BLUE SKY CRACKS A BILLION AHEAD OF TARGET

Written on the 20 March 2015 by Karen Rickert

BLUE SKY CRACKS A BILLION AHEAD OF TARGET

BLUE Sky Alternative Investments Limited (ASX:BLA) has cracked the billion dollar mark for assets under management well ahead of forecast.

The news comes hard on the heels of the Brisbane-based company being added to the All Ordinaries index and a solid first-half profit result, prompting Morgans to maintain its buy recommendation on the stock.

Blue Sky, which began as a private equity house in 2006 before listing on the exchange in 2012 as Australia's first diversified alternatives asset manager, had expected to breach $1 billion in assets under management by June 30.

All four of its alternative investment classes, including private equity and venture capital, private real estate, hedge funds and real assets, exhibited growth this financial year.

Founder and managing director Mark Sowerby (pictured) says it was only a matter of time, as investors look for opportunities beyond bonds, property and the stock market.

"They say the first billion is the hardest," Sowerby says.

"We've always had that as a target since we listed and it's nice to achieve that earlier than we forecast.

"It's a reflection of a couple of things. One is this inevitable evolution of asset management in Australia where alternatives will end up being 20 or 25 per cent of all the savings money nationally and we're catching that wave.

"The flipside of that is you've got to have a good track record to attract that capital, and obviously our team of 70 odd are doing a really good job of that."

The result is expected to contribute to Blue Sky's bottom line in FY15, supported by an auspicious first half.

The company reported a lift in net profit after tax (NPAT) of $2.6 million in HY15, compared to $300,000 in the previous period.

Underlying revenue more than doubled from $7.2 million to $16.5 million, with earnings before interest tax depreciation and amortisation up from $0.9 million to $4.2 million.

"I don't worry about the half years for our business, usually a lot of our revenue is generated in the second half for a range of reasons," Sowerby says.

"We happened to post a stronger result, but the year before I was really happy to have broken even in the first half.

"We're almost ticking all boxes of the trifecta and that's not easy to do prove your operating cash flow and profit, grow the business and pay a dividend.

"I was just as happy last year as I was this year, but certainly the revenue number in particular demonstrates that we're growing."

The board released an investment performance update of its managed funds, representing a collective investment track record for Blue Sky.

Since inception, the company has generated an internal rate of return of 15.3 per cent net of fees.

Sowerby says it reflects the company's ability to deliver a premium investing in "illiquid markets", with private equity representing the highest return.

"What we're demonstrating is if you can give up liquidity, we can get you a better return if you're willing to be patient," he says.

The success will be bolstered by Blue Sky's addition to the All Ordinaries, which Sowerby says came as a shock.

"You work really hard for nine years and suddenly there's all these little data points that make you step back and reflect on all the effort that's gone in to get you where you are," he says.

"We moved into our new office, we hit a billion, we got back 15 per cent compounding and we've had some other wins reflected in the AUM in terms of raising capital from some really important and sophisticated investors.

"So it was one of a few things that happened in a few weeks and it wasn't on my radar, but it's a really cool thing to have happened to a start-up."

Sowerby says the start-up mentality gives Blue Sky an edge against financial institution-spawned competitors and betters its private equity and venture capital investing.

As a result, the company is equipped to capitalise on earlier investments as well as add scale with larger transactions.

"A very experienced investor said to me, 'the way I look at your business is you've just reached the starting line get going!'" Sowerby says.

"If you look 20 years out from today, the future fund has got 37.2 per cent of their money allocated to alternatives, but I don't think Australia will in general," Sowerby says.

"I think Australia will be at 20 to 25 per cent allocated to alternatives in the next 10 years.

"If you look 20 years out, we'll have nine or 10 trillion dollars in the superannuation system in Australia and say two trillion of that is in alternatives that's a big market.

"The reality is there aren't many managers that are suited to handling it. The opportunity is that large and we'll find out over the next 10 years if we're good at what we do, or whether we're really good."

Sowerby will head to Blue Sky's office in New York for three months to help drive the company's goal of attracting more offshore investors.

He also plans to achieve success on a more personal level, by travelling to the UK in August to swim the English Channel.

"Training is going as well as it could for a pretty hopeless swimmer who is 43 years old," he says.

"I got across to Rottnest a few weeks ago and I didn't embarrass myself - that was 20km in seven hours. I didn't get eaten either which was my specific KPI."

From a business perspective, Sowerby says it's all about utilising valuable thinking time and leading by example after continually telling staff to get outside of their comfort zone.

"From an investing point of view it gave me the excuse to get away from Australia, get back into the northern hemisphere and be a bit more pragmatic about where the world is outside of the Aussie bubble," he says.

"We're sort of in the zone where we're just executing our plan and I've got time to get away and drive the New York office and give them a hand and also hopefully come up with new investment ideas. Or at least revisit the ones we've got today more effectively."

Blue Sky has forecast underlying NPAT to be in the range of $8 million and $10 million for FY15.


Author: Karen Rickert Connect via: Twitter LinkedIn

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