A milestone for the listed investment company (LIC) sector with Geoff Wilson AO and Jesse Hamilton

Jesse HamiltonI am Jesse Hamilton, Chief Financial Officer at Wilson Asset Management.  I am joined here today with Geoff Wilson to talk about 100 years of Listed Investment Companies (LICs).  Welcome Geoff.

Geoff WilsonThank you Jesse.

Jesse HamiltonSo Geoff, we are coming up to 100 years of Listed Investment Companies and over the last 25 years you have played an instrumental role in the industry.  Now we have gone through big periods of growth and we have had some golden decades of Listed Investment Companies, more recently we have seen some consolidation, so the sector is sitting at around $47 and a half billion dollars at the moment.  What are the most notable changes you have seen over the past 25 years?

Geoff WilsonIn terms of putting Wilson Asset Management into context, nearly 23, 24 years ago we floated WAM Capital, our first Listed Investment Company, we raised $21 and a half million dollars. Back then, we were not very significant in the Listed Investment Company space. Now we have 130,000 shareholders, over $5 billion dollars, eight Listed Investment Companies and the two Future Generation entities that we established. Broadly 10% of the Listed Investment Company sector Wilson Asset Management are responsible for. We have been well and truly involved in the growth over that 100 year period and there has been a lot of cycles. To me, I think it has evolved as normal businesses do evolve. I remember back when I started in the industry in the early ‘80’s, there were a lot more traditional Listed Investment Companies were around, for example the AFICs, the ARGOs, Miltons. There has been quite a bit of consolidation there. ARGO had a couple of other entities that it managed.

The evolution broadly over the last period has been domestic equities, Australian equities, a lot of growth in global equities and more new asset classes have turned up. We are really excited about the investment opportunity in alternate assets. There has been fixed interest. When you look at the US, nearly half of the closed end funds are fixed interest players and they have been there for a long time. If we go back 10 years ago Australia had virtually no fixed interest players. Now it has got more fixed interest players and will continue to grow and evolve and to me it is in a very healthy space. It has been good consolidation and now it is probably getting close to another period of growth. As you said, there has been golden periods.

When I started in the industry, the big growth area was the managed funds area and that is effectively where they paid financial planners to put the money with those managed funds and Listed Investment Companies have always been very frugal. Run them efficiently, but they are traded on the stock market, so it is a closed end pool of capital. You buy a share in and no one got paid, none of the financial planners got paid to invest in those, so when they levelled the playing field a lot more people and financial planners mainly have looked at the Listed Investment Company space and a lot of high net worth individuals have actually gone from the unit trust space to the Listed Investment Company space. They like the security of the growing stream of fully franked dividends. There is a lot of structural issues that are positive for Listed Investment Companies and to me the holy grail of Listed Investment Companies is they will trade at a discount to NTA or a premium to NTA, where a unit trust or exchange rate of fund you are getting in and out of NTA. A lot of people see that as a strength. Of those, the strength of the Listed Investment Companies is that the stock market decides what the price is. You can do your research you can find a company that has got a dollar of assets and you can buy it at 80¢. You know if it goes back to a dollar, you make 25% of your money and that dollar is giving you the same exposure of the ETF or the managed fund. You are getting the same performance and you are really getting it super charged. To me that is the holy grail of Listed Investment Companies which some people see as a weakness.

Jesse HamiltonOn the other side you can also look to sell and you can sell it at a premium to its underlying asset value.

Geoff WilsonYes if it is trading there and obviously the frustrating thing is you buy something at discount and stays at a discount or it goes to a bigger discount. If you do your homework and your research, then you can potentially add that additional layer of super charging your performance.

Jesse HamiltonAt Wilson Asset Management, we are passionate about advocating on behalf of retail investors.  Why do you think this is so important when you are managing a Listed Investment Company?

Geoff WilsonYou treat people first of all with respect whoever the person is. We are managing money on behalf of our shareholder and in theory they are employing us. They are our shareholders and we understand that we are only here because they allow us to do this. To me, we have always had a close relationship with our shareholders. We try to meet them as regularly as we can on our six monthly or twelve monthly roadshows. It is great to meet them in person, build relationships, understanding that we are working on their behalf. It is like any group or family that if someone is going to attack you then you all work together. In terms of our business we have looked at it from the early days. Why was the business set up? It was really to make a difference. Make a difference in terms of managing money on shareholder’s behalf.  Make a difference with those shareholders that entrusted us with their money and we have grown to over $5 billion dollars and over 130,000 shareholders. A lot of our shareholders are mostly retail investors and we are perceived as an “institution” so we carry a little bit more weight in the media and with the government and we can stand up for what we believe is right and stand up for them.

Jesse HamiltonAfter founding Wilson Asset Management almost 25 years ago, almost five decades in markets, what are some of the key lessons you have learnt over this time?

Geoff WilsonWell that is one of the good things about getting older. I was always good with patience but that is one of the big things about investing – it is a long game and you have to live through the cycles and you have got to be prepared for the good and the bad. It is important to take a long term view to have that patience. One of the hard things for a lot of people is to work against your emotions, when the market is falling the normal emotion is to worry and get scared however anyone in the investment game will get excited when the market is falling because we know there is going to be some phenomenal opportunities. It is great for investing to close down your emotions, but it is tough for personal relationships but that is another journey.

Jesse HamiltonGreat, now for the next 100 years, what would your stock pick be if you had to invest in a Listed Investment Company for the next 100 years?

Geoff WilsonWell okay I will be 164, my Dad made it to 87, so I think I will be around mid 90’s. I don’t know if I will see it out. Technology is great these days so maybe they will cryovac me and bring me back in 164 years so that I can answer that and I will assess how they all went.  At Wilson Asset Management I have got enormous respect for all the people that manage the money. Everyone thinks I manage the money, however I am the old guy that makes a lot of the noise but in terms of the Investment Team they are the ones that are managing the money. If I can buy something cheaply and get a dollars’ worth of exposure for less than a dollar, then obviously that multiplies your return over time. This is obviously significantly biased however I will be picking three WAM Listed Investment Companies which are the three newer ones that are trading at discounts. WAM Strategic Value (ASX: WAR) the newest, WAM Alternate Assets (ASX: WMA) and WAM Global (ASX: WGB) they are trading at a good 10% plus discount. You are buying a dollar of assets for 90¢ and if you get the same return or better than the markets over that time, it is going to be super charged by that discount being removed and they will trade at NTA, if not a premium and similar to our larger Listed Investment Companies. Our longest operating listed investment company, WAM Capital (ASX: WAM) is currently trading at about 20% premium. If you can take a long term view then I’m pretty excited about those.

Jesse you have asked me my stock picks, what about yours?  What is your stock pick that you will invest in over the next 100 years?

Jesse HamiltonMy stock pick is Future Generation Australia (ASX: FGX). At Future Generation Australia you get access to the best quality asset managers in Australia. They manage the money for free so they are not charging management fees or performance fees and we are able to give 1% of our net assets each year to youth and children at risk charities. Over the next 100 years, getting access to those asset managers and their portfolios and returns but also making a significant difference in the community, that is my stock pick.

Thanks Geoff for joining me today to talk about a 100 years of Listed Investment Companies. It has been great to talk about all the changes and the growth that we have seen, the opportunities and to hear your stock picks today.