Cameron Blanks Podcast

In this episode, Managing Partner Tim Whybourne catches up with Cameron Blanks, a managing director of Pacific Equity Partners, one of the leading and most active private equity managers in the country with over A$10 billion in Assets Under management. Cameron joined Pacific Equity Partners in 2002. Prior to joining PEP, Cameron spent three years with Bain & Company in Australia and North America. Previously, Cameron worked for seven years in the mining and construction industry in Australia, Asia and North America.

They discuss everything from how Cameron started his career, the different types of private equity in Australia and around the globe and the opportunity that has been presented for Australians in private equity.

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Please see the show transcript below:

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[00:00:00] Ryan Loehr: Welcome to the exchange podcast by EWL. As advisors to some of the most successful families in the country. Craig Emanuel, Tim Whybourne and I, Ryan loehr, draw upon some of the best minds in the country. We believe that by exchanging ideas, we can deliver better advice and better outcomes for the families we worked for.

[00:00:32] Ryan Loehr: Now, we're inviting you on this journey. In this podcast, we interview some of the country's best investment managers, business advisors, bankers, and founders to share their valuable insights. And our hope is that with better information comes better decisions, helping you to achieve more financially.

[00:00:53] Tim Whybourne: Hello everyone and welcome to another episode of The Exchange by Emmanuel Whybourne and Loehr. I'm your host today, Tim Whybourne, and today we have the [00:01:00] pleasure of hearing from Cameron Blanks, a Managing Director at Pacific Equity Partners, or PEP. One of the leading and most active private equity managers in Australia with approximately 10 billion in assets under management.

[00:01:11] Tim Whybourne: Cameron joined Pacific Equity Partners in 2002. Prior to joining PET, Cameron spent three years with Bain Company in Australia and North America. Previously, Cameron worked seven years in the mining and construction industry in Australia, Asia and North America. So it is without further ado that I introduce Cameron Blanks.

[00:01:30] Tim Whybourne: So Cameron, thank you very much for joining us today on the Emmanuel Wyvern Unlearn podcast. It's a privilege to speak to you today. I know this is a bit of a prelude to our annual event where you'll be joining us in person and talking to a bunch of our clients and our friends of our firm. But the thought we'd make this recording today so people can get their heads around your strategy, what private equity is and how you guys fit into the landscape.

[00:01:53] Tim Whybourne: So thank you for joining us. 

[00:01:54] Cameron Blanks: Yeah. Thank you, Tim. 

[00:01:55] Tim Whybourne: Probably best to start with a bit of a background about how you got into the sector and how [00:02:00] you ended up as your current role Pacific Equity Partners. 

[00:02:03] Cameron Blanks: Yeah. So, look, my journey into private equity was, really at the very start of private equity in Australia private equity is a asset class and as an industry has been around for 40 or 50 years starting in the in the North American market.

[00:02:20] Cameron Blanks: And it really wasn't until 1998 that large scale private equity found its way down here to Australia and, and PEP was really the foundational private equity firm into, into Australia. It was actually set up as a joint venture with Bain Bain Capital, Bain Company, and I was at Bain Company at the time, and that's really how I ended up, into the private equity industry.

[00:02:44] Cameron Blanks: And it's been a terrific journey over the last quarter of a century being part of building the industry here in Australia. 

[00:02:54] Tim Whybourne: It's a fascinating space. I'm fascinated in private equity. I potentially could have done that, I think, if I could rewind the [00:03:00] clock 15 years, but I do love what I do now, so I really wouldn't change a thing, and great that you could enlighten us today about, a bit about the, the asset class.

[00:03:08] Tim Whybourne: So, there's probably a lot of listeners that may not actually be as familiar with private equity as you or I are. Are you able to explain in simple terms what private equity is? 

[00:03:18] Cameron Blanks: At the end of the day, it's an equity. So if you think about, the public markets is really only the tip of the iceberg of equities.

[00:03:26] Cameron Blanks: Over 90 percent of all companies in the world are actually private. And so people talk about, the public market. Well, that's public equities. And everything else below that effectively could be thought of as a private company. And you're able to be owned by an organized pool of capital.

[00:03:44] Cameron Blanks: So, the way the best way to think about private equity, it comes in many different flavors, but it's organized institutional capital that is owning private companies. So it's the same dynamic as you have in the public companies. We're trying to. I own these [00:04:00] companies and we're trying to grow them.

[00:04:01] Cameron Blanks: The big difference between the public markets and the private markets is the governance structures that sits within a private company. It means we can be much more in partnership with the management and you have a very different sort of relationship from shareholder to board, to management team in a private equity context.

[00:04:22] Cameron Blanks: That is all condensed into, a much closer partnership with the management team than is the case in a, in a public market that has this sort of division between shareholders and management through a non executive group of directors. And that's really the fundamental difference between the two the two types of equities, if you like.

[00:04:42] Cameron Blanks: I think obviously the other. Obvious differences private equity is not traditionally traded every day on a stock market with a share price that's available to people, but apart from those couple of, fundamental differences, it's ultimately about owning good companies and helping [00:05:00] them grow.

[00:05:01] Tim Whybourne: An example I'll often use with our, our own clients or anyone that wants to talk about private equity is, is one of the big differences is if, I think if you go and ask one of the top 20 list of businesses in the country about how they are going to grow their business by 20% or 30%, 40% a year for the next five years they'll, they'll likely look at you blankly.

[00:05:21] Tim Whybourne: Or there might be a couple that may, may be able to achieve that, but. It seems it's a pretty common objective for a private business, I think. Would it be fair to say they have more control over outcomes? 

[00:05:32] Cameron Blanks: Yeah, I think 100%. I think what happens in a public market context, particularly, if you think about the big banks and if you're thinking about, even in the, in the US market context, you end up with this magnificent seven, these, these trillion dollar tech companies and the like.

[00:05:47] Cameron Blanks: So you end up in the public markets, with a lot of exposure to very big companies. It's harder to grow big companies than it is to grow smaller companies. And so, [00:06:00] traditionally within private market is the best way to think about it is sort of middle market big companies on listed exchanges, middle market, private equity, and then obviously smaller companies.

[00:06:12] Cameron Blanks: tend to be privately owned by individual entrepreneurs. So, it's not a perfect segmentation, but that's probably the right way to think about it, for a big public company, being having this large board of directors growing at three or 4%, that's, that's what that product is.

[00:06:30] Cameron Blanks: The private equity is actually about Actively investing behind growing at that 20 or 30 percent per annum in a very targeted, directed way with management. That's the right way to think about the difference between the 2. 

[00:06:45] Tim Whybourne: And private equity actually covers a, a huge range of types of funds.

[00:06:49] Tim Whybourne: Everything from venture capital, which is investing in businesses that potentially don't even exist yet through to, to buyouts or you've got mid-market or distress. Can you just touch on a, a few of these different types? 

[00:06:59] Cameron Blanks: The [00:07:00] private markets, if you like globally now sort of a or organized private markets is sort of a 12 and a half trillion dollar asset class, so it's enormous.

[00:07:09] Cameron Blanks: And obviously there's a lot of subset sectors within that 12 and a half trillion yeah, obviously venture capital is a very different thing than light stage buyout venture capital is about taking lots of little bets. And hoping, really, literally hoping that some of them come off that's, that, that's a flavor of private equity that has its place.

[00:07:30] Cameron Blanks: But it's certainly not anything that we do at PPP. It's a different thing. You then if you then come all the way up to the spectrum of late stage buyout. So these are, established. Middle market businesses that often tucked within a division of a large multinational company or sort of lost their way on the stock exchange or owned by a private entrepreneur.

[00:07:53] Cameron Blanks: They're looking for capital and reinvigoration of their strategy. That's what late stage buyout is. And that's [00:08:00] certainly where we Pacific Equity Partners focus. There's a couple of other little flavors of things that sit around there. You've obviously got the turnaround guys who are trying to find, distressed companies that are, almost going into administration, if not going to administration, and turning those around so you, you will In the Australian context, toll was a great example of, of turnaround type investment.

[00:08:23] Cameron Blanks: And then you have something that sort of sits between late stage private equity and venture capital, people call it growth capital. And that's generally minority interests where a private equity firm is giving capital. To an entrepreneur to continue to grow the business that they've built.

[00:08:39] Cameron Blanks: So, again, lots of different flavors within there, obviously, then you move into infrastructure type investing or real estate, private equity or into private credit. So, lending to, to businesses. So all of that sort of encompasses the private markets. So it is actually, it takes a little while to sort of [00:09:00] navigate around who's who in the zoo, if you like.

[00:09:03] Tim Whybourne: Can we talk about the opportunity for private equity as a theme in the first instance? I think historically it's been very hard for Australians to access private equity. 

[00:09:11] Cameron Blanks: Yeah, look, it is changing and for good reasons as well. I mean, I think, Ultimately private equity was born. So our initial investors and where it was born out of was actually the university endowment funds in the US who, have a huge amount of money that's been endowed to them by, former students.

[00:09:29] Cameron Blanks: But that money has, No, no unit holders. So it's not like a pension fund with with unit holders on superannuation fund with unit holders. It has no obligations anywhere other than to continue to invest and grow that endowed money for the university. So that was the original investors in private equity in the US, and it was because they didn't have any time horizon.

[00:09:51] Cameron Blanks: So they were very happy, to commit capital to a investment. A venture capital or a late stage private equity [00:10:00] group to invest over a 10 year period and then return the money. So they were the original sort of institutional investors, if you like, into the asset class. And then you started to get the big pension funds and the like.

[00:10:12] Cameron Blanks: Come into the asset class, and it was always institutionally driven where people would commit capital and then they get drawn down as opportunities or businesses to buy what found typically minimums were 10M dollars and money tied up for a long time. It just didn't that product.

[00:10:30] Cameron Blanks: Worked really well for the institutions. It never really worked very well for individual investors because individual investors have a few Different requirements one is they typically don't have 10 million dollars to invest in a single fund And they also you may have life circumstances change over time And so they need access to liquidity when they need their money.

[00:10:56] Cameron Blanks: So It was never really particularly well set up for the [00:11:00] individual investor which was a real pity and, and part of the motivation that we certainly have by opening up our funds. To individuals is you miss out on being really connected and better networked into the Australian investment community by not offering your products to individual investors.

[00:11:19] Cameron Blanks: And that's really what our primary motivation to do that, but we've had to repackage things in a little bit more friendly way. So bring down the minimums, enable people to come in and out on a monthly basis. So they do actually have that access to liquidity. So it does require. Some more education about the asset class.

[00:11:38] Cameron Blanks: It does require different packaging of the products, but ultimately it's driven from wanting to get closer and more embedded into the Australian investing community and that, that helps deal flow. It helps talent finding, telling people to come work in the industry, but it requires a bit of education, hence why doing podcasts like this is something [00:12:00] that we need to do.

[00:12:01] Tim Whybourne: Completely agree. In the last couple of months when I've spoken to clients about private equity and potentially increasing allocations, their questions have been raised. The main one being. Why have I never heard of this? Why don't I know what private equity is? Or why haven't I invested in this in the past?

[00:12:15] Tim Whybourne: And I think, it's a great question, but there simply just hasn't been the option. When the minimum is a couple of billion dollars and lock in for ten years, it just doesn't make sense for a lot of people. 

[00:12:23] Cameron Blanks: Exactly, that's why I sort of use this iceberg analogy with we've been sitting below the waterline for a very long time.

[00:12:30] Cameron Blanks: But it is ultimately all part of the same iceberg. It's just, being inaccessible below the waterline. So, I think what we're really trying to do is raise up the iceberg, if you like, and, provide access a great asset class that's well outperformed the private market the public markets for a long time.

[00:12:47] Cameron Blanks: And, provide that accessibility. 

[00:12:49] Tim Whybourne: Couple of papers that I've read that have pointed towards all the findings have been that private equity in general, the average private equity returns over the last decade. I think it is a [00:13:00] returned higher return for less volatility. 

[00:13:02] Cameron Blanks: Yeah. And look, it's, it's actually, considerably better.

[00:13:06] Cameron Blanks: I mean, if you, if you just take the average, I think it's about 500 basis points or 5%. If you actually look at the top call, so you're probably looking more like 10 percent outperformance of public markets. And that's pretty consistently across not just the last decade, but the last two or three decades.

[00:13:21] Cameron Blanks: And ultimately we put that down to this. Much more targeted appropriate governance structure. What happens, particularly for these big market businesses, when they get become public, they end up with a lot of non executive directors around the table. They're subject to rem committees are subject to.

[00:13:40] Cameron Blanks: Proxy advisors, they're subject to class actions, litigations, and so the non executive directors tend to become very risk adverse, and it becomes a conversation between the board and the management team about relatively non value adding things and it's because of the, the [00:14:00] broader structure of the public markets means that, it's harder for shareholders or, the, the board to have a partnership approach with the management team.

[00:14:09] Cameron Blanks: And that, that's really where the superior returns come in private markets is because you have a strong alignment between shareholders or management around achieving. An objective over a four or five year period, as opposed to public markets, you're going to own the asset forever, but you've got to report to everybody every three months or every six months.

[00:14:32] Cameron Blanks: It drives short termism with long term focus rather than a project based middle, midterm focus that you get in private markets. And really, it's those governance and timeframes that drive the superior returns. in the in the private markets. 

[00:14:48] Tim Whybourne: And global private markets, assets under management, I saw on your website, it's growing at 12 and a half percent per year.

[00:14:54] Tim Whybourne: Does that make your job easier or harder? Is there more competition coming into the market or are [00:15:00] there more deals for you to actually to fund? 

[00:15:02] Cameron Blanks: Yeah, look, it's a pen, it's a penetration thing. You've you, you've seen the number of listed companies actually reduced significantly, particularly in the US.

[00:15:10] Cameron Blanks: Australia is a little bit different because you've got a lot of these little small mining companies and the like, but generally the, the, the number of public companies is actually coming down quite strongly while the number of companies owned by private equity is going up. Substantially.

[00:15:25] Cameron Blanks: So it's definitely, there's, there's a lot more the, the penetration of private equity into the broader company ownership space has increased dramatically. So, there's definitely a lot more opportunities out there is sort of the way that we see it. And that's, what's feeling the growth in the private markets.

[00:15:44] Cameron Blanks: If you go back if you go back sort of, 10, 20 years ago, a rider passage for a company when it got to a certain size was to go and do a listing and, ring the bell at the at the stock exchange. When I became public, it was sort of like, they grown up. They [00:16:00] were now public.

[00:16:01] Cameron Blanks: The only reason they were doing that, if you really think about it is because they finally got access to capital for growth. Well, as the private markets have grown, there's no need to go into the public market to get capital for growth. There's plenty of capital in the private markets. So why go and tell all of your customers and everybody, what your margin, your competitors, what your margins are and what your strategy is, when you can actually keep that to yourself and stay in the private markets for longer.

[00:16:29] Cameron Blanks: That's why you're seeing this sort of production in the number of public companies and the growth of the private markets, because there's just no need to go and go out to the public markets for access to capital anymore. 

[00:16:41] Tim Whybourne: Another interesting statistic on your, your website is that individual investors have less than 5 percent of their total allocation in profit equity versus endowments, which are typically some of the most sophisticated investors in the world have more than half of their investments in the asset.

[00:16:54] Cameron Blanks: Yeah. That's a great one. That's sort of why I started with the story around the university [00:17:00] endowment funds in in the US, fueling the industry growth or starting the industry growth back in the 80s is because they didn't have these timeframes in mind where individual investors have always.

[00:17:12] Cameron Blanks: This liquidity issue is actually much more important to them because they do have life circumstances change and they do need access to their capital. And that's really driven that, that difference, but the endowment funds and the pension funds know that the returns are much better in the private market.

[00:17:29] Cameron Blanks: So that's why they have such a high proportion of their investable assets in, in, in, in private. So I think, there's probably a lot of private individuals that have zero exposure to the private markets for all of the reasons that we spoke about before, which is a real crying shame because the returns are just so much better and are more reliable, less volatile in the private markets than the public markets yet.

[00:17:55] Cameron Blanks: The average Australian investor has, a lot of their investible assets [00:18:00] in the public markets or in real estate . Yeah. And a bit of bonds. And it's not really actually a very diverse mix of companies is either, if you think, if you go and buy an ETF for an A SX 200 ETF, you're very exposed to.

[00:18:14] Cameron Blanks: The banks and the big miners, right? You actually don't have diversity, even though you think you do, through owning an asx ETF it's actually, it's getting worse and worse in the US, you go buy an S& P or a Dow 30 and you end up with these big. Certain big tech companies that you're exposed to, the diversity in the private markets is actually much bigger than the public markets when you start to think about the number of companies that you can get exposed to.

[00:18:41] Tim Whybourne: Private equity still has this stigma around it where it's just very misunderstood. Everyone, no one really understands what it is or the people that I speak to. Yeah. Yeah, everyone knows someone that's made an absolute fortune out of private equity and then I know a lot of people that also lost a lot of money out of private equity when you get exposure to those kind of lower quartile funds.

[00:18:59] Tim Whybourne: Because I think [00:19:00] particularly in Australia, there was a few breakaways or accountants or lawyers that decided 10 years ago that they would be good in private equity and start raising for, relatively small fund, get a couple of mates in and all of a sudden they've lost their run of money. How do we best navigate that and avoid the bottom quartile and, and make sure that we do have exposure to that top quartile?

[00:19:21] Cameron Blanks: Obviously knowledge is a, it's a wonderful thing and I think we having been in the industry for 25 years and certainly starting out of that BAME world which tracks its history back to those 1980s period. I think we know we know who the better managers are, and we think it's actually not that hard to identify them.

[00:19:40] Cameron Blanks: Typically, they've been around for 25 years plus they've lived through cycles. So they've got gone through, the global financial crisis. They've lived through the pandemic. They've sort of seen business cycles come and go. So, if you're, you're investing alongside established managers with [00:20:00] good stable teams that have been, investing together for a long time, they've got growing assets under management and great track records.

[00:20:09] Cameron Blanks: And you can look back and look at the returns that that reliably delivered to the investors doing that research around, who the good managers are. And what their track records are and how stable and said that there's no substitute for understanding that and that's, I think part of what we PP and uniquely placed to do in the Australian market is we are one of those best managers.

[00:20:32] Cameron Blanks: We have been around for. 25 years, we do have a stable team, we have growing AUM, we have a good track record, but we know the equivalence to us in North America and Europe, and it's those relationships and knowledge of the broader landscape. Which is what we're packaging up and bringing in our gateway product for individual investors.

[00:20:56] Cameron Blanks: And it's for exactly that reason. We're not trying to find, the [00:21:00] next new thing, AI or whatever. We're trying to reliably deliver. That 15 to 20 percent return to our investors, over a long period of time by investing behind, really well credentialed private equity managers globally.

[00:21:15] Tim Whybourne: And you provide us a little bit of investment philosophy and approach to private equity. 

[00:21:20] Cameron Blanks: Yeah. I mean, for us, it comes down to, finding market leaders that have you Lost their way a little bit. So we, we refer to them as underperforming market leaders. So I'll give you some examples of those in a moment.

[00:21:35] Cameron Blanks: But if you're focusing on market leadership and market structure and investing into growing market into businesses that are in growing markets. That are not cyclical. That's really the starting point. So that's the asset selection. We also, before we invest, have to have a very strong thesis of how we're going to double the profits.

[00:21:56] Cameron Blanks: And that, that doesn't mean that there's a 10 point plan. It means what are the two [00:22:00] or three things that you're going to do differently going forward to double the profits over the next three to five years. And if you have a, have a good plan to do that, And you have a good management team to go and execute that plan and you double profits.

[00:22:14] Cameron Blanks: Then it doesn't really matter whether you're paying 12 times and you're selling at 10 times or what's happening to the multiples. If you're doubling profits, you're going to deliver reliable returns to your investors. So for us, it's about profit transformation, really thinking about how we're going to transform the profits of the business.

[00:22:35] Cameron Blanks: And that that's the philosophy that sits behind our business. It's not about trying to buy low and sell high or do any financial engineering. We, we typically not over leveraging our businesses. We want the management teams to have the flexibility to go and invest for growth. So, we'll typically be at a 60 percent equity, 40 percent debt type debt to equity ratio.

[00:22:58] Cameron Blanks: We're buying businesses [00:23:00] around, eight to 12 times EBITDA, maybe a little bit higher for a really high growth business or money in a, in a high growth market. But it's in that sort of really conservative zone but it's Got to be the returns have got to come from profit transformation, not anything else.

[00:23:16] Tim Whybourne: What do you think sets Pep apart from the competitors? Is there some secret source or is it the IP of the investment managers or? 

[00:23:23] Cameron Blanks: Yeah, I look, I think we've been around for a long time and we, our heritage coming out of Bain and company, it's more of a strategy consulting heritage.

[00:23:33] Cameron Blanks: So we think very deeply about market structures, market growth. Profit transformation and we will, we will work together for a long period of time. So we know what a good PP do looks like. We're not trying to find, the business that's going to make 10 times the money. What we're trying to do is avoid the businesses that are not going to make 2 times the money.

[00:23:56] Cameron Blanks: And that's really the philosophy that runs through us. So, every [00:24:00] deal that we do will be, in our minds, every deal that we do. We'll be a good deal, but we may not do every good deal that's done. So you'll actually find some other private equity firms have a much higher risk tolerance where they might get, three deals that make more than five times the money.

[00:24:17] Cameron Blanks: And then they'll have three deals that. But lose all the money. And they have these quite volatile sort of approaches. I think what we really differentiates us is we reliably deliver 2 to 3 times the money in 3 to 5 years. That's what we're really trying to achieve. And if you look at our track record, we've got a very good hit rate of just, hitting within that zone over and over again, rather than swing for the, swinging for the bleaches, if you like trying to get home runs.

[00:24:44] Cameron Blanks: It's not what we do at all. So I think that's what really differentiates us. It's really considered deep due diligence on market structure, market growth, and how to reliably deliver returns to our investors. 

[00:24:56] Tim Whybourne: We've done a fair bit of work around the impact of focusing on not losing [00:25:00] money and what that has on.

[00:25:01] Tim Whybourne: Your returns at the end of the day. And if you, if you don't have to make back a huge, as an example, 50 percent loss during the GFC inequity, and that loss is quarantined to maybe 10%, then it's a lot easier to end up with an impressive return after the period. In terms of deal flow, how do you identify potential investment opportunities?

[00:25:19] Cameron Blanks: Yeah, look, obviously we're one of the biggest pools of capital in, in the Australia and New Zealand market with 10 billion under management. So look, it's obviously in the early days, it was about going out, meeting people and explaining who we are and what we do these days it's a little bit different.

[00:25:34] Cameron Blanks: We do have a lot of people come and bring us deals. We do obviously go out and prospect as well. But you know, in a, in a given year, we'll probably see about a hundred to 120 opportunities. Thanks guys. We'll pretty no, no, pretty well straight away that at least half of those are not really for us.

[00:25:50] Cameron Blanks: We'll obviously very respectfully give them some thought and then go back very close and quickly to the people, either the vendors, the people who brought us the opportunities, whether [00:26:00] that's investment bankers, accountants, lawyers or other people in our network yeah, we'll go back very quickly and say, look, thank you very much for showing us the opportunity, but this one's not for us.

[00:26:10] Cameron Blanks: Yeah, we've learned over our 26 year history that a quick nose way better than a, than a slow drawn out baby. So that sort of, takes you down to maybe 50 or 60 opportunities that you do a bit of work on, Probably another half of those will pretty clearly become not this sort of underperforming market leader that we're looking for.

[00:26:30] Cameron Blanks: So now you're down to about 25 opportunities. Now we're then going into full diligence on, on something of that sort of number. It will pull up the halfway through a process and check in whether that's really an opportunity for us. And then we probably pull out of about half of those. So we're now down to about 12 opportunities from the 120 and then we'll end up doing probably 50.

[00:26:54] Cameron Blanks: Four or five a year, and that's the right sort of cadence of deal doing is, is that [00:27:00] filtering process requires a big team and a lot of analysis and a lot of understanding of industries, to filter from that 120 right, all the way down to that sort of, four or five that you do in a year.

[00:27:13] Tim Whybourne: And what does that diligence look like? Where by the time you get into enhanced due diligence and you, and you're looking at making a deal, like how, how long does it take and what are the. It kind of steps throughout that process. 

[00:27:22] Cameron Blanks: Yeah, look, it's a, it's a bit of a it's a layered approach. So you're obviously started at the high level and, iterating down, but if you get all the way down to, a deal that we're buying, we're probably had a team of six or seven from PEP.

[00:27:37] Cameron Blanks: And then, we'll have a lawyer, accountants, consultants and the like specialist on insurance. We've probably got a team of 50 people doing due diligence on these opportunities. When you look at them. Yeah, we'll be going for somewhere between, 6 weeks to maybe, 10 weeks on that due diligence exercise and probably would have cost us somewhere in the order of 4 or 5 [00:28:00] million in time and, and, and materials and expenses to actually go through that.

[00:28:04] Cameron Blanks: So it's a very exhaustive process. I mean, generally we're doing, deals in the sort of 500 to a billion dollar range. So, spending 5 million making sure that, you really know what you're buying, and you do have a very good thesis investment thesis and plan for growth.

[00:28:20] Cameron Blanks: It's, it's money well spent but it's a very intense process as you can imagine. 

[00:28:25] Tim Whybourne: And that's expensive. Is there a sector that you're particularly interested in? Do you specialize in any sectors in particular, or are you sector agnostic? 

[00:28:32] Cameron Blanks: Yeah, we're broadly sector agnostic, although we do tend to steer away from what we'd call sort of cyclical industries or things that aren't in our control.

[00:28:43] Cameron Blanks: So, mining companies and like things that have got big foreign exchange risk or interest rate risks or any of those things that management don't control. Yeah, there's always in business a bit of the uncontrollable risk. But what we want to do is absolutely limit [00:29:00] the amount of uncontrollable risk that sits in the investments that we're making.

[00:29:05] Cameron Blanks: So, it's more about sort of, filtering out those sectors that have that. So it leaves us with things like. Consumer foods or education or health care industrial, some industrial services that are not so leveraged to some of those dynamics that we were talking about. So it tends to be those type of sectors that we're investing in and not the sort of more cyclical into the industries.

[00:29:30] Cameron Blanks: But, again, we're not. Define ourselves around any particular sector. It's about finding good companies in, well structured markets with market leadership and good growth. And that's the most important thing for us, as opposed to being picking three sectors for this year that we're going to go and focus on.

[00:29:52] Tim Whybourne: One of the great things I think about private equity as an asset class is how active the management teams are. I think in listed worlds, you try and find a management [00:30:00] team that's doing a good job and just back them to do that. But in private equity, you're typically, you might have a good management team in the business already, but you're finding where you can add value.

[00:30:08] Tim Whybourne: Can you highlight some examples of the types of things you might do to add value to it? 

[00:30:13] Cameron Blanks: Yeah, I actually mentioned a little earlier on, I'll give you some examples. So probably, probably the easiest example to bring this to life a little bit is Peter's ice cream. And the reason why we like using this example is everybody can relate to ice cream.

[00:30:28] Cameron Blanks: We've all bought those at the corner store. So, yeah, this Peter's ice cream when we bought it was part of the Nestle group. So Nestle is a hundred billion dollar global, food, mainly coffee, chocolate company. Based out of in Switzerland Peter's ice cream really well positioned business in the Australian markets, a duopoly with streets, which is owned by Unilever.

[00:30:51] Cameron Blanks: So great, great example of a relatively uncyclical industry with a good market structure [00:31:00] duopoly but completely, Peter's ice cream is completely lost. Within the Nestle system. It was the only ice cream company they owned all around the world. It didn't really have its own P& L and balance sheet and management team because it was matrixed into the organization.

[00:31:17] Cameron Blanks: Yes, it's not saying that Nestle not smart people. Because you've got to look at it from their perspective. They had things like accounts receivable for Asia Pacific based in Singapore. So, that's the group in Singapore that needs to chase around all of the little shop owners in Australia, for collecting their bills.

[00:31:36] Cameron Blanks: It doesn't mean it means that you're not close to your customer. And you end up with stock outs in your fridges and that type of thing. But if you're thinking about this from Verve in Switzerland, it would be crazy to have, a dedicated team for this tiny little ice cream company down in Australia.

[00:31:53] Cameron Blanks: So, a great example of this is then, liberating Peter's ice cream from the Nestlé system, [00:32:00] getting its own P& L balance sheet and its own CEO. With its own management structure, with its own sales force, to go and really drive growth in that business. And, that answer around management, we can, go and recruit a great CEO with great experience and put them into these businesses in a way that Nestlé could never do this.

[00:32:21] Cameron Blanks: You CEO of Peter's Ice Cream, double profits in, in three years. And, yeah, he probably might. 20 or 30 million out of that. There's no way that Nestle could incentivize a manager like that within the broader global system that they have. And so it's that type of example that, really brings to life how we go on that value.

[00:32:43] Cameron Blanks: And again, it's not, it's not to say that Nestle aren't smart. It's just, it just, it gets always, in a massive company like that, Coffee. Chocolate, number one, ice cream, a distant 200, division number 256 that gets forgotten [00:33:00] about. So it's that type of thing that, that where private equity can really, come in and create a lot of value.

[00:33:05] Tim Whybourne: I'm sure you've got several examples of this, but there, is there any, any one deal that sticks out in your career or with your time at PEP that you think is one of your greatest achievements or greatest return? And I guess they could be different. 

[00:33:19] Cameron Blanks: Yeah, look, I'd also have a talk about the ones that didn't quite work as well.

[00:33:23] Cameron Blanks: So I think it's, it's important that yeah, there are from time to time. We do have some challenges as well. So happy to also talk about that. I mean, I think, for me personally a journey that we're still on that has been incredibly satisfying has been a business called IntelliHub which was originally a company.

[00:33:39] Cameron Blanks: Corporate carve out from origin energy. Another not dissimilar story to the ice cream story. This was a smart metering division of of Origin. And again, it was just lost within the larger business. And we were able to come and really give a good value proposition to Origin on the way out.

[00:33:59] Cameron Blanks: It was [00:34:00] actually, a struggling division, a small division within their company. But we, we, We knew that the role of providing smart metering had moved from the network operators. So these are the Oscar it's and endeavors and like into the energy retailers and it was going to be increasingly half the energy retailers to continue to, provide the smart metering services to each other as customers in the energy industry do churn from one energy retailer to another.

[00:34:27] Cameron Blanks: Sorry. We, we were just very fortunate to be in the right spot at the right time to pick up that asset. And it's been a terrific success for us, and it's going to continue to be. There's legislation that means that, every home in Australia has to be smart by the end of 2030.

[00:34:46] Cameron Blanks: And this business now is deploying about 60 percent of all smart meters in Australia. It's the standout leader. We've invested really heavily in technology and all the technology now behind the meter. So that [00:35:00] means, pool pumps and EV charging stations and batteries and solar panels to actually, help the homeowner go through the energy transition that we all need to go through.

[00:35:10] Cameron Blanks: So it's a, it's a great example of, what we've been able to do by, doing these corporate carve outs, but also it's introduced a new investment category into the Australian market called single asset continuation funds, because after three or four years of ownership on Intellihub it had got to a size that we really needed a very, very deep pocketed infrastructure style investor to come alongside of us.

[00:35:33] Cameron Blanks: So we sold 50 percent of it. To Brookfield for evaluation and price value for the whole thing at 3. 4 billion and we raised dedicated pool of capital at 1. 5 billion to house the other 50% in, and then we're now on that next leg of journey with Brookfield as a 50 50 joint venture, when we then, To monetize the business in another few years time, it would probably be a [00:36:00] 10 billion asset.

[00:36:01] Cameron Blanks: So we've sort of gone from a 200 or 300 billion corporate carb out from Origin Energy, through to a 10 billion energy transition business. As a journey, it's hard to beat that investment. I mean, I'm personally involved in it as the chairman of the company. So, I'm pretty excited about that one, Tim.

[00:36:19] Tim Whybourne: That is a great story. You raised another good point. So, we've talked a lot about upside and, and how successful we can all be in private equity, but what can go wrong? What's an example of a deal that hasn't worked out? 

[00:36:30] Cameron Blanks: Yeah. So, look, probably the one that we that's our poorest performing deal, through the 2010 decade.

[00:36:36] Cameron Blanks: And we do like to talk about it because I think it's important that, We do talk about non success as well. It was actually Paddy's food. So, four and 20 pies, people will know of. Well, we ended up making about 1. 7 times that money at 9 percent return to investors. So, well below our target of 20%, but still, a reasonable return to our investors.

[00:36:59] Tim Whybourne: So that's [00:37:00] 9 percent per annum, you say? 

[00:37:02] Cameron Blanks: Yes, correct. Yeah. So, so look, but it was, it was a challenging journey because, soon after we bought the business the beef price triple jihad a swine flu epidemic go through China and take a lot of the the pork out of the global markets, which actually is a substitute at big prices.

[00:37:22] Cameron Blanks: Which, believe it or not, there is beef in a beef pie. And we were really hit very heavily by increasing increasing input costs that we couldn't pass on to the big retailers like Coles and Woolworths, which really put a real squeeze on the profitability of that business.

[00:37:39] Cameron Blanks: We, we did end up Recovering some of that through the supermarkets through price rises. And then we were hit by fires, floods, and the pandemic the Paddy's Boots factories are in Bairnsdale in Victoria, which if you remember, the big fire big fires a few years ago in the 2019 period, this was right, which one of [00:38:00] the towns that got encircled with people getting evacuated through so look, it was a really challenging time for that.

[00:38:06] Cameron Blanks: For that company. But we, we're really proud of the fact that we persevered through that and still delivered, a reasonable outcome to our investment investors. And that, that's the worst deal that we've done through that 2010 decade. 

[00:38:18] Tim Whybourne: I love that four and twenty pie. So I'm surprised to hear that they had so much trouble, but that's still a great outcome for absolutely a worst, worst return to be in line with what equity returns are over that same decade.

[00:38:29] Tim Whybourne: So, and that's private equity. So that's why we're talking to clients about. And the experience and range of experiences you can have. That's probably also a good segue into the current vehicles that you have for private wealth investors. So individuals, did you want to go through the gateway series?

[00:38:47] Cameron Blanks: Yeah. So the gateway program was really born out of having a lot of, I mentioned before Well, when we're looking at these companies, we end up spending 5 million on sort of advisors and all that type of thing. So a lot of those [00:39:00] advisors we've got to know very well part of our network really friends and family of the firm we've been working with for, for multi decades.

[00:39:08] Cameron Blanks: We have a lot of them come to us and ask if they could invest in our funds. The problem is, is our minimums are high and they end up with a 10 year lockup, and it wasn't really ever the right vehicle for, for them. So we actually pulled together our own personal investments in other private equity managers around the world and some of our own investments into a seed portfolio we call the PP Gateway Fund.

[00:39:33] Cameron Blanks: And we invited some of our friends and families to come and invest alongside us. And the idea behind the Gateway Fund was to give. And all star access to global private equity for individuals. So diversity across. Private equity manager. So, top quartile managers like ourselves that we know a diversity across geography and diversity across sector and and managers.

[00:39:55] Cameron Blanks: So that was really what was how the gateway fund was born. And then over [00:40:00] time, we've just started doing sort of, increase that circle and invite other investors to come and invest alongside of us in the gateway program. So that's the origins of it. It really focuses on the single asset continuation funds as I described with IntelliHub.

[00:40:16] Cameron Blanks: Yeah, this is where we're, we're backing, similar managers from around the world to ourselves. They're obviously taking their star assets, a bit like IntelliHub, putting them into single asset continuation funds to continue the ownership of those businesses with the next horizon of growth.

[00:40:33] Cameron Blanks: And it's at that point in time that we've got the opportunity to come in and co invest. Alongside of them. So that's really the focus of the gateway fund. And, we're able to combine that with some investments in the headstocks of the large alternative asset managers or private equity firms in the US and create a liquid product in a way that investors can come in and out of the gateway fund on a monthly basis.

[00:40:58] Cameron Blanks: So we think that's a really [00:41:00] unique Access point for individual investors. Minimums are only 50, 000. And, it's, it's a much more accessible product for investors to get individual investors to get access to global private equity. The best of the best of global private equity. We call it the All Stars Fund.

[00:41:21] Cameron Blanks: And then alongside of that, we have a, a sort of a co investment vehicle called the Gateway or PPA Gateway Co Investment Trust or GCT for short, which investors are also able to invest in but it isn't a monthly liquid product. It just goes purely into these single asset continuation funds, a hundred percent, it's deployed in annual series.

[00:41:45] Cameron Blanks: And then investors need to wait for those investments to be sold for the money to come back to them. Yeah, we've had some investors, going to both vehicles, some prefer one over the other. It really comes down to, appetite around, [00:42:00] Illiquidity and whether you want 100 percent of your money tied up in these single asset continuation funds or sort of 70 percent into single asset continuation funds and the balance into, some other products that enables to, provide liquidity for investors on a monthly basis.

[00:42:17] Tim Whybourne: You also raised a really interesting point before, which I hadn't appreciated before speaking to you just about the journey in single asset continuation funds. So saying that it actually. Has historically in your experience over the last couple of years, you've received a higher return with less volatility than the underlying primary private equity funds.

[00:42:35] Tim Whybourne: So by taking the best performing assets of a private equity fund and holding them for a little bit longer, you can actually get a higher return than the primary private equity funds. 

[00:42:46] Cameron Blanks: Yeah, that's right, Tim. Yeah. No, look, it is. It's and it look, it's an innovation that like a lot of things started in the US about a decade ago and it's really gathered steam in the private equity market.

[00:42:57] Cameron Blanks: I mean, ultimately the [00:43:00] origins of this comes down to when you had these great star assets in a in a fund. Ultimately, you had to liquidate them to send the money back to the investors over a period of time which, which is always a little bit disheartening. If you've got a star asset, you've got a huge next potential of growth on because you've given up.

[00:43:22] Cameron Blanks: The opportunity to continue to invest in that asset. And it doesn't mean that every asset that you own is going to be one of these star assets, but when you have one to pass it on to somebody else, whether that's off to a big trade buyer or off to the public markets or selling to another private equity firm it's a bit disappointing.

[00:43:40] Cameron Blanks: So really the, these vehicles were created to enable private equity firms to continue to grow. Reinvest and double down on their starter assets. And that IntelliHub example was the very 1st one done here in Australia. But they are being done all over the world. So we're now really focusing the gateway [00:44:00] program on doing those because.

[00:44:02] Cameron Blanks: They're already assets have been owned for a while. The private equity firms know exactly what they're investing in. They're rolling their money into these vehicles and it means that you have a lot less of the sort of Paddy's food experience that you would I spoke about, so you remove the lower performing assets before they ever get into these these vehicles.

[00:44:26] Cameron Blanks: So the risk reward on them is actually better than a normal private equity primary fund. 

[00:44:32] Tim Whybourne: I've got to do some more work around that. I appreciate that before our chat this morning. That's all really interesting. I'm sure the listeners have got a lot out of that. Is there any final message or anything you think we've missed?

[00:44:43] Cameron Blanks: Yeah, no, look, thank you very much for your time, Tim and everybody listening. I think yeah, one thing that we'll leave with you we are based here in Australia. We we do know. The global private markets very well. And the great thing is we're here. So, I'm very [00:45:00] happy.

[00:45:00] Cameron Blanks: We'll come up to your event up in Brisbane and we'll be in other events around in the different offices of EWL and you can, you can talk directly to the partnership here, which a lot of private equity when people come and talk to groups like this, they're actually based in, New York or London or other far flung places, we're based here.

[00:45:19] Cameron Blanks: We're very happy to engage and we actually want to build a community of investors around us which, deepens our ties into, the Australian investing community, for deal flow and for, talent identification. That's actually where the motivation is. We're a local champion, if you like, and I think that would be the last message that I'll leave with the listeners around why PEP.

[00:45:44] Tim Whybourne: Certainly helps to have boots on the ground, I think when people can look you in the eye and shake your hand, it makes it a lot, a lot more real. Thank you very much for your time today. I know you're a busy man, so I very much appreciate it. We certainly do look forward to hosting you at our event in Sydney and Brisbane in the coming weeks.

[00:45:58] Tim Whybourne: And I'm sure the clients and friends [00:46:00] of our firm will, will be looking forward to that too. So thank you again for your time. If anyone would like to talk further about these strategies, please reach out to anyone in the Emmanuel Wildbourne Lawyer team and we can either talk to you directly about it or put you in touch with the team.

[00:46:12] Tim Whybourne: So thank you again. 

[00:46:13] Cameron Blanks: Great. Thanks, 

Tim.

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