targets Australian-listed stocks across the top 200. The fund, which listed with $380m in 2016 has outperformed its benchmark by 7.1 per cent annualised over the past five years.

WAM Leaders consistently trades at a premium to its net tangible assets (NTA), which is a mixed blessing. This means new investors who buy into the fund are paying a premium but may not benefit from all of its outperformance.

Listed investment companies have enduring appeal for self-managed super funds, but their gap in the share price to their underlying assets represents a hurdle for some investors. Unlisted investment trusts bypass this, giving them an appeal to a wider range of potential investors or even financial planners.

Key to their structure is it removes the discount or premium to net tangible assets. In other words, a dollar put in is still a dollar taken out (before factoring in performance swings). However, the earnings generated by unlisted funds are often more volatile where a listed investment company sees a smoother structure in the form of dividends.

All along, for Wilson, the “holy grail” of listed investment companies is the fact they trade at premiums and discounts.

“Unfortunately, for some people, that’s the negative about listed companies. But I think that’s the real positive,” he says.

“And so if you’re worried about not having the skills to work out when a listed investment company shouldn’t be bought or sold, then you’re better off going into the unlisted trusts.”

Wilson has seeded his new WAM Leaders Trust with $5m of his own cash.

A former stockbroker, Wilson has a big reputation in financial circles for years of forthright views of markets, companies and even executives or politicians that are delivered with a wide, disarming grin.

He has an enviable contact book and is backed by an army of loyal investors.

In recent years, Wilson has also been prepared to publicly go after listed funds through a round of hostile battles that he considers are falling short in performance. Many of these end up at the Takeovers Panel (the tribunal for markets), including a bruising street fight for Nick Bolton’s Keybridge Capital. This multi-year battle has ended at a stalemate of sorts, with Wilson now sitting on a 43 per cent stake of Keybridge.

Franking credits

But it was during the 2019 federal election that Wilson jumped onto the national stage to become the face of a campaign targeting then Labor leader Bill Shorten’s plans to clamp down on franking credits for dividends.

Wilson’s energetic grassroots campaign was arguably a key factor in the ALP losing what was regarded as an unlosable election, and the much-maligned franking policy was quickly scrapped under the new leader, Anthony Albanese.

Wilson says he didn’t go into that campaign with a political motivation other than what was in the best interest for his investor base.

The planned change “was a direct assault on self-managed super fund investors and the bulk of our investors and supporters,” Wilson says.

The campaign has been fired up again thanks to Treasury and now Labor examining new ways of clamping down on franking credits. This involves stopping franking credits connected to capital raisings and off-market share buybacks: measures estimated to deliver hundreds of millions of dollars back into Canberra over the next few years.

The proposals are expected to be debated in the Senate later this month.

Assistant Treasurer Stephen Jones has described the latest proposals as targeted and modest, designed to close a small loophole. Wilson says he didn’t see the full implications when the draft proposal was released last September, but quickly realised they could have a major effect on capital raisings.

“When you initially read it, it doesn’t sound that bad. But once you start really digging into the detail, then you realise that it’s all the unintended consequences,” he says.

He points out his campaigning is about being pro-investor. This means it can target both sides of politics.

He led the charge against the Morrison government wanting to make the Covid-era decision to let companies permanently hold virtual AGMs. He has also argued about how share placements by companies are materially skewed against retail investors.

“It’s just ridiculous that any institution can get a placement, and you can sell it the next day to a retail investor,” Wilson quips.

Inflation fight

Haupt, who runs WAM Leaders, says markets are at a critical juncture, with central banks around the world nearing the last push to try to “crush” inflation. This is partly behind the weakness in shares in recent weeks.

This will see tighter financial conditions, economic slowdown and then even the job loss cycle begin as corporate profitability comes under pressure.

But Haupt says there is a chance of aggressive interest rate cuts coming through over time.

This could see shift sentiment around real estate investment trusts, consumer discretionary stocks and building materials. The key is to pick the turn in sentiment well before it arrives.

With more than four decades of experience in markets, Wilson admits that he has been surprised that shares have held up to the extent that they have.

“After a 30-year bull market in bonds and record low interest rates, then a pandemic and all that liquidity being pumped into the system you would have thought there’ll be a pretty reasonable hangover … it hasn’t arrived yet,” he says.

“Now, will it mean that things won’t get that bad? Maybe this time it is different. I actually thought there’d be more pain in the equity market.”

He expects interest rates to stay higher for a little longer to train and contain sticky inflation.

“The next six to nine months would be a more challenging time in the market,” he says.

But for Wilson, this simply means opportunity.