Sydney fund manager Caledonia (Private) Investments is doing its bit for Australia’s dealmaking set - and not just the stockbrokers busily trading its high conviction bets.

In its June quarter update, chief investment officers Will Vicars and Mike Messara outlined the firm’s role in a heavy corporate activity schedule, with deals surrounding a bunch of its high conviction stockpicks and highlighting more to come.

In Australia, it tipped longstanding investment Challenger Ltd into the crosshairs of life insurer/retirement services group Athene and Apollo Global Management, selling its long-held 15 per cent stake at a 10 per cent premium to the market price.

“This was a hard decision, as many of the key tenets that underpinned our investment thesis remain in tact. However, changes to the distribution model and increase capital intensity have reduced our expectations for earnings growth,” the investors told clients over the weekend.

Vicars and Messara said the fact a strategic party was willing to pay a 10 per cent premium to take the stake validated its conviction that large, concentrated holdings were of value - even when seeking to exit.

 Caledonia’s also behind US gaming group Scientific Games, which has called in the bankers to help assess a $5 billion-plus Australian IPO for its global lotteries business.

Caledonia backed SciGames last year, as part of a deal that also saw former Aristocrat Leisure executives Jamie Odell and Toni Korsanos take the reins and try to turn around the debt-laden gaming company. The pair’s strategic review has its lotteries and OpenBet business up for grabs.

“These are terrific assets and we are very excited to see the outcome here,” Caledonia’s pair said.

Then there was Grubhub’s long-anticipated merger with Just Eat Takeaway, which is trading under the latter’s name, and another gaming group, Flutter, where Caledonia is tipping an IPO for its American sports betting business FanDuel next year.

 

Genius pick

And as for this year’s IPOs, Caledonia explained why it took a stake in Genius Sports, a $US3.3 billion sports data and technology company that listed in April.

It was the kind of thesis for which Caledonia is renowned - big addressable market, a new industry and the chance to emerge as the No.1 player - that will have its wealthy family backers mulling direct investments into Genius Sports. It says sports data is the “picks and shovels” for bookies, at a time when bookies are scrambling to offer in-play bets.

Caledonia also flagged some more internal huffling; it’s putting more of its Flutter shares into its co-investment fund, soon after doing the same with Zillow.

As always, a fundie lives and dies by its numbers.

Caledonia told investors it returned 18.2 per in the year to June 30, which was about half the MSCI World Index at 37.5 per cent. That’s another byproduct of large, concentrated holdings; Caledonia’s hits and misses are rarely boring. It was also indicative of a tough year for short-sellers.

Caledonia reminded investors that it had returned 18.9 per cent a year since inception (or since 2012 at least, when it turned into long/short manager), on a compound annual growth rate basis.

 

 

This article was originally posted on The Australian Financial Review here.

Licensed by Copyright Agency. You must not copy this work without permission.