Regal Investment Fund · ASX:RF1
Regal Investment Fund — Investor Presentation (October 2023)
49 slides from Regal Investment Fund's investor presentation, Oct 20, 2023
Slide 1: Regal Investment Fund (ASX:RF1) Investor Update & Q&A
Regal Investment Fund (ASX:RF1) Investor Update & Q&A October 20, 2023 This presentation deck accompanies a webinar scheduled for 12:00pm AEDT on 20 October 2023. To view the webinar, please click on the link here to register. To access the recording, please reach out to: investorrelations@regalfm.c
Slide 2: Investor Update & Q&A
Investor Update & Q&A Regal Investment Fund October 2023
Slide 3: Contents
Contents Page Section Page 4 Welcome & Regal Update Page 12 Market Update & RF1 Positioning Page 32 Private Credit Page 37 Resources Royalties Page 43 Emerging Companies Page 48 Q&A Discussion 3
Slide 4: Welcome & Regal Update
Welcome & Regal Update Brendan O’Connor, CEO, Regal Partners
Slide 5: Disclaimer
Disclaimer Equity Trustees Limited (“Equity Trustees”) (ABN 46 004 031 298), AFSL 240975, is the Responsible Entity for the Regal Investment Fund and has authorised the issue of this document (Information). Equity Trustees is a subsidiary of EQT Holdings Limited (ABN 22607 797 615), a publicly liste
Slide 6: Speakers
Speakers BRENDAN O’CONNOR PHILIP KING JACOB POKE SIMON KLIMT JESSICA FARR-JONES Chief Executive Officer Co-Founder & CIO Portfolio Manager Portfolio Manager Portfolio Manager Regal Partners Long/Short Equities Private Credit Resources Royalties Emerging Companies Regal Funds Regal Funds Regal Funds
Slide 7: The Regal Investment Fund (RF1) has been established to provide exposure to alternative strategies
The Regal Investment Fund (RF1) has been established to provide investors with exposure to a diversified selection of alternative investment strategies managed by Regal Its objective is to produce attractive risk-adjusted absolute returns over a period of more than five years, with limited correlati
Slide 8: Regal Partners Limited
Regal Partners Limited (ASX:RPL)1 Regal Partners Limited is an ASX-listed, specialist alternative investment manager RPL $561m with $5.8 billion in funds under management. • Regal Partners (ASX:RPL) was formed on 3 June 2022, $5.8bn ASX ticker Funds Under Market capitalisation2 following the merger
Slide 9: Regal Investment Fund (ASX: RF1)
Regal Investment Fund (ASX: RF1) Exposure to a range of Alternative Investment Strategies UNDERLYING ALTERNATIVE INVESTMENT STRATEGIES MARKET GLOBAL LONG SHORT SMALL EMERGING LONG SHORT WATER RESOURCES PRIVATE NEUTRAL ALPHA EQUITY COMPANIES COMPANIES HEALTHCARE STRATEGY ROYALTIES CREDIT 0-50% 0-25%
Slide 10: RF1 Performance Since Inception
RF1 Performance Since Inception Net of fees, as at 30 September 2023 A$/share RF1 PERFORMANCE SINCE LISTING 4.0 (NET ASSET VALUE, ADJUSTED FOR DISTRIBUTIONS) Launch date 17 June 2019 3.5 Regal Investment Fund Annualised Return Since Inception1 +108.4% 3.0 +18.5% Regal Investment Fund (RF1)1 S&P/ASX
Slide 11: RF1 – Market Leading Returns
RF1 – Market Leading Returns LISTED INVESTMENT VEHICLES > $300M MARKET CAP TOTAL SHAREHOLDER RETURN SINCE RF1 INCEPTION (PER ANNUM) 25% 20% 15% 10% 5% 0% -5% Source: Bloomberg, Bell Potter research. Excludes LICS classified as Fixed Income and Private Equity. Data as at 30 September 2023. Total shar
Slide 12: Market Update & RF1 Positioning
Market Update & RF1 Positioning Philip King, Co-Founder & CIO Long/Short Equities, Regal Funds
Slide 13: Market update
Market update Key takeaways 11 Equities remain driven by moves in bond yields 23 Declining equity risk premiums suggest equity markets are fully valued in aggregate, however select opportunities continue to exist beneath the surface 3 Wholesale repricing in government and corporates’ cost of capital
Slide 14: Recent rise in US 10yr Treasury yields put into context
Recent rise in US 10yr Treasury yields put into context 10-YR US TREASURY YIELDS OVER THE LAST 50 YEARS 18% 16% 14% 12% 10% QE QT 8% 6% 4% 2% 0% 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 2023 Source: Bloomberg as at October 2023 (monthly data). Past performance is not a reliable indicator of
Slide 15: Then and now: could there be echoes of 1987?
Then and now: could there be echoes of 1987? 1987 2023 (%) (%) S&P 500 rebased to 100 (LHS) 10 yr US Treasury yield (RHS) S&P 500 rebased to 100 (LHS) 10 yr US Treasury yield (RHS) 180 11.00 180 5.00 ~1.5% rise in 170 10.50 170 Treasury yields 4.50 ~2.5% rise in since mid 2023 3%+ rise in Treasury y
Slide 16: Increase in yields puts further pressure on equity markets
Increase in yields puts further pressure on equity markets MSCI WORLD TOTAL RETURN (USD) VS. 10 YR US TREASURY YIELD (%) MSCI World TR (USD) 10 yr US Treasury yield (RHS) 120 5.00 Rising bond yields pressure Flat bond yields allow 4.50 equity markets equity markets to rally 110 4.00 3.50 100 3.00 2.
Slide 17: Equities looking increasingly expensive vs bonds
Equities looking increasingly expensive vs bonds US AUSTRALIA Equity risk premium Average Equity risk premium Average 8.0% 8.0% 6.0% 6.0% 4.0% 4.0% 2.0% 2.0% 0.0% 0.0% 2013 2015 2017 2019 2021 2023 2013 2015 2017 2019 2021 2023 Source: Bloomberg as at October 2023. Past performance is not a reliable
Slide 18: Equity risk premia by country
Equity risk premia by country 8.0% 7.1% 7.0% 6.3% 5.9% 6.0% 5.0% 5.0% 4.0% 3.0% 2.2% 2.0% 1.0% 0.3% 0.0% US Australia Japan Hong Kong Germany UK P/E 20.2x 15.0x 15.0x 8.9x 11.0x 10.5x Corporate earnings yield 5.0% 6.7% 6.7% 11.3% 9.1% 9.5% 10 year government yield 4.7% 4.5% 0.8% 4.2% 2.8% 4.5% Equit
Slide 19: Rising bond yields have created attractive income alternatives
Rising bond yields have created attractive income alternatives 8-12%+ 12.0% 10.0% 9.4% 8.0% 6.3% 6.0% 5.2% 4.8% 5.0% 4.5% 4.0% 2.0% 0.0% ASX Dividend Yield 1 Aus 10-Year 2 US 10-Year 3 Australian Term 4 US Investment Grade 5 US High Yield 6 Australian Private 7 (NTM) Bond Yield Bond Yield Deposits B
Slide 20: S&P 500's gains YTD driven by mega cap US technology stocks
S&P 500’s gains YTD driven by mega cap US technology stocks 80% "Magnificent 7" Remaining 493 S&P 500 70% 60% 61% 50% 40% 30% 20% 12% 10% 0% 0% -10% Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Source: Bloomberg as at October 2023. Magnificent 7 include Apple, Microsoft, Alp
Slide 21: S&P 500 trades on 18x P/E but 16x ex the Magnificent 7
S&P 500 trades on 18x P/E in aggregate but 16x ex the “Magnificent 7” 45x "Magnificent 7" Remaining 493 S&P 500 40x 35x 30x 28x 25x 20x 18x 15x 10x 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Bloomberg as at October 2023 (monthly data). Magnificent 7 include Apple, Microsoft, Alph
Slide 22: Small cap underperformance vs large caps
Small cap underperformance vs large caps RUSSELL 2000/S&P 500 ASX SMALL ORDS/ASX 20 1.40 1.40 1.20 1.20 1.00 1.00 0.80 0.80 ASX Small Ords/ASX 20 Russell 2000/ ratio among its lowest 0.60 S&P 500 ratio 0.60 levels continuing to fall 0.40 0.40 0.20 0.20 0.00 0.00 1994 1998 2002 2006 2010 2014 2018 20
Slide 23: ASX reporting season in 2H23 was one of the most volatile of past 15 years
ASX reporting season in 2H23 was one of the most volatile of past 15 years ASX200 % OF EARNINGS DAY MOVE >10% >10% >-10% 16% 14% 12% 10% 8% 6% 4% 2% 0% H1 2010 H1 2011 H1 2012 H1 2013 H1 2014 H1 2015 H1 2016 H1 2017 H1 2018 H1 2019 H1 2007 H1 2008 H1 2009 H2 2010 H2 2011 H2 2012 H2 2013 H2 2014 H2 2
Slide 24: ASX Industrials are managing inflation pressures well
ASX Industrials are managing inflation pressures well… ASX200 INDUSTRIALS GROWTH (MEDIAN) (%) Sales growth (hoh, rolling 12m) EBITDA growth (hoh, rolling 12m) 9.0 7.0 5.0 3.0 1.0 -1.0 -3.0 -5.0 2H08 2H09 1H10 1H11 1H12 1H13 1H14 1H15 1H16 1H17 1H18 1H19 2H20 2H21 2H22 2H23 1H08 1H09 2H10 2H11 2H12 2
Slide 25: However interest expenses are steadily increasing
…however interest expenses are steadily increasing Median ASX 200 ex Financials interest expense as % of net debt AUD BBB 3yr Corporate bond yield 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2H07 2H08 2H09 1H10 1H11 1H12 1H13 1H14 1H15 1H16 1H17 1H18 1H19 2H20 2H21 2H22 2H23 1H08 1H09 2H10 2H11 2H1
Slide 26: Takeover activity continues but IPOs have evaporated
Takeover activity continues… but IPOs have evaporated ANNOUNCED M&A INVOLVING AN AUSTRALIAN TARGET (A$BN) 359 400 Public Non-Public 357 300 257 274 238 228 213 200 203 184 200 161 158 149 120 114 122 124 103 100 0 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 CY18 CY19 CY20 CY21 CY22 C
Slide 27: Keeping an eye on China – parallels of 1990's Japan?
Keeping an eye on China – parallels of 1990’s Japan? RESIDENTIAL PROPERTY PRICES DEBT TO GDP COMPARISON Household Corporate Government 2003 2005 2007 2009 2001 2021 1975 1977 1979 1983 1985 1987 1989 1993 1995 1997 1999 2013 2015 2017 2019 1981 1991 2011 300 450% 280 400% Japan (rebased to 100 in 19
Slide 28: China – Key differences to 1990's Japan
China – Key differences to 1990’s Japan PRICE INDEX OVER TIME TRAILING P/E 1972 1973 1974 1974 1975 1976 1976 1977 1978 1978 1979 1980 1980 1982 1982 1983 1984 1984 1985 1986 1986 1987 1988 1988 1989 1990 1990 1992 1981 1991 2003 2005 2007 2009 2023 2001 2021 1975 1977 1979 1983 1985 1987 1989 1993
Slide 29: RF1 Portfolio & Investment Characteristics
RF1 Portfolio & Investment Characteristics As at 30 September 2023 CURRENT EXPOSURE BY STRATEGY (NAV) Market Neutral SECTOR LONG SHORT NET 15% Small Companies Communication Services 5 -3 2 18% Consumer Discretionary 12 -12 0 Percentage of Positive Months Emerging Companies 5 -4 1 69% Consumer Staple
Slide 30: Increasing allocations to uncorrelated investment strategies
Increasing allocations to uncorrelated investment strategies RF1 Strategy Allocations RF1 Strategy Allocations Strategies added since inception As at 31 October 2020 As at 30 September 2023 Long Short Healthcare Private Credit, 3% Water Strategy Market Neutral, 15% Long Short Healthcare, Resources R
Slide 31: RF1 Portfolio Allocations – October 2023
RF1 Portfolio Allocations – October 2023 1 2 3 Increased allocation to Private Credit Increased allocation to Water Increased allocation to Resources Royalties TOTAL NON-EQUITY STRATEGIES IN RF1 INCREASED TO ~30% OF NAV 31
Slide 32: Opportunities in Private Credit
Opportunities in Private Credit Jacob Poke, Portfolio Manager
Slide 33: The Opportunities in Private Credit
The Opportunities in Private Credit 1 WHAT IS PRIVATE CREDIT? • Lending capital in private transactions • Non-equity asset class with contractual returns (e.g. via interest payments, scheduled repayment) • Typically secured over all or substantial part of a company’s assets • Usually not traded on p
Slide 34: Current Opportunities Across Regal's Target Sectors
Current Opportunities Across Regal’s Target Sectors Sponsor Finance Mid-Market Lending Credit Solutions 1. Ongoing organic financing requirements 1. Limited activity in 1H23, outside of smaller 1. While attractive, better risk-adjusted return of the non-bank sector have refinancing transactions oppo
Slide 35: Current investment examples
Current investment examples #1 #2 #3 Sponsor Finance Mid-Market Lending Credit Solutions ~$10 ~10% ~$20 ~11% ~$25 ~12% MILLION NTM YIELD MILLION NTM YIELD MILLION NTM YIELD FIRST LIEN LOAN FIRST LIEN LOAN MEZZANINE WAREHOUSE FINANCING • Senior secured floating rate loan to support • Senior secured b
Slide 36: The strategy has grown rapidly in its first 12 months
The strategy has grown rapidly in its first 12 months Well positioned to deliver on its long-term objective GROWTH OF STRATEGY OPPORTUNITIES SOURCED ACROSS ALL STRATEGIES Sponsor Finance, ~$10m ~$15m 18% ~$15m (c.10% (c.17% ~$20m ~$357m (c.10% yield) yield) (c.14% yield) yield) FUND SIZE1 ~$38m (c.1
Slide 37: Resources Royalties
Resources Royalties Simon Klimt, Portfolio Manager
Slide 38: Royalties offer an exposure to rising commodities prices
Royalties offer an exposure to rising commodities prices, with limited exposure to rising production costs GENERAL CHARACTERISTICS OF A ROYALTIES MACRO THEMATICS EXPOSURE Secure a percentage of revenue • Limited direct exposure to cost increases (capital or operating) • Higher commodity prices feed
Slide 39: Royalty investing overview
Royalty investing overview How the Regal Resources Royalties strategy invests The Regal Resources Royalties strategy acquires existing royalties and creates new royalties “The Regal Resources Royalties ACQUIRE EXISTING ROYALTIES CREATE NEW ROYALTIES strategy is capable • Predominantly in-production
Slide 40: Talinga Gas Royalty
Talinga Gas Royalty Long life royalty over “world class” coal seam gas “CSG” field over the Talinga and Orana gas fields in Queensland’s Surat Basin TRANSACTION OVERVIEW Key Terms Royalty Type Gross Overriding Revenue Royalty • The operator of the ATP692 area is Origin Energy on behalf of Royalty Ra
Slide 41: Additional Royalties Acquisition
Additional Royalties Acquisition Multi-tiered transaction with an existing Canadian royalty company will provide direct exposure to a tier one gold project and an indirect exposure to an existing royalty portfolio TRANSACTION OVERVIEW CURRENT POST-TRANSACTION3 The strategy is currently executing the
Slide 42: New mines are needed for decarbonisation
New mines are needed for decarbonisation. We are seeking to LITHIUM COPPER COBALT create a diversified commodities exposure. GRAPHITE NICKEL 42
Slide 43: Emerging Companies
Emerging Companies Jessica Farr-Jones, Portfolio Manager
Slide 44: Regal Emerging Companies Strategy
Regal Emerging Companies Strategy Investment Universe LISTED PRE-IPO EXPANSION MICROCAPS INVESTMENTS CAPITAL Emerging Companies Strategy combines — IPOs, placements and block — Private companies which are on — Companies which have a the attributes of trades in listed companies with a path to IPO, ty
Slide 45: While microcaps have underperformed in the last 2 years, we expect this to normalise
While microcaps have materially underperformed in the last 2 years, we expect this to normalise RELATIVE RETURNS FROM 2020-2023 200 • Micro and small caps have 180 materially underperformed large 160 caps since the market peaked, down 140 –32% and –25% respectively versus – 120 7% for the ASX200. 10
Slide 46: Elevated sector activity & recent liquidity events
Elevated sector activity & recent liquidity events M&A ACTIVITY TARGETS LIQUIDITY EVENT BENEFICIARIES Depressed valuations within the emerging Within a rising interest rate environment, where companies sector has driven a significant increase equity markets remain closed, we have achieved in takeove
Slide 47: Outlook for the Emerging Companies Strategy
Outlook for the Emerging Companies Strategy 1 While micro and small caps have materially underperformed large caps since the market peaked, we expect this # dispersion to reverse, resulting in superior returns across micro and small caps in the future #2 Increasing demand for liquidity solutions due
Slide 48: Investor Q&A
Investor Q&A Submit your questions via the side menu on the webcast player BRENDAN O’CONNOR PHILIP KING JACOB POKE SIMON KLIMT JESSICA FARR-JONES Chief Executive Officer Co-Founder & CIO Portfolio Manager Portfolio Manager Portfolio Manager Regal Partners Long/Short Equities Private Credit Resources
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