AN EYE ON THE LONG TERM

Like his towering 192cm frame, Steve Wilson’s priority growth fund stands high above the rest when it comes to outperforming the ASX, but since listing in 2007 Wilson HTM Limited (WIG) has lost more than a third of its share price. As a fourth generation investor he knows how speculation can change and always has his eye on the next big trend, having floated companies like Suncorp in 1988 and Arrow Energy in 2000.

He talks to Brisbane Business News about risk, success and where he’s investing for the future.

STEVE WILSON remembers the time of the ‘big bang’ in Australian financial circles when the Hawke Government floated the currency, reduced protectionism and opened the doors for foreign banks to come on the scene.

Following a stint with a UK investment bank, Wilson had returned to Brisbane in 1984 to work for his father’s stock broking firm Wilson & Co – a small firm with about 10 staff, but rather than accepting takeover offers the company saw the opportunity for its own big bang.

“Most of the big Australian stock brokers got acquired by banks, either Australian banks or in the main case European banks,but for our bit we always guarded quite jealously our independence,” says the 55-year-old chairman.

“Whilst we had a number of offers we said ‘no look, we’ll go it alone’, so that was aprofound period of change.”

“Now we’ve got 200 people giving advice to clients and total staff of 380, so it’s a significantly bigger organisation and by any measure it’s more valuable, but I’m not interested in selling the business.”

Much has changed since Wilson’s Scottish immigrant great-grandfather Henry Monteith started the company’s predecessor firm 110 years ago. Many ‘points of inflection’ have since occured during Wilson’s tenure.

“The first major turning point for us was in 1985 when we floated a company called Kidston, a gold mine, and that was the second largest float in Australia’s history,” he says.

“It was a lower grade than any gold mine that had been developed up until that stage, so a lot of people thought it would struggle to succeed, but we managed to show to the investment community that if you have sufficient scale you can achieve economies of scale.

“We did that company at $1.60 a share and it went up to $10, an enormous success, so then people saw us much more as someone who could do things on a bigger stage.”

Let the market decide

Wilson is a strong advocate of privatisation and cites another turning point for the company as the float of the formerly Queensland Government-owned Suncorp in 1988.

“That’s a company today worth $11 billion and when we floated that company it was again the largest float of the year in Australia by a long way,” he says.

“It was controversial as most privatisations are because it was basically selling an asset from the taxpayers to the taxpayers, just as now the IPO of the Queensland Rail float is controversial.

“It was known as ‘banana bank’ and it was the butt of much ridicule in the investment community, people said it couldn’t be done, but we argued the reverse and we did that fund raising at $5.90 before the shares went up over time to $25.”

The profits made from the Suncorp float enabled the company to expand its offices to Melbourne, Sydney and New York Wilson was also a director of Telecom before it was privatised by the Howard Government and argues that Telstra is a better managed company today than it was under government control, although it’s still got a way to go.

“The company I joined was the old Telecom, and it was a company that had a total monopoly and considered customers to be a very painful irritant, and they’re not out of the woods yet.

“Frankly it was shameful the way we used to treat our customers, and those things take 20 or 30 years to get right, but I think the Telstra today is massively better than the Telecom of the old days.”

The alpha factor

Following successful floats and an expanding team, it was 12 years ago that Wilson decided stock broking and investment banking were simply not enough to offer a point of difference to clients.

“We moved into funds management and introducing the whole idea of measuring client results, and that’s been quite a radical change and a successful one,” he says.

“Measuring clients’ results means measuring to see whether clients have done better than the market, and the gap between returns you get for your clients and what the market overall does is known as ‘alpha’ – it’s very hard to achieve.

“We’ve turned our thinking from thinking only of transactions to thinking about transactions that create value for clients.”

In recent years Wilson HTM has seen a high level of outperformance with its Priority Growth Fund, as well as a series of different fund managers who work under the WIG umbrella, including the Pinnacle Investment Management boutique.

“We’ve created a flagship fund which is the Wilson HTM Priority Growth Fund and that was in July 2005, and it’s the best performing fund in Australia by a very long way – since it began it has averaged 30 per cent per annum, during which time the stock market has averaged 5 per cent per annum,” says Wilson.

“Our nearest rival is so far behind us I can’t even see who they are.

“The Pinnacle growth has been the most profound, it’s grown from $1 billion to $9 billion in the last four years, and that’s happened because we’ve got some outstanding teams of funds managers, with a business model that their executives own more than half of the company themselves.”

This growth roughly coincides with the company’s strategic alliance with Deutsche Bank and Wilson HTM’s subsequent listing on the ASX in 2007.

But what is the secret to success? What principles does Wilson HTM follow to pick the next big trends?

Knowledge equals investment returns

When it comes to investment strategies, Wilson HTM follows the two general approaches of watching ‘top-down’ global trends and ‘bottom-up’ individual companies in growth industries that can take market share from competitors.

On the global scene Wilson is optimistic about US recovery and Asian demand for resources and consumer goods, but thinks it will be a while before Europe recovers.

“Initially the great concern was in relation to America, but now what we’ve discovered is that the Europeans probably had more profound problems, so there’s a risk there.

“A third of the world’s population are now in China and India and are undergoing a massive change from a rural society to an industrial society, and as they do that they need access to energy and they need access to raw materials.

“Not only do we have a lot of those raw materials, but we have the technology and know-how to use them well.”

He says Wilson HTM has taken market leadership in knowledge of several industries which will bring future points of change, with a keen interest in the financial services sector, mining, mining services, coal seam methane, renewable energy, health and specialty retail.

“We’ve looked at the early stage for things that are going to be big, and an example of that is coal seam methane and that’s something we led investment community in here in Australia, floating all of the major
companies like Arrow, Queensland Gas, Sunshine Gas and a number of companies like Bow Energy.

“We’re very keen on the health care sector, particularly the new drug and new medical instrument development area, so we’ve got for example three PhDs on our staff in the medical-related area.

“We think there is going to be ongoing interest in environmental solutions, so we’ve got quite a big practice in the clean tech and renewable energy space – there is some risk there but there is some potential reward there.”

There’s no such thing as a risk-free investment in Wilson’s view, highlighting that the most important thing is to manage risk and ensure against it.

“Risk is a function of price so if you can buy a probability of success for a very low price then mathematically you can do extremely well, and we put a lot of mathematics into our investments and our investment decisions,” he says.

“On our clients’ behalf we offer the idea of financial insurance, but derivatives and hedging have got a bad name because of the excess of investment banks of the US and Europe visited upon the world which led to the GFC.

“But the core role of derivatives, or hedging, is to ensure against shock and properly managed, they’re a very important tool and we offer that service to clients and say this is a good way to protect your capital.”

In 2009 when the market was 30 per cent down, Wilson HTM’s priority growth fund was 8 per cent up.

STEVE WILSON'S VIEW ON:

Investment inspiration

We all say Warren Buffett and how couldn’t you? He’s the Don Bradman of the investment world, but because I’ve grown up around investors and have invested since I was 12, one of my investment heroes was in fact my father – an outstanding investor at picking very early big trends, and so that’s been embedded in me as a philosophy too.

I’ve gotten to meet a lot of people who aren’t household names but are very shrewd investors, like Buck Ewing who was the senior partner of Morgan Stanley in New York.

He invested a lot of money in the oil shale industry, which gets fossil fuels out of rocks and previously was uneconomic when oil was $18, but when oil is $78 it will be economic.

Community involvement

I’m a cause junkie. I just find I get enthusiastic about things that are a good idea, so I’m always up to being persuaded to get involved in something. I have to balance the time I’ve got available so I can’t say yes to every opportunity, and I’m fairly disciplined there so I’ll tend to only run with a few things for a period of time, but I’m enthusiastic about the world, and I’m an optimist and I’ve got good reason to be because the world I’ve known has always got better.

South Bank

I’ve been the chairman of South Bank Corporation for 15 years and I think that humans are deeply affected by the physical surrounds that they’re in, so it’s good to have a place that’s green and sustainable but also has life, humour, laughter and vitality, and that’s available to all people.

South Bank is a free place, anyone can go there by public transport and have a great day out, and that makes a difference.

His chairmanship of Barambah Wines

It’s very much something that’s a work in progress, I’m very excited by the notion that eventually we can have wonderful wine produced here in Queensland and we believe that is happening now. It takes commitment, passion and some reasonably deep pockets to keep plugging away, but I like the idea that when you go to a restaurant in Brisbane it be automatic that you drink a local wine to go with the local food – the locavore idea is taking off in Australia.

His role with Queensland Rugby Union

I love sport and in the last 14 years I’ve taken up rowing, but once upon a time I played rugby. I think there are some really important values that go with sport that make Australia great, which are teamwork, objective assessment, fairness, and they’re a competitive spirit to try and do as well as you can, and lastly they require courage, whether it’s physical courage to endure pain or mental courage to take a risk and the consequences of that action.

Art investment

We’re collectors of art at home, I was on the Australian Business Arts Foundation and I appreciate art, but I also think it’s a sign of creativity and a civilised society has an interest in creativity.

You can do very well out of art providing you don’t need a cash flow from it that will feed yourself, or that will pay interest on debt. Actually, I think the people who do well out of art still love the art, so if you go into it for investment purposes you’ll probably fail.

But, if you go into it as an investor but also who learns about the skill of investment, but primarily buys to enjoy then you can do very well.