(Bloomberg) -- Australia’s biggest hedge fund firm is also a top performer. Now it’s seeking to capitalize on those gains to build an investment juggernaut modeled after some of the world’s private investing giants.
Regal Partners Ltd. subsidiaries, led by co-founder and chief investment officer Phil King, run four of Australia’s six best-performing funds. This includes two small ones that top the tables with returns of more than 37% in the first eight months of the year, according to data provider Preqin. That dwarfs the 6.6% gain in Australia’s benchmark index over the period.
Regal’s oldest fund meanwhile has posted annualized returns of more than 23% since 2004, putting it in the upper echelons of hedge funds globally.
The parent company, with A$17 billion ($11.4 billion) of assets under management, is now looking to leverage those returns — and the fund flows that follow. It’s seeking to snap up rivals and build new investment platforms from private equity to credit, reshaping its business in the mold of Blackstone Inc.
In its latest transformative move, the firm is in advanced talks to buy rival money manager Platinum Asset Management Ltd. The parties are aiming to conclude negotiations within the next three weeks, according to people familiar with the matter, who asked not to be identified as the issue is confidential. Representatives for Regal and Platinum declined to comment on the potential timeline.
“We’re on a pathway to successfully diversify the business beyond just a rockstar CIO,” Chief Executive Officer Brendan O’Connor said in an interview, referring to King. “We seek to emulate the success of the Blackstones and the Apollos of the world.”
It’s a tall order for a company with a market value of less than $1 billion. Yet after tripling assets under management in just two years, Regal says it’s ready to take on more as it targets bigger rivals and ventures into new businesses.
Stellar returns have driven Regal’s growth since King and his brother Andrew started the firm almost two decades ago. It’s a study in the flywheel approach that marks the fund management industry, where investment returns can amplify inflows. For King, who began his career as an accountant with KPMG and an equity analyst at Macquarie Bank, it means his boldest bet on a company yet may be his own.
Regal’s nine core long-short equity funds now run nearly A$7.6 billion. Its Australian Long Short Equity Fund netted an annualized return of 14% since inception in 2009. The oldest and higher-octane Absolute Return Fund, with an avowed “aggressive investment approach,” is the one that’s posted an average return of more than 23% since 2004.
King’s investing has ridden some of Australia’s biggest boom industries including buy-now-pay-later providers like Zip Co. and consolidation in the lithium market, while shorting thematically threatened businesses like travel agency Flight Centre Travel Group Ltd. and the country’s biggest retailers.
“We’ve clearly demonstrated that long-short equity investing is better from both a risk and return perspective than long-only investing,” King said. “That’s been the cornerstone of our business but it also has created the opportunity to grow new strategies.”
Those long-term gains have helped attract fresh money from investors. Funds under management have soared to more than A$17 billion, from just A$1.1 billion in 2017. In the first nine months of this year alone, the firm attracted A$1.2 billion in net flows, of which A$937 million went to its long-short strategies.
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“Regal’s got an an attractive strategy because it has strong performance and it has strong performance fees,” said Bell Potter Securities Ltd.’s Marcus Barnard, the top-ranked analyst among those covering the company, all of whom have a buy rating. “It has been generating inflows — which is unusual — and that reflects the attractiveness of some of its products.”
The blowout returns come at a challenging time across the industry, allowing Regal to absorb former rivals and peers that it has suddenly eclipsed.
In 2022, it acquired hedge fund VGI Partners, giving Regal the corporate shell to become a public company via a reverse takeover. After a slow start, investors have been rewarded over the past 12 months, with Regal shares doubling, trouncing the almost 20% gain in the benchmark index. That’s made the Kings multi-millionaires, with the stake held by Phil and Andrew now worth about A$330 million.
After going public, Regal embarked on an unsolicited pursuit, alongside private equity firm EQT AB, for bigger rival Perpetual Ltd.. The A$1.7 billion bid was rebuffed twice. Then last month, Regal made a bid worth more than A$500 million for Platinum. After rejecting the bid, Platinum has opened the door to a potentially sweetened offer. The takeover would boost Regal’s funds under management to more than A$30 billion.
All the while, Regal’s expansion into private markets has kept pace. Regal bought farm and water asset manager Kilter Rural in 2019 followed by a controlling interest in energy and carbon fund manager Attunga Capital in 2021. Then, Regal ventured into the hottest space in financial markets this year with the acquisition of private debt firm Merricks Capital. Regal also launched a feeder fund in the Cayman Islands, targeting around $1 billion for the new vehicle.
“Over the next five or 10 years, there’ll be opportunities to do many other alternative investment strategies such as private equity, infrastructure investment and maybe other things,” King said in an interview.
As O’Connor sees it, “there’s no business domestically that ultimately owns that mantle today and that’s creating the opportunity for us.”
To be sure, Regal is still a minnow relative to the US juggernaut after which it’s modeling itself. Blackstone has $1 trillion in assets under management and a $205 billion market value.
Moreover, Regal’s growth hasn’t been without hiccups. Just last week, South Korea regulators indicted the firm and a former employee for alleged breaches of short-selling rules, following a market-wide review by the Korean Financial Services Commission. Regal denied the allegations. In 2021, Regal was cleared by Australia’s markets watchdog that banned a dealer at the firm for manipulating the market.
For King, the rapid expansion is at odds with an aversion to publicity that has grown in proportion to his wealth. He projects a modest persona as a fan of the Sea Eagles rugby league team and an avid-if-flawed surfer. He often catches the public ferry to work and eschews suits in favor of open collar and rolled-up sleeves. He’d prefer it if the only thing he was known for on the street was his affection for oat-milk piccolo coffees.
Even so, King’s imprint on the company looms large, though he’s not on the board or in a management position of the listed parent. As much as the firm aims to diversify, it’s King’s trademark equities management that helps Regal stand out.
“I’m more excited than ever about investing in the Australian stock market,” King said. “The huge bubble in passive investing has created tremendous opportunities for stock pickers.”
--With assistance from Serena Ng.
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