Phil King from Regal Funds Management has emerged from the annual fund manager awards in Sydney as a member of the prestigious hall of fame.
When Phil King, the co-founder of Regal Funds Management, was inducted into the funds management Hall of Fame on Thursday night it capped an extraordinary 15 years for one of the most astute readers of the share market.
King has had an uncanny ability to pick some of the best performing stocks over more than a decade as well as some of the worst managed companies in Australia.
His induction into the Australian Fund Manager Foundation Hall of Fame was announced in Sydney at a dinner where money was raised for Odyssey House and the Sydney Children’s Hospital. The fund manager awards run by the Foundation have raised $2.5 million for the two chosen charities.
As the manager of several long/short funds, King knows how to back a winner and pick holes in corporate stories filled with unwarranted optimism.
As the largest hedge fund in Australia, Regal has a degree of power and influence in markets not matched by other fund managers. It pays a lot of broker commissions and can be relied upon to support IPOs.
Regal was prepared to back the Latitude Financial Group IPO but that float was pulled this week.
There is one statistic that says a lot about King and his ability to generate alpha for his investors and it is this: $100,000 invested in the Atlantic Absolute Return Fund in 2004 would be worth $12 million today.
This long/short fund has increased its net asset value by 10,771 per cent since inception in 2004.
The fund has just recorded one of its best performances in a 12 month period with a return in the 2019 year of 107 per cent.
The Atlantic Absolute Return Fund invests in stocks in Australia and Asia.
King and his brother Andrew founded Regal in 2004. They have built up a thriving funds management business with offices in Sydney and Singapore.
But there is a certain mystery surrounding the Regal success story. Why has one of the best performing fund managers in Australia failed to attract the sort of fund flows enjoyed by rivals such as Magellan Financial Group?
Regal has been operating for 15 years and now has $2.4 billion under management. Magellan has been operating for 13 years and has $92 billion under management.
It is noteworthy that Magellan co-founder Hamish Douglass was admitted into the Australian Fund Management Foundation Hall of Fame in 2016.
King says the difference between the funds flow at Regal and Magellan is all about marketing.
To remedy that distribution weakness at Regal, King last week appointed Rebecca Fesq as global head of distribution and marketing. She previously worked as head of client service and direct at Pendal Group.
Chanticleer wonders if the yawning gap in fund flows between Regal and Magellan is because of factors other than lack of marketing.
Are the asset consultants who act as gatekeepers to institutional funds flows worried about backing a fund manager that sells stocks short?
Are the powerful wealth management platforms used by financial advisers giving Regal a fair go?
Are financial advisers who hold the purse strings of so many self managed super funds uncomfortable recommending a fund manager who is not a household name?
One factor that has favoured Douglass at Magellan has been the surge in super fund investment in offshore markets.
Regal has five separate strategies open for business: Absolute Return ($843 million funds under management), Market Neutral ($449 million FUM), Australian Long Short Equity ($191 million FUM), Small Companies ($264 million FUM) and Global Equity Income Fund ($7 million FUM).
The Global Equity Income Fund was started in March.
In a presentation to investors this month, King said one of the advantages Regal had over its competitors was its in 25 investment staff undertaking original research. The staff include two medical doctors covering healthcare.
King says in-house research has become crucial because of the decline in broker research coverage. He says the number of companies with fewer than five brokers covering them has more than doubled over the past decade.
Regal focuses its research on 500 companies in Australia and more than 5000 in Asia.
In small caps, Regal has found the sort of growth that cannot be found in large caps. While the top 10 companies in the S&P ASX200 had forecast compound annual growth in earnings of 3 per cent between 2018 and 2022 a basket of 10 small cap stocks owned by Regal have forecast compound earnings growth of 43 per cent over the same period.
King’s latest market presentation names two long positions and three short positions.
The two longs are Appen and Seven Group. The three shorts are Dominos Pizza, Ramsay Health Care and Celltrion Inc.
Other members of the Hall of Fame are Chris Kourtis, Catherine Allfrey, Paul Taylor, John Sevior, Rob Patterson, Geoff Wilson, Peter Morgan, Anton Tagliaferro, Paul Xiradis, Robert Maple-Brown, Merv Peacock, Kerr Neilson, Warren McCullagh and Charles Macek.