Hi everyone
 
Regular readers of these missives will know what a keen fan of sport I am. So, it should come as no surprise how excited I was when the Curatorial Team at Hearts and Minds first raised the concept of a conference panel to discuss the Business of Sport. Sports teams and leagues have become a serious asset class for global firms and family offices alike, and no doubt will eventually become far more accessible for retail investors like you and me.
 
Just last year, private equity firms spent A$76 billion dollars on global sports transactions. Earlier this year, New Zealand Rugby (NZR, yes – none less than the mighty All Blacks) approved a NZ$200 million deal with US private equity firm Silver Lake, which will secure them 5-8% of NZR commercial revenue, which they hope to increase.
 
Sport is pretty much recession proof (we all still watch and support our teams) and many appear to be on the cusp of attracting wider audiences - look at what T20 cricket has done, think about Formula One entering the US market, LIV golf even (??).
 
Our own Ed Cowan (TDM Growth Partners investment specialist and former opening batter for the Australian test team) will host a panel of experts, including;

• Gerry Cardinale who founded the private equity firm Redbird Capital, and counts the AC Milan Football Club as one of their investments;
• Kara Nortman, a managing partner of Upfront Ventures in the US, who alongside actress Natalie Portman founded the first majority owned, women-led professional sports team in the US – Angel City Football Club;
• And Matt Berriman, the founder of RealVC who recently bid for the Super Netball here in Australia.

 
As with previous years, you can see that our attendees get a whole lot more out of the Sohn Hearts & Minds Conference than detailed investment theses on a dozen stocks. We’ve had Charlie Munger share the wisdom he has garnered in almost a century on this planet, investment heavyweights Ray Dalio and Howard Marks in fireside chats with the audience, as well as eclectic, yet fascinating speakers like Professor Scott Galloway, who I listen to/read every week via his podcasts and email missives. And now we’ll all become a bit wiser on the Business of Sport!
 
In markets, all we’re seeing and reading about on the business channels is the ongoing increases in interest rates around the world. This week it’s the UK in the spotlight – where the yield on 30-year UK government bonds is now above 5% - a level last seen in 1998. Just one week ago this rate was below 4%. That is a big move ladies and gentlemen.
 
Central Banks around the world are being blamed for not seeing inflation jumping like it has and being too slow to raise rates. There were even calls for our Reserve Bank Governor, Phillip Lowe, to resign this month over his late 2021 forecasts, where, in November he stated that it was unlikely the RBA would change their interest rate settings until 2024.
 
On Twitter this week, Ray Dalio suggested investors and policy makers alike should “heed the lesson of the UK’s fiscal policy blunder”. He went on to say “The panic selling you are now seeing that is leading to the plunge of UK bonds, currency and financial assets is due to the recognition that the big supply of debt that will have to be sold by the government is much too much for the demand. That makes people want to get out of the debt and currency. I can’t understand how those who were behind this move didn’t understand that. It suggests incompetence. Mechanistically, the UK government is operating like the government of an emerging country ... it is producing too much debt in a currency that there is not a big world demand for.”
 
As with most Black Swan events, it is clear now that few saw the events of the last couple of years coming. And in trying to manage the new landscape, mistakes have been made, from the top down.
 
Without the benefit of hindsight, investors can only do what they feel is necessary for their circumstances at a particular point in time. Right now, that is a world of rapidly rising inflation. Central banks have openly stated they will continue to raise rates until the inflation genie is back in the bottle, even if the follow-on impact of that is recession. That’s what is driving markets, that’s why commodity prices are falling, that’s why the US dollar is rallying, and that’s why everyone remains on edge. When we see a pivot, that’s when I think relative calm will return to markets. Whilst volatile markets obviously present opportunities, discipline remains key.
 
I’ll finish with the concluding comment from a recent Howard Marks memo, titled “The Illusion of Knowledge”, which I think is one of the best things I’ve ever read:
 
A few years ago, a highly respected sell-side economist with whom I became friendly during my early Citibank days called me with an important message: “You’ve changed my life,” he said.  “I’ve stopped making forecasts.  Instead, I just tell people what’s going on today and what I see as the possible implications for the future.  Life is so much better.” Can I help you reach the same state of bliss?

 

Stay safe

Rory Lucas
Chief Investment Officer
Hearts and Minds Investments Limited

Reminder: these are simply my general views and should not be taken as investment advice

 

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