Gregg Taylor Podcast

In this episode, EWL Partner and Wealth Advisor Ryan Loehr, speaks with Gregg Taylor from Salter Brothers.

Gregg leads the equities investment team at Salter Brothers, a reputable Australian alternatives investment manager responsible for overseeing $3.5bn of assets for HNW investors and institutions.

We have known Gregg across various iterations of his career, which has seen him work across broking, investment banking and portfolio manager roles with leading institutions. Then building and successfully exiting a large media-tech business as well as a funds management business (Bombora) before joining Salter Brothers. In this episode, we dive into some of the key considerations for founders seeking the right investment partner; unpack some of the common challenges these high-growth businesses face; and discuss why the market for these companies has become attractively priced.

As active investors, finding value often requires a contrarian approach; and both small and pre-IPO businesses have recently lagged larger indices by a large margin. This episode is well suited to founders thinking about taking on a capital partner and key considerations; or investors wanting to understand some of the underappreciated opportunities in high-growth, emerging Australian companies.

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Please see the transcripts ofthe show below -

[00:00:00] Ryan Loehr: Welcome to the Exchange Podcast by EWL. As advisors to some of the most successful families in the country, Craig Emanuel, Tim Whybourne, and I, Ryan Loehr, draw upon some of the best minds in the country. We believe that by exchanging ideas, we can deliver better advice and better outcomes for the families we work for.

[00:00:30] Ryan Loehr: Now, we're inviting you on this journey. In this podcast, we interview some of the country's best investment managers, business advisors, bankers, and founders to share their valuable insights. And our hope is that with better information comes better decisions. Helping you to achieve more financially. Hi, and welcome to another episode of the exchange by EWL Private Wealth.

[00:00:55] Ryan Loehr: My name is Ryan Loehr and I'll be your host. And in this episode, I [00:01:00] speak with Greg Taylor, a portfolio manager at Salter Brothers, a leading alternatives manager, where Greg covers listed equity strategies and has a focus on high growth, emerging businesses. This is a really interesting lesson for investors and for founders.

[00:01:16] Ryan Loehr: Greg has been a founder himself and has built a media tech business with over 200 employees and successfully exited. He brings a depth of experience supporting the growth of innovative businesses and importantly emphasizes the benefits of leveraging the right people and the right relationships to drive success.

[00:01:37] Ryan Loehr: Listed small caps currently trade at one of the largest discounts in the past 20 years. And the illiquidity in unlisted pre IPO companies has created a unique and highly underpriced opportunity. I hope you enjoy this episode. I'm excited to be here today with Greg Taylor, Portfolio Manager at Salter Brothers, where [00:02:00] he covers emerging growth companies that are predominantly Australian listed, but also unlisted securities that generally have a market capitalization under 500 million.

[00:02:09] Ryan Loehr: For those that don't know, Salter Brothers is one of Australia's leading alternative investment managers. They cover small cap equities, specialist property assets, private equity, and credit. And as a business, it has over 3. 5 billion in assets under management, predominantly managing wealth for high net worth families and institutions.

[00:02:29] Ryan Loehr: So Greg, thanks so much for joining me today. Thank you, Ron. Glad to be here. Greg, We've known you as a firm and your background across various iterations of your career and, predecessor firms, but for our listeners, it'd be great to get a sense of your, career today, your background, your history.

[00:02:45] Ryan Loehr: I mean, how did you end up covering these exciting small, but high growth emerging companies? 

[00:02:52] Gregg Taylor: It's been a 25 year journey and still really glad to say I love it as much as today is when I first started saying I'm really [00:03:00] passionate about. And so I started off the mid nineties, late nineties working in asset consulting, then moved into investment banking.

[00:03:07] Gregg Taylor: And I was actually over in, worked Citigroup. And then I think just around the time the Olympics came back to Australia and moved into. It's more of the listed equities space and so I started off in stock broking and then pretty quickly moved into funds management and spent the bulk of my time in funds management on the listed side with a group called Schroders, which was still continues to be one of the largest Australian equity fund managers in the country and I was really fortunate to work with a great team there and, a number of those individuals are still there.

[00:03:39] Gregg Taylor: And I, Sincerely regard them as one of the best management teams in the country for Aussie equities. And we were managing up to 14 billion at the time and covering all asset classes and small and large caps. But I was lucky enough to be involved pretty early back then in one of the earlier micro cap and small cap specialist funds that [00:04:00] was launched in the country.

[00:04:01] Gregg Taylor: And that was a factor of where there was greater opportunity. There was a little bit more inefficient at that end of the market, not as many people trawling over the assets and having one of the first dedicated funds in that space was a really exciting time. So as I said, spent a good 10 years that listed equity space and then actually left the markets and this sort of got me into the unlisted and the, we could call it the private equity investing side.

[00:04:28] Gregg Taylor: I started my own business. in digital media and content and grew that from a startup. I was the founder and we operating in 20 countries and over 200 staff and had a successful exit about three years later. So that really sparked the passion for, for sort of private businesses and higher growth companies.

[00:04:48] Gregg Taylor: And so once I exited there, I sort of was at the crossroads where to, to go again, or sort of go back to my investment routes and, and took the decision to apply the learnings of running your own business and [00:05:00] scaling a business internationally to, and applying that to the Australian sort of unlisted growth sector.

[00:05:07] Gregg Taylor: And that's what we're doing the last 10 years. And about eight years ago, I co founded a, an investment group here called Bombora. I was the chief investment officer and portfolio manager there. We're invested in. merging growth companies, both listed and unlisted, but taking a more active investment role.

[00:05:26] Gregg Taylor: So, lead investment positions typically join the board and working with the management teams and founders. On their growth journey and had quite a lot of success there. I exited that business just over three years ago and have spent the time since there at Soulder Brothers. And Soulder Brothers, as you touched on institutional fund manager across various alternative assets, but I head up the equities business and we invest in both listed and unlisted.

[00:05:56] Gregg Taylor: Growth equity company. So it's a really exciting time [00:06:00] and can be through a few cycles of where we are now. It's really a really exciting time to be in this space. 

[00:06:05] Ryan Loehr: There's quite a bit to unpack there, but you know, the point I want to start at is, you being a founder yourself, I think, a lot of portfolio managers that come in the door, I mean, a greater asset allocation and, investing in good companies, but actually being a operator and, um, living that and, all the lessons that follow, I mean, I'd be interested to hear just about that journey a little bit more, what were some of the challenges and the teething issues and the learnings you had throughout that process.

[00:06:33] Ryan Loehr: And naturally, I would expect that, many of the unlisted, the private equity companies that, you partner with now are going through the very same, issues. So, yeah, be, be interested to hear about that journey a little bit more. 

[00:06:46] Gregg Taylor: Yeah, absolutely. That's, why I'm so passionate about what I do.

[00:06:49] Gregg Taylor: What I do to this day is because, it was hard. And and, start on the capital side any business requires capital. And one thing I discovered pretty quickly [00:07:00] was that there sort of a real lack of capital in the Australian capital ecosystem for, for emerging companies. For yeah, there's some money around for an accelerator programs for, for pure startups.

[00:07:13] Gregg Taylor: But once you've got to. A commercialized business and there's not a lot of capital available for those companies. And so that was the first learning. And, I was fortunate that I had that background in the capital markets to do that. That is why I'm so passionate about helping that space now, because of that, that void still there.

[00:07:34] Gregg Taylor: The other thing you learn pretty quickly as a, as a founder and fast growing businesses, it's very lonely. You, you wear many hats and take a lot of responsibility and a lot of stress and, uh, you expected to know everything and be, and be able to deliver every solution. But the reality is, I think the best founders are those ones that acknowledge it.

[00:07:57] Gregg Taylor: They don't know at all. There's a few gaps [00:08:00] or missing pieces of the puzzle for them to truly execute on the opportunity that they've, embarked on. And so, so not only access to capital, but sort of active capital, which was something that I was fortunate that I partnered with some. Really well connected people that previous experience in globally scaling businesses had ability in developing technology solutions and bringing them to market and the ability to have not only access to capital, but their learnings and experience with me really helped.

[00:08:30] Gregg Taylor: And and yeah, I think my experience since coming back to the investment side is that the best success stories have been those. Founders and management teams that have acknowledged that there might be a few gaps that they need help with and that's not a bad thing That's a real positive. And again, that's where we're focusing our attention now companies like that where we can partner with them from a capital side But also help them achieve their sort of their growth aspirations. 

[00:08:56] Ryan Loehr: And I guess if you're a founder it has a high growth, [00:09:00] successful the growing business capital, maybe this, this environment's a little bit different because obviously, environment can be quite cyclical and liquidity can change, conditions can change.

[00:09:10] Ryan Loehr: But, if you're a great business, attracting capital isn't necessarily a problem attracting the right capital and as you said, the, the right people to the table that actually drive and deliver on that next phase of growth can be key. What are the aspects that are generally missing? Is it governance?

[00:09:27] Ryan Loehr: Is it, bringing on a different set of operating experience? I mean, what are these founders generally struggle with the most? Is it just taking that next step to become a mature business? And, what does that kind of trajectory look like? 

[00:09:41] Gregg Taylor: It's kind of eerie how common the challenges are.

[00:09:44] Gregg Taylor: There's so many different businesses in Different sectors and different stage of their maturity, but they, many of them face the same challenges. And the first one that you, you touched on, and it's about building your share register and having the right shareholders. But the [00:10:00] biggest challenge I think is setting the dialogue and expectations with your shareholders.

[00:10:04] Gregg Taylor: Cause when, you're running your own business and again, there's a lot happening and in your own mind, what's going on, but you're not used to. Delivering regular reports and trading metrics to an external shareholder group. And that can be a real steep learning and a challenging learning for many founders because sometimes in the rush to get capital, they're probably not as thoughtful about setting expectations with their shareholder group or, and it's two way, right?

[00:10:31] Gregg Taylor: There's the responsibilities on the shareholders as well to truly understand the investment that they're making. But what you see time and time again is. Even the best businesses, things often take longer than you anticipate, and it's never a straight line. And when that first starts to happen, you start to see some cracks and relationship damage between shareholders and founders, and then it can become quite toxic.

[00:10:54] Gregg Taylor: So, big learning that we do when we partner with founders and management [00:11:00] teams is really. Setting expectations, setting the financial metrics around your business from the outset. So when there are some bumps in the road, which are inevitable, you could refer back to those metrics and it makes everyone feel a lot more comfortable.

[00:11:14] Gregg Taylor: So that'd be the first thing. So that all comes a little bit around, I say it with respect, but sort of financial intelligence in the business. So it's not only, you're in your own business and a lot of founders can recite the cashflow week to week, but bringing in that next level of financial intelligence.

[00:11:31] Gregg Taylor: So quite often the first asset or addition to a team as it's going on a capital journey and a high growth journey is to get a good financial controller or CFO into the business. Because they should become a well appointed one who again is, he understands the business should become a real ally and partner for the founder and management team.

[00:11:56] Gregg Taylor: And they're there not to stop them spending money. They're there to [00:12:00] allocate capital efficiently and make sure they, that they get the most out of the capital they've got and can report back on that. So beyond the shareholder communication, you're talking to that financial intelligence, and then the next one's really just scaling and.

[00:12:15] Gregg Taylor: It comes in two aspects, but more often than not, it's people and culture. And again, running a business where you might have five to 10 close aligned employees, and then by the virtue of your growth, you, you go to 10 to 20 to 30 employees, it gets harder to control that culture and the people element.

[00:12:33] Gregg Taylor: And so again, always have people in our network. We bring into the businesses that help them with that. And so these key appointments, especially in new markets they can determine the success of your business and, a bad decision or bad employee can absorb a lot of your time in a negative way.

[00:12:50] Gregg Taylor: So really important about finding the right people and have, and continuing your focus on that culture, even when you have multiple locations. So, that's, [00:13:00] that's the other one. And then I guess linked to this is. A challenge for a lot of founders as well is being able to let go because as you're getting bigger and you've got more stakeholders, including clients and staff members, not to mention investors you're wearing so many hats.

[00:13:18] Gregg Taylor: But it's important that you entrust the people around you and empower them to allow the business to grow. Because quite often their biggest inhibitor to the growth can sometimes be the founder and existing management team, because they find it hard to let go. And again, we try to help and counsel them through that by making sure they make good appointments, empower their staff and set the metrics for their staff.

[00:13:41] Gregg Taylor: So the, so the founders do. Retain this element of control and understanding their business, but aren't a roadblock at every decision that needs to be made in the business. So, quite a long winded one. Just finally, the other one is when you're entering new markets sales cycles and processes can be [00:14:00] costly and long.

[00:14:01] Gregg Taylor: And so how the network in new markets is invaluable. And so again, we offer that from both the national, but very much an international level. So everyone wants to head to Asia or wants to head to the U S with their, with their offering. And yeah, I've seen so many companies burn a lot of time in money in doing that.

[00:14:22] Gregg Taylor: And if you can do that through an initial partnership. And network, you can fast track and save yourself a lot of, a lot of heartache and money. So, there's, there's lots of challenges and there are different perspectives for each one, but they're very similar across those businesses. 

[00:14:37] Ryan Loehr: Yeah, absolutely.

[00:14:37] Ryan Loehr: I think, fundamentally, if other executives, other founders have made the same mistakes and can simply avoid you making those mistakes, a big value add. And I, I, it was quite resonated with the point around people and culture. I mean, there's been various, founders and even, more mature kind of privately owned family business that, that we deal with and think having that independent person either [00:15:00] on a board or, as an advisor can often be a circuit breaker.

[00:15:04] Ryan Loehr: I mean, everybody often wants the same thing, but you might have a different idea of how to achieve it, how to get that. And if you're, a founder with a, a co founder with another business partner, and you both disagree on, what the next step is, or where you're going wrong, or where the next investment needs to be, sometimes having that, independent, investor or, member on the board can be that circuit breaker to say, okay, well, let's, let's, agree to disagree.

[00:15:27] Ryan Loehr: And, Greg, what do you think on this issue? Or, this is how such and such actually achieve the same result when I connect you with them and, you learn from them and all of a sudden you, you avoid. Potential blow up or, cultural issues led from the top.

[00:15:40] Gregg Taylor: Just to double up on that, the, it's really critical issue for most businesses, but for more so when you've got family businesses, where you've got multi generational or those complexities that's where you see a lot of businesses struggle to make that transition. And again, just having an investment partner in there, that's got a genuine interest and [00:16:00] understanding of your business that can help that.

[00:16:02] Gregg Taylor: Yeah. Sometimes, The, the reins might be handed down to a sibling, but they, they might need some support and then they don't necessarily want to get that support from, from the initial parent or brother or whatever it might be. So it works very well in all those instances. 

[00:16:17] Ryan Loehr: It's funny that, I mean, even the parallels, I mean, the reason that, kind of family offices or, mature families choose to partner with us, among other reasons is, you might have the capability or the, the expertise to actually internalize the investment function within the family, but, if there's disagreement over who has the ultimate decision making authority or the ultimate say that can, breed kind of conflict and a breakdown of communication among the family and, they don't necessarily need to it.

[00:16:46] Ryan Loehr: Follow exactly what we suggest, but by having an independent advisement alongside them, we, we find it achieves the same thing. It's a circuit breaker we can play that kind of mediator, but also draw on our experiences or, those experiences from other families we work [00:17:00] with.

[00:17:00] Ryan Loehr: So, it's, it's a little bit different, but yeah, completely resonate with, the, the kind of private. aspect there. Something else I wouldn't mind touching on, which I think is particularly relevant now is economic conditions change over a, full business cycle clearly over the last 18, 24 months small caps, micro caps, and, the IPO market seemingly dried up.

[00:17:25] Ryan Loehr: Liquidity has become scarce. You've had people de risking and while we've seen this, pretty enormous recovery in large caps, in big tech in the more mature parts of the market, seems like there's still, a bit of catch up to do in the part of the market where, your focus is.

[00:17:43] Ryan Loehr: So, I wouldn't mind delving into that a bit more, get your opinion, Greg, and really, what opportunity does that present to investors? 

[00:17:51] Gregg Taylor: Yeah, absolutely. And it's played out in both the listed and the unlisted markets at the moment. And as you touched on, we, we focus on what we [00:18:00] call emerging growth or companies under 500 million.

[00:18:02] Gregg Taylor: So very much at that smaller end of market in the unlisted side, we go down to companies as small as sort of 20 million. So, but firstly, just to. start with the listed side in the differential between small cap and microcap valuations versus large cap are at 20 year highs or extreme. So, maybe that might tell you the large caps might be a little bit overvalued or at least let's just say fairly valued, but the small caps are looking very attractive.

[00:18:31] Gregg Taylor: And what's important is not just the headline valuation, but also the underlying health of those businesses and. Again, I've been fortunate enough to be sort of screening and investing in this listed small cap space for over 20 years and I've applied a pretty similar or very similar basket of stocks and valuation methodology to that basket of stocks and again, it's, I've touched on previously, but it's only been three times in the last 20 years.

[00:18:57] Gregg Taylor: That the valuation upside's been [00:19:00] north of 70 percent and it's well and truly through that at the moment. The other two times there was this great valuation arbitrage was during the GFC. And then one during 2016, 17, through the sort of credit crisis. And they were both pretty extreme macroeconomic conditions and I'm not, I'm not a big bull on the current economy.

[00:19:20] Gregg Taylor: I still think the consumers, they're really stretched and probably a bit of construction stress in the system as well, but all in all employment's pretty good, deflation's there, feels like it's under control. And so things are not that bad. And so in the balance sheets of these companies are in good health.

[00:19:38] Gregg Taylor: And so, yeah, really excited about the risk versus reward trade off in that listed space at the moment. And I sincerely think it's as good as it's been in 20 years. Yeah. Although I say that lightly and. What's encouraging is that those metrics have been in place for the last six or nine months. In the last three months, we've really started to see that gap starting to close and some green shoots in the [00:20:00] market.

[00:20:01] Gregg Taylor: And the latest reporting season, for example, my fund's up 20 percent in the last three months, and still has north of 70 percent valuation upside on our metrics and companies reporting good results getting rewarded with share price, positive share price movements, which hasn't been occurring in the last two years.

[00:20:19] Gregg Taylor: So I really feel that we're a start of a really positive cycle for listed small caps over the next 12 to 18 months. But then equally exciting for our focus on the unlisted investments is there's even less capital and it's more pronounced in the unlisted space because. What you've had in the unlisted space was that we came through a pretty strong cycle, three to five years back where a lot of people put money to work in these unlisted growth investments.

[00:20:47] Gregg Taylor: And as the cycle turned, and unfortunately, as we touched on a lot of these companies made those common errors, they haven't achieved their objectives. And a lot of people have got stale investments in those [00:21:00] companies and hence got a lot of their liquidity tied up in these. Assets and they're very busy trying to fix those assets and trying to work out whether we give them more capital or not So what that does is the opportunity, you know for me myself and my team at solder brothers is you know We don't have those legacy assets and we're deploying Capital in the cycle and there's not many of us around at the moment.

[00:21:23] Gregg Taylor: A lot of people focus fixing past troubles that's creating great opportunity and and the evaluations are down well north of 50%, but what's encouraging is that the conversations with founders and management teams are yeah, they're acknowledging the importance of capital, but also after witnessing what's transpired over the last three to five years with some quite frankly, some horror stories for some people who took on capital from sort of unknown shareholders.

[00:21:52] Gregg Taylor: Is that it's important who their investment partner is and that they're proven and trusted. And so people are [00:22:00] starting to really value that aspect as well. So, and I've got a lot of respect for the companies that are, over the last three years, a lot of companies have not had access to growth capital and those that have flourished in those conditions, it's a really strong testament to their business and their management capability because the ability to build a sustainable business that can organically grow is a great.

[00:22:21] Gregg Taylor: attraction to institutional investors such as ourselves. So you're looking at companies that are against proven sustainable business models that are now ready to either grow or start their journey to an exit. Yeah. We're having some really great conversations and the assets we're putting money to now is the risk versus rewards as good as it's been in 20 years.

[00:22:42] Ryan Loehr: Something you touched on. There, which, we always remind our clients all of it at times it can be incredibly frustrating if you don't have the patience but the universe of companies that you look at, you invest in, I mean, you mentioned their position, their performance, their balance sheet compared to [00:23:00] 18 months ago, has improved significantly and you're seeing that through, earning seasons when they report and their numbers are up yet share price doesn't reflect it.

[00:23:08] Ryan Loehr: It's ironic where if you're investing in a private business. You'd be valuing a company based on a, multiple of E Data or, a metric like that. Whereas, there's these dislocations in markets where, you know, public companies that are, better than they were 6 months ago, 12 months ago, 18 months ago their earnings are up, just don't reflect that.

[00:23:29] Ryan Loehr: And I think that's, really where there could be big opportunities and, our clients often, might make a comparison between companies that they invest in. So, okay, well, this company's up 20%. How come mine hasn't moved? So it's, you actually lift up the hood and you look at the underlying metrics, which we know earnings ultimately drive long run returns.

[00:23:50] Ryan Loehr: But not in the short term because it's sentiment driven. That's what investors do rather than speculators. So I think that's, really important point. One of the other reasons why, [00:24:00] I'm particularly interested in this part of the market, over the course of decades we've seen, I like to call it lazy money, but passive capital, and index funds just continue to drop in investment in the, the large caps, the mega caps, and that's become quite a crowded trade.

[00:24:15] Ryan Loehr: People talk about the. Magnificent seven, which doesn't look as appealing as it previously was, particularly Tesla valuations seem to be getting, pretty lofty. Whereas, if you look at the parts of markets that aren't crowded, like small caps and kind of the pre IPR listed aspect, which a lot of investors don't have access to, there's great hidden opportunities.

[00:24:36] Ryan Loehr: The follow on to that is how do you get an information advantage? What's the work that you're doing? Is it just spending the time with the founders? Is it just doing obviously the research and getting an understanding of the market? I mean, there is a legitimate opportunity to have that information arbitrage in small caps just because you don't have the same level of analyst coverage.

[00:24:57] Ryan Loehr: But I'm interested to hear your thoughts, some [00:25:00] of your learnings from your history at groups like Schroders and Bombora where the small cap managers really, get their source of our performance. 

[00:25:09] Gregg Taylor: It's funny, again, being one of the, well, observing this sector for, for the time that I have and been through many cycles, you're 100 percent right.

[00:25:16] Gregg Taylor: It's, sometimes you actually start to doubt yourself because the fundamentals, can be in place for 6 or 12 months before, before the price moves and so patience is a, is a key thing and sticking to your process and, and system is, is really important. What I've always done is, increasingly over the last 10 years is focused on sectors where I feel that I generally understand and where if I do the additional work, I can get the reward.

[00:25:45] Gregg Taylor: And so I typically don't focus in resources and biotech investments. Not because there's not great opportunities there. It's just not my skillset. And again, it, it's really hard to get that advantage, even if you do [00:26:00] the work and, but some people are really great at it. So I'm not, don't want to dismiss, dismiss that.

[00:26:05] Gregg Taylor: But but how we do it is just focus on the sectors that, and it's just doing the work. So we, Again, we're fortunate, we've got quite a big team. I've got 14 people within my broader team focusing on this small end of the market which is one of the biggest teams in the country. And what we do, we have specialists within that team of various sectors and it's just doing the work.

[00:26:28] Gregg Taylor: And I always stress to my team that the importance of doing the. Understanding how business really makes money. And it sounds simple, but there's a lot of layers to that. And so we do a lot of work around the financials and the, and the revenue model and understanding cause it sounds again, overly simplistic, but.

[00:26:47] Gregg Taylor: If you get the revenues, right, 90 percent of the time you're going to get the rest of it. Right. But it's funny how many often we get them wrong. And so it's about truly understanding the dynamic of that revenue, what drives it. [00:27:00] And it's, we do a lot of work there. And then further iteration of that is how cash flows from that revenue.

[00:27:07] Gregg Taylor: And and so we, we do a lot of work. So we build detailed financial models and going back three years and forecast out five years. And we stress test that with management and really understand the sensitivity and variables. But then the other part, which where I think the advantage is, is because small caps are so diverse and there's so many different companies, like in the large cap, you've got the, the banks and the, the large resource companies, the large retailers are all pretty similar and you can just apply a.

[00:27:40] Gregg Taylor: A group earnings, multiple evaluation technique on all the banks and that. And all the retailers and all the, it, but it doesn't necessarily work like that for small cap because they're so intimately different. And so we do a lot of work on the quality of the earnings and working out what the appropriate earnings model is.

[00:27:58] Gregg Taylor: Whereas. [00:28:00] From time to time, and I'd say the majority of the time, the small cap market generalizes valuations to a whole group of companies that don't deserve to be on the same valuation. And that's what creates the opportunity. So you want to get some really high quality, sticky recurring revenues versus some quite lumpy.

[00:28:18] Gregg Taylor: Contractor and revenues and it most times in the cycle the market will treat those two companies the same But doing that extra level of work to understand the true nature of that Gives you the advantage because ultimately as you said through the cycle That'll prove out and out of a time the market should and will pay a premium for those higher quality earnings So it's really focusing on that.

[00:28:42] Gregg Taylor: I think where the advantage is and And you just got to keep doing work like again, so many different sectors in small caps going and leading the unlisted peers and what the competitors are doing. What's the industry trends what's the disruption from whether it's AI this year or [00:29:00] whatever the disruptor is the year of, relevance, but yeah, it's just doing the breadth of work and it's hard to do as an individual investor.

[00:29:08] Gregg Taylor: And that's why especially in small caps, a diversified, actively managed fund. It's typically the best way to play it because it has great volatility and if you're on the wrong side of that, it can, can hurt. 

[00:29:20] Ryan Loehr: You certainly, across my career, you hear the, the horror stories of clients that have come to us with a hot tip of, small cap from Hop Copper or Motley Fool or, kind of some other various forums, but yeah, often ends up in tears if you don't have the expertise and the, do the work as you say.

[00:29:35] Ryan Loehr: I know across your career, there's been some, absolute amazing. Investments that you've made not just from a return perspective, but, seeing the journey and seeing the underlying companies evolve to become, something pretty substantial and. Something that, we touch or we see in one way or another in Australia.

[00:29:52] Ryan Loehr: It'd be great to go through a few case studies and just, provide some examples of what started out as a, kind of pre IPO company or unlisted company and [00:30:00] how did that journey evolve or, equally small cap company, which is, really developed into something that's quite unique.

[00:30:06] Gregg Taylor: Yeah, definitely. There's a couple that, that spring to mind and I think one of the greater case studies in one, I think one of the. Great small cap success stories. Even within the last 10 years has been a business called Outium. ALU is, or was the code it's just been acquired or in the process of being acquired and it was only 10 years ago, joined the register as the first, it was the only institutional shareholder in the business and back to doing the work and understanding the nature of their intellectual property.

[00:30:39] Gregg Taylor: So this was a. Company that did printed circuit board design, it's a software company that I think everything electronic these days has a printed circuit board in it and increasingly with this internet of things, which now became AI, everything else that this was the epicenter of that. And I remember getting back to [00:31:00] the.

[00:31:00] Gregg Taylor: Great benefit of working with some experienced investors was, I remember the analogy that mentors taught me was it's in disruptive emerging technology or merging trends. It's really hard to pick the winner. So you go back to the old gold rush adage of Don't worry, don't try to go and find the gold, find the, back of the guy who's selling the picks and shovels to all the people out there, prospering, because he's the one who makes the most money.

[00:31:25] Gregg Taylor: And Ouchin was exactly that, so this was this great business, the technology came out of Hobart, out of Australia, a university down in Tasmania, and But it, it really was at the epicenter of the electronics revolution and what was happening with connected devices. And it didn't have to win because no matter what gadget or widget was going to be the next big thing, it was going to be supplying it.

[00:31:51] Gregg Taylor: And it was a truly global opportunity. And again, it was 10 years ago, it was been, it was traded on a, like a [00:32:00] small retail or a contract business was trading on a higher multiple than this was. It consistently delivered 30 percent plus growth for a 10 year period. And I was fortunate to put money in that below a dollar share price and it got taken out, close to 50 share price.

[00:32:14] Gregg Taylor: And so it became a multi billion dollar global success stories in the Australian technology business out of Hobart that it had been listed for five years and couldn't did have one institutional investor on his register. It was not a take the time to understand. The uniqueness of their IP and their business model, great watching it as a great management team and board, which is critical in these businesses as well.

[00:32:39] Gregg Taylor: And they were people that listened and learned along the way. Cause again, to go on that journey, it was the same CEO that did it. Right. And it takes a lot of maturity and evolution as an individual and the board to achieve that. And it's just been one of the greatest Australian success stories and so fortunate and happy for the guys to, to get the [00:33:00] success that they did.

[00:33:00] Gregg Taylor: It was very well deserved. Another really interesting one, go away from technology, right? And this is focused on one of the businesses we made an investment in about 10 years ago as a private company, we actually bought it off private equity and took it through an IPO process. It was a business called Acro.

[00:33:19] Gregg Taylor: It's now an ASX listed company, but it said it was held by private equity and. It had been a bit of a disastrous investment for private equity. And so we picked it up really opportunistically about 10 years ago. But what we picked up was that again, two things, it had a really unique offering in a really high growth industry.

[00:33:39] Gregg Taylor: And so what it does, it provides form work and engineered solutions to the civil infrastructure space. I think roads, rail, airports. What we were looking at at the time was there was a significant spend in that sector, and you could look out at the end of 15 years and see the cycle that was coming, and they'd adopted their business model two ways, they'd [00:34:00] gone from, it became what they call a dry hire business, so they no longer were hiring out people and taking contract risks, They were just engineering the solutions for the formwork and support infrastructure for these structures and the engineering around that.

[00:34:16] Gregg Taylor: And and then there was a management team in there, again, a chairman and a CEO with proven track records that we knew from previous lives. And. Well, and again, that's a business I think we listed it who invested below this, but we invest this is a 20 cents. So I actually sat on the board of that company for four years.

[00:34:35] Gregg Taylor: And I think we listed it at 20 cents. It might be at a dollar 30 today, but again, been an amazing success story. And again, it wasn't out winning the big contracts itself, but it was supplying the fundamentals into this big industry trend. It had a good management team. And. Again, it was being treated like a, and it probably still does.

[00:34:54] Gregg Taylor: It's still true. I still hold it in my portfolio now, but it still gets treated like a normal contracting [00:35:00] business where it doesn't have that contract risk that most traditional services businesses do. And the market just hasn't really fully appreciated that. Earnings every year north of 30 percent pays a fully frank dividend yield north of 7%.

[00:35:13] Gregg Taylor: And it's been a great story. So take it from private through an IPO and being really successful. So, there's in the one last one, I'll quickly, and it's an extreme example, but At my, in my own fund, we had the experience where we backed a founder in the company in the founder wanted to get more growth capital.

[00:35:34] Gregg Taylor: And so we invested in the company as a private company, took it through an IPO or during that IPO process, the founder passed away he was the major shareholder co founder. And so we had to step into the business point a new CEO, the fund sat on the board and actively managed that. That was a business called Ripe, R H P, which again was a sub 20 cents, sub 20 million private investment we made that we appointed a great [00:36:00] individual by the name of Dominic O'Hanlon to be the CEO of that business.

[00:36:04] Gregg Taylor: Dominic had a number of great exits in, in technology companies and he manufactured a, an amazing exit for this business at north of 450 million and Dom still sits with me on as an advisor to the fund that I run now. And they're the sort of relationships that I enjoy where you go on a 10 year journey with a founder and management team and And those people are still working with me today as in our semi retired sort of professional investors that want to partner with an institutional investor and they help us find new opportunities and they then sit on the boards of the companies we invest in.

[00:36:39] Gregg Taylor: So you're not just getting people like me sitting on your board, you're getting proven entrepreneurs who have had their hundred million dollar plus exit that are semi retired, but want to put money to work and, and help other founders. On their journey. And that's, real unique part of what we do is, is provided that support with proven operators.

[00:36:57] Ryan Loehr: That partnership model, as you mentioned, I [00:37:00] mean, having executives or, founders operators like Don to, draw on it's so important, even in our business, I mean, we often say to clients, any advisor that sits in front of a client and says that they're an expert at every asset class, every industry, every sector, it's just not possible, which is why, we prefer to find the managers that we believe are, the best operators in their respective field and partner with them because ultimately those relationships bring incredible value.

[00:37:26] Ryan Loehr: And I imagine it's exactly the same where. Whether you're a founder or even, running the fund that you run, Greg if you've got a question around how a particular business can operate better, or what can be done differently, drawing on those that have been there and done that, incredibly powerful.

[00:37:42] Ryan Loehr: And I just want to say I love the picks and shovels analogy. I think something that kind of Resonated there. I know you, you obviously worked at Schroeders. Another guest that we've had the podcast and I've got a lot of respect for him, Nick Cregan, who also, worked in with Schroeders.

[00:37:57] Gregg Taylor: I was working with Nick. He's a great investor and a great guy. 

[00:37:59] Ryan Loehr: And [00:38:00] I remember him giving an analogy, recently in his new fund. Where, they wouldn't touch kind of the direct AI play, but kind of semiconductors, but, I think bought a, bought into a company that supplies the, the glue effectively to make all the semiconductors, a kind of, yeah, similar philosophy there.

[00:38:15] Ryan Loehr: But, if, if we think about the thematics, where we think the next big growth players are going to be, and, obviously then look down within them to see, the peaks and shovels and, the businesses that might. Benefit from them. Obviously you've got your area of expertise and where you think, you understand those industries particularly well, but what do they look like for you and, what industry sector is really, the bread and butter and your, your focus at the moment?

[00:38:43] Gregg Taylor: There's a number we're really focusing on at the moment off the back of our experience and our view about the outlook and. And the network of people we've assembled to what we think give us a, an unfair advantage. And the first one's in the property tech area. And why I say that is Solder [00:39:00] Brothers we're the largest owner and operator of accommodation hotels in the country, three and a half billion dollar portfolio.

[00:39:06] Gregg Taylor: And so we're an advert consumer of property technology and that opens up great perspective and experience and network. Couldn't say. And ironically, the property space has been a really slow adopter of technology. And so there's still quite a lot of evolution to come and disruption to come there.

[00:39:24] Gregg Taylor: So we're really focusing on, on that aspect. And actually one of the seed investments for the new technology fund that we've launched is a property tech solution that into hotels and again, really exciting opportunity. Another one, which dovetails background and network is around, Health tech and more specifically sport technology.

[00:39:45] Gregg Taylor: We were talking about it earlier, Ryan, that again, it's an area that Australia does quite well on a global scale. And we're fortunate to have as part of our broader team, a lady by the name of Hayley Evans, who's worked with Some of the largest sport [00:40:00] tech funds in the world in North America and Europe.

[00:40:03] Gregg Taylor: And, but there's some great technologies in Australia around, around sport and health and the opportunity to take some really exciting technologies global from Australia is something that we're focused on at the moment. And again, we've got a, an investment opportunity we're working through exactly in that space.

[00:40:22] Gregg Taylor: So that's, that's a great opportunity. And then I guess the other one, which I'll just throw out there, and it probably is a little bit opportunistic, but the telecommunications sector in Australia, we get, we very much focus on global opportunities. And, but what we've witnessed is again, been fortunate enough to have a bit of luck and success in telco investments over the last couple of decades.

[00:40:44] Gregg Taylor: And through that developed some deep relationships with some proven operators. What we saw is there's been a lot of consolidation done in that small end of the market, but it's been done very poorly in our view. And there's a lot of [00:41:00] orphaned assets and sub scale telco solutions still in the Australian market.

[00:41:05] Gregg Taylor: And we've been trawling over those assets and again, with a pretty experienced team. And we're really intrigued about the opportunity there and likely to see an investment in the fund shortly in that space. So that's a more domestic play and the other ones are very much sort of global plays.

[00:41:24] Gregg Taylor: Yeah, really just that, especially in the unlisted space, companies under 100 million enterprise value. But they've reached, commercial revenues north of 5 million and they're probably getting towards profitability. That's the space where they're ready for growth capital, they're ready for a growth partner, and there's not many others out there offering to help.

[00:41:43] Gregg Taylor: So that's really broadly, but then focusing on a number of those sectors.

[00:41:48] Ryan Loehr: Yeah, it's really interesting, I mean, even just delving kind of a little bit into the telecommunications space. I mean, Yeah. Like, I look at companies like, Telstra, Optus, I mean, Telstra obviously being originally kind of [00:42:00] associated with the government yeah, there's been various kind of regulation changes that, I would say have almost been anti competitive, you see, back in the day or not that long ago, actually, I mean, I thought companies like TPG, which were run amazingly well buying upgrade assets, but then, face roadblocks from regulators and now we've got Optus that, it's basically on the chopping block and, Brookfield circling these legacy infrastructure assets, I kind of wonder, I guess my question to you is, while I absolutely can see the opportunity to disrupt these incumbents, I mean, how tricky is it kind of, navigating maybe the, the regulatory roadblocks and, kind of the, the government interaction when you've got these large incumbents that, are somewhat protected.

[00:42:47] Gregg Taylor: It's a great question. And with that one definitely sort of beyond my pay grade and that's what we were talking about earlier, it's about surrounding yourself with people who, who have that depth of knowledge and experience. It's an. [00:43:00] We've actually got two people in, involved in our advisory board from the telco space and intimately involved in one of the most successful infrastructure telco roll ups in Unity Wireless.

[00:43:11] Gregg Taylor: Again, I was the first and only institutional investor in Unity Wireless in the free IPO eight years ago. And it, again, it was below 20 million when it was requested. I think it was a 5 billion exit and I've been fortunate enough, a number of the operators of that business have chosen a partner with the Salter Brothers Tech Fund to help us navigate that.

[00:43:33] Gregg Taylor: And so, but you touch on a key point, which is part of our thesis, it's a scale game, right? So there's the extreme scale of the Telstra's and what's happening with NBEd and everything else. That's created some opportunity, but there's a lot of bespoke solutions that probably are solving a problem, but haven't got the scale to actually make an impact.

[00:43:53] Gregg Taylor: And so the opportunity to bring together a number of those and have a scale solution. And have a [00:44:00] senior management team advisory board that knows the regulatory environment and how to navigate that and where the risks are, where the opportunities are. That's where we think we can win. And that's where we're building up that competitive advantage to make a play there.

[00:44:15] Ryan Loehr: If you can solve some of the problems or the issues that legacy or incumbent players face for them, then you to become a natural. Target for them to acquire you anyway, and that can, potentially add significant value to shareholders, in a growing business like that, so... 

[00:44:32] Gregg Taylor: You've seen that we put in the last this calendar year, you've seen Symbio and Superloop both be acquired listed telco players.

[00:44:40] Gregg Taylor: Like once you get to a certain scale, the bigger guys probably do just swallow you. So, it's about getting to that level of, so from going from a 50 million business to a 200 million business. Then. And then you, your appeal to a broader set of larger players is significantly greater. And there's, quite a lot of reward [00:45:00] in that journey.

[00:45:01] Ryan Loehr: Might be worth touching on a few of the existing holdings within the fund. And what, what kind of attracted you to then both, on the listed side also, those that are you considering on the unlisted side? 

[00:45:13] Gregg Taylor: On the unlisted side, and it got a little bit of press recently, it was sort of a listed company we're taking through a privatization process is a business called Prosper.

[00:45:21] Gregg Taylor: So, it was announced that the Solder Brothers Tech Fund, that's the fund that, that I run and we're talking about today. We, we were the lead investor of a company. consortium that is taking that company privacy for, so de listing it from the ASX. And that's still subject to shareholder approval from, but there's been indicated support from the, from the major shareholders.

[00:45:42] Gregg Taylor: And so that was an opportunity, a FinTech business then has had its challenges, but again, we're able to partner with some really seasoned experienced FinTech operators who had 30 plus years experience in this space, had ran businesses of similar nature. We got under the covers there and.[00:46:00] 

[00:46:00] Gregg Taylor: Really understood where the challenges were and I won't go into detail, but. Now it's around the funding book. It's around the re-platforming of the technology and it's around the, the credit management. And we, it took a six months due diligence process going through all those aspects and formed a view that with some changes they could be resolved and.

[00:46:23] Gregg Taylor: And optimised and, and we took a view that it's best to do that in a, in a private or an unlisted state. And so, we're really fortunate to be able to present that opportunity and it looks like it's going to be approved. So that's why we're, we're really excited about what we can do with that asset over the next three years.

[00:46:39] Gregg Taylor: And again, the risk versus reward at the current valuations as good as you'll see. So that's that, that's a really interesting one as well. And that, again, that's the seed asset for the, for the new fund. If I look at one of the listed small caps, so we've actually had a couple of our major holdings subject to takeover on the other side, [00:47:00] which we've spoken about in Serrata, that was a business that, again, it was friendless six months ago, we'll buy shares, the market below a dollar, it got taken out for 2.

[00:47:10] Gregg Taylor: 50, bit of a shame, it's a really high quality business that's now Be taken off the ASX and and then there's a pro biotech, which is a domestic manufacturing business. Again, it'd been a long time term holding of the fund and it's just been subject to a takeover. So there's those, but one that I think is really interesting at the moment is Ausforex and it's a three, 400 million market cap.

[00:47:35] Gregg Taylor: And, common theme I've spoken about today is how important management are. And I sincerely think they're one of the best in Management teams in the small cap universe in this country. They really are, they've done a remarkable job. They're across the metrics of their business and they've navigated, they've made some really smart acquisitions.

[00:47:52] Gregg Taylor: They've navigated global growth, they've pivoted the business to more corporately focused, and they've got some global [00:48:00] peers, which one they're winning against and two are valued at significantly higher valuation multiples than the DOS Forex. And so, it's one we're just keeping an eye on. It's a major holding in the fund.

[00:48:11] Gregg Taylor: We think it's sort of up to a hundred percent undervalued. We think the share price could double and still be reasonably priced. So it's one it's reporting periods through to the end of March. So in the next few weeks we'll get some results out there and you're really interested to see that, but yeah, it's trading on a 10 times earnings multiple.

[00:48:30] Ryan Loehr: Yeah. Wow. Funny you mentioned OFX cause yeah, I mean, it's a, Business that we, work with reasonably closely and just to kind of provide context we had a client who basically private equity bought out his law firm and the private equity group was based in the UK, so that meant that, his payout basically was, being settled in British pounds.

[00:48:52] Ryan Loehr: This is a, pretty significant sum. If the bank had processed that, if it was just paid straight to a, Aussie dollar bank account, it would have been [00:49:00] converted at kind of the prevailing bank spread, which is around 200 basis points or 2%. If you're talking, millions or tens of millions of dollars, that's a pretty lumpy fee.

[00:49:09] Ryan Loehr: Our account manager at OFX ended up, converting that for 10 basis points and in the process saved hundreds of thousands of dollars for the client. Which, one thing that's really stood out to me is just the service standards at OFX and, the service is becoming incredibly hard to find, which, might sound ironic, but, when you've got this AI era and people think that you're going to replace, old fashioned service and, knowledge with, a few clicks of a button, that's just not the case.

[00:49:37] Ryan Loehr: Having experienced operators people to call to get the right outcomes is so important. So I'm, I'm glad that you mentioned OFX because, that's one that, we, we deal with quite regularly and that, that delivers a lot of value for our clients.

[00:49:48] Gregg Taylor: Yeah. And as I said, a good management team retains that culture and standard, even as it scales globally. And back to, I think OFX is, is a good quality business. Yeah, I think the market [00:50:00] will appreciate that, more and more, as I said, the results continue to come through, so hopefully that's a good one for us for the rest of the year.

[00:50:07] Ryan Loehr: Absolutely. Well, Greg, look, thank you so much for speaking with me today. I think there's a lot of key takeaways for our clients. So if our clients are interested in learning a bit more please contact your advisor or myself at EWL and equally, 20 of the founders in our network, I think, If you're considering, the right partner or, how to drive the next phase of growth I certainly think, contact Greg, contact the team at Salter Brothers because, they do have, decades of experience and Greg's a great guy, so, I appreciate you coming in.

[00:50:38] Gregg Taylor: Thanks, Ryan, and thanks everyone for listening.

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