The Australian

Washington H. Soul Pattinson: The fund manager building a private bank

The Australian
23 March 2023

Investment house Washington H. Soul Pattinson takes a different view to the disruption sweeping global markets.

Chief executive Todd Barlow sees only opportunity in front of him with shares having been heavily marked down and interest rate rises closing toward their peak. It means we’re starting to enter a stock pickers market.

Washington has spare cash reserves of $600m and combined with liquid assets that could push its investment firepower into the billions of dollars if the right opportunity came along, Barlow says.

Washington’s share portfolio had already been defensively positioned going into the current bearish market selling down holdings in the big four banks in particular which has helped the fund outperform the market including navigating a rocky February and March.

The merger with $3.5bn listed investment fund Milton 18 months ago means Washington now has serious capacity, directly overseeing a $10.5bn funds portfolio. Half of this is tied up in “strategic” investments or they are outsized, but long term bets the Millner family that controls Washington has made. This extends to cornerstone stakes in companies including TPG Telecom, Brickworks and coal miner New Hope. Then there’s another $3bn in large cap equities with holdings in Macquarie, BHP to Woolworths

However it is beyond equities where Barlow is really planning to drive Washington’s growth. There’s increasing exposure to private equity, but it is in private credit markets where the momentum is.

Here Barlow and his team have poured nearly a billion dollars into private credit over the last four months alone. That’s a combination of direct lending to businesses or funding non-bank lenders. This shift was already underway before global money markets became stressed on the back of issues like Credit Suisse’s demise of the regional banking crisis unfolding in the US.

These money market stresses have “opened up the opportunity for non-bank lenders and for private credit,” Barlow tells The Australian. “That market is only getting better and the pricing is getting better. What we’re seeing with banking issues globally is the pricing of risk is increasing,” Barlow says.

And while not a bank, Washington approaches the risk differently, putting a fund managers over assessing borrowers.

“We look at them from an equity point of view. Is this a company that we would be happy to own the equity? If you’re happy to own the equity, you should absolutely be happy to own the debt. In the normal course of events, debt is only impacted when equities are completely wiped out,” he says.

He was speaking as Washington posted a first half profit of $453m, that’s a $1.1bn turnaround from last year’s costly writedown of goodwill following the merger with Milton. Its interim dividend of 36c a share fully franked jumped from 26c this time last year and continues a more than two decade unbroken run of dividend increases for the investment house.

In equities Washington had been pulling back on bank and mining exposure over the past six months, selling down holdings as interest rates were rising and markets were getting more volatile. This included holdings in Commonwealth Bank, Bank of Queensland and Woodside. Elsewhere it has picked up positions in Coles and education provider IDP. At the same time Washington has been adding to holdings of Macquarie Group for the growth potential.

Washington’s head investments Brendon O’Dea – the former CEO of Milton – is comfortable being underweight retail banks given the positioning of the economy.

“We do recognise the cycles can turn quickly. So if we were to see a change in the interest rate, or anything that suggested that we were through this period of potential recessionary activity in developed economies, we may change our mind,” O’Dea says.


WHSP Todd Barlow

Washington H. Soul Pattinson’s chief executive Todd Barlow. Picture: John Feder

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