Gresham House plc (LON:GHE) Chief Executive Officer Tony Dalwood caught up with DirectorsTalk for an exclusive interview to discuss the launch of a new longer-term capital investment platform, Royal County of Berkshire becoming a strategic investor, the strategic rationale behind the platform, targeting investor groups, local government pension schemes & what this all means for the company
Q1: Now, yesterday you announced the launch of a new Gresham House longer-term capital investment platform and that the Royal County of Berkshire Pension Fund intends to become a strategic investor in Gresham House. Tony, what’s the deal here?
A1: Gresham House plc is a quoted London Stock Exchange specialist asset management business and over the last couple of years a new management team, who worked together under the umbrellas of traditionally Schroders and Schroder Ventures, have come together to form an alternative asset management business, this is largely just a development and progression of that. What we’ve done here is that Berkshire Pension Fund has wanted to be more aligned over the long-term with some of the managers that they’re involved with and Gresham House has worked well in a dialogue with them over the last period or so in 2016, they are aiming to subscribe for up to 20% of the share capital of Gresham House in order to have that long-term alignment.
In addition to that we, at Gresham House, are launching a new platform which the working title is a ‘longer-term capital’ platform which we’ll be aiming to launch a new fund called the British Strategic Investment Fund (BSIF) and in that we’ll be aiming for those types of investors, like pension funds, like endowments, like family offices who want to access alternative asset management investments with that type of investment horizon. Those typically may be in the infrastructure, a space, or innovation space, or indeed specialist housing such as affordable housing, and this will be the platform which pension funds and endowments may be able to access that.
Q2: As you mentioned, you are launching a long-term investment capital platform, what is the strategic rationale behind this?
A2: Demand for long-term returns to cover long-term liabilities is increasing so pension funds particularly aiming to match liabilities over the long-term where they have particularly deficits in their funding arrangements so having a longer-term investment capital platform is logical in order to try and address that demand. Secondly, where we are in the valuation of traditional asset classes; equities, bonds, property, could suggest that the prospective returns from those asset classes would be quite low and if those low returns do come to fruition then the ability to achieve those long-term aspirational returns to match liabilities will be very very hard for most traditional asset classes.
So, looking at alternative asset classes, or niche areas of investment, is a way of potentially achieving those returns, those areas tend to be more inefficient because they’re less covered, less competitive and that’s the areas where we believe you need to access in order to achieve the long-term returns that such investors like pensions funds or endowments wish to make in order to achieve those returns.
Q3: So, I think you’ve touched on this but which investor groups are you targeting with this new platform?
A3: Very much pension funds, long-term investors like endowments and also family offices where part of their asset allocation would be this type of commitment to this type of asset class. You wouldn’t expect it to be the majority of asset allocation but increasingly it’s becoming a significant portion of asset allocation within those types of investors universe.
Q4: How does this fit in with local government pension scheme (LGPS) objectives and have you identified any other potential LGPS investors alongside your cornerstone investment from Berkshire?
A4: Over the last couple of years, the local government pension schemes have particularly focussed on how to reduce costs so one of our objectives here is very much focussed on how we can manage costs, reduce costs over the long-term. We believe we have a process and platform here to do that, part of that is an increasing focus on what we call co-investment, or investors call co-investment, which is not just simply going into a fund but also allows an increased discretion around deal-by-deal let’s say which typically is on a lower cost basis.
Secondly, this will also allow these pensions schemes and endowments access to the areas that I mentioned, whether it’s infrastructure or housing or innovation for smaller unit sizes and those unit sizes typically below 25-50 million sterling. Why? In order to move the needle, sometimes these pension funds don’t look at this size of asset investment because they are viewed as too small.
Finally, there’s an increasing focus on local or community investment and again this is a platform which may allow more discretion in order to access and facilitate investment into local and community investment.
Q5: So, with all of that said, what does this mean for Gresham House plc moving forward?
A5: Well, it’s good for Gresham House, in our opinion, in that it clearly addresses another platform within Gresham House for alternative asset management and it increases the scale of the business and proves the organic capability of growing. We’re a business that is focussed on organic growth as well as acquisition growth and we’ve shown that over the last 2 years that this management team has been in place. Of course, it should accelerate our move towards profitability, we have a very strong balance sheet with some legacy assets as well as cash on the balance sheet and this is a business that has been around for many many years but the new strategy, the new management team has only been here for a couple of years. This is very much to show our move towards profitability in the foreseeable future.