Q&A with Bob Sahota on the launch of his new boutique December 2017
Bob Sahota is passionate about "opening up a new investment universe for investors", prompting him to set up his own boutique, Revolution Asset Management, which is due to launch in February 2018. This week, Bob tells us a little more about the infrastructure behind the new business and what makes his product offering unique. He also names an industry mentor who was instrumental in his early career development, shares the best advice he's received, and admits to another great passion - muscle cars from the 70s!
- What prompted you to launch Revolution Asset Management?
Private debt is something that I have been passionate about throughout my career. In fact way back in 1999 at National Asset Management I was part of a team that pioneered originating loan assets in order to provide fixed income portfolios with additional diversification and higher yield in floating rate format. The idea to establish Revolution is in response to being able to open up a new investment universe for investors that reliably delivers a higher risk adjusted return in a low rate environment through the private debt market in Australia. On the supply side increased bank regulations and a focus on risk weighted assets has meant that traditional banks are not as competitive as they once were in a number of areas in private debt.
In a nutshell, it is bringing a small portion of the greater than $2.4 trillion superannuation savings in Australia to support the secured loan and securitisation market in Australia that has led me to establish Revolution Asset Management.
- How do you plan to stand out from the pack?
When looking to appoint a manager in any asset class, superannuation funds and high net worth/family offices must get manager selection right. When looking to allocate to a strategy that invests in illiquid markets, such as private debt, manager selection is absolutely crucial. I believe Revolution will be able to offer investors a compelling entrée into the private debt markets for the following key reasons:
• My track record in originating and managing private debt portfolios is one of the longest in Australia. The experience in successfully delivering consistently higher than benchmark returns in this asset class dates back to 2005. I have established mandates with leading superannuation funds in private debt dating back to 2009 with Australian Super, HESTA and Commonwealth Super Corporation;
• The partnership with Channel Capital provides me and investors an institutional grade business infrastructure that is absolutely essential in being able to have a credible funds management business. Channel Capital will provide me everything from licencing, risk & compliance, back/middle office, distribution, working capital and premises that is backed by a platform that administers in excess of $6bn and has amongst the best managers in their asset classes in the country. I firmly believe that without this infrastructure and support it is very difficult to establish a new funds management business in the current market;
• Revolution will be unique in its product offering by targeting 3 key areas of private debt – leveraged/acquisition finance, real estate lending and asset backed securities. The fund will target a return to investors of cash + 4-5% in mainly secured bank loans and private and commercial securitisation investments.
- Who else is joining you in this new venture?
The launch date for Revolution is 1 February 2018 and I will be making some announcements regarding key senior hires ahead of this date.
"Early in my career (and in life in general) I was given the advice that personal integrity and reputation takes a lifetime to build and a moment to destroy."
- With some banks showing an aversion towards lending to the corporate sector, considering the risks associated, why do you think it’s time for private lending firms to fill in this space?
The banks will continue to be very strong participants in the corporate lending market and I don’t see institutions displacing traditional banks in these markets. I do believe that institutional investors such as Revolution can provide marginal debt capital into areas that the banks are less attracted to going forward as a result of new capital regulations impacting their appetite. We have witnessed growing institutional private debt markets in Europe and the US and firmly believe that this trend will follow in Australia.
- Where will Revolution AM initially target its lending?
There are three key areas that Revolution will be focussed on in the private debt markets in order to deliver the promise of delivering cash +4-5% as follows:
• Leveraged/Acquisition Finance: This is providing debt capital to leading international and domestic private equity firms when they acquire companies. I have been very active in the sector since 2005 and have supported many acquisitions that are household names such as Ingham’s, Primo, Boost Juice, Healthscope, Ticketek to name a few. In doing so I have developed strong relationships with private equity firms which I hope to continue to support in the new year and beyond;
• Real Estate Finance: As a direct impact of higher capital regulations on banks real estate finance has become a significant opportunity. Due to the fact that real estate lending does not provide banks with other ancillary business their appetite in this sector has been significantly curtailed. We will be targeting senior secured lending to stabilised assets in established markets in commercial, retail and industrial where we are able to analyse lease/tenant cashflows and make sound credit decisions;
• Asset Backed Securities: Under the APS120 regulations it has become very difficult for banks to provide finance at any tranche below the most senior AAA rated notes. This has led to an opportunity for institutional investors to be able to provide debt within the middle tranches of private and commercial securitisations. We will target tranches that are rated single A down to BB where I believe there is the best risk adjusted return provided the underlying security pool is of sound quality with a strong and established sponsor. We will target both warehouse and term finance in a wide range of underlying asset classes including mortgages, personal loans, credit cards, autos and aircraft.
Overall the fund will seek the best risk adjusted return in these key areas where I have had a long track record.
And now a little about you Bob…
- What initially attracted you to a career in finance?
I completed my undergraduate degree of Bachelor of Commerce and majored in Accounting and Finance – what I realised when I finished was that I definitely did NOT want to be an accountant! I have always been interested in capital markets and banking in general so when I graduated I took up a role with the ANZ bank in the business banking division and later went on to work at NAB. The experience in learning the fundamentals of credit and lending in a myriad of different businesses and industries was invaluable in setting the foundation for my career.
I was very fortunate to be able to cross over from banking to funds management in 1999 at a time when the industry was experiencing the start of a significant growth phase. I am passionate about making sound investments and managing portfolios for clients as I take the responsibility of being entrusted with individuals superannuation funds very seriously. To be able to assist people meet their financial objectives is the reason why I am involved in the superannuation industry and why I established Revolution.
- What’s the best lesson that you took away from nearly 12 years as Head of Fixed Income at Challenger?
The best lesson for many came in the global financial crisis. Leading up to the GFC in 2008 the market was very exuberant and many of my peers in the private debt market lost their credit discipline in an effort to chase yield. The best lesson when it comes to investing in private debt is you must maintain your credit discipline at all times and all market conditions because when the cycle turns it will become apparent very quickly which managers maintained their discipline and which ones didn’t.
- …and what’s the best piece of advice that you have received?
Early in my career (and in life in general) I was given the advice that personal integrity and reputation takes a lifetime to build and a moment to destroy. There are numerous examples of individuals who have compromised their integrity to make a quick gain – the result is usually that they cut their careers short and are not remembered for any of the good they might of done but remembered for their shortcomings. Having integrity is essential for a long and successful career.
- …and what advice would you offer to someone looking to launch a boutique investment firm?
It is vital to be able to offer a product that is differentiated from other market offerings in order for investors to justify paying fees. In a world where there is fee pressure on superannuation funds to lower their costs to members, an investment manager must be able to offer a product that delivers a high risk adjusted return for them to be able to charge a fee for active management. The alternatives in passive products such as ETF’s offer easy access to many markets with very low fees so active managers must really show how they add value for them to succeed.
I would add that if anyone is thinking of establishing their own funds management business it is extremely important to be able to partner with an incubator that essentially leaves the investment team to do what they are skilled in – make investment decisions. In my case Channel Capital is providing all the business infrastructure support that I and my team will require as we build Revolution Asset Management. Also I have been fortunate to have met Nelson Lam at Berkshire Capital who ran the process of shortlisting fund incubators utilising his extensive network. Without him I would not have found a group as capable as Channel Capital.
- Do you have an industry mentor or someone who has impacted your career in some way?
In my move from banking to funds management I joined National Asset Management in Melbourne in 1999. I was recruited by Robin Miller at that time and in his team I learnt much about the attributes of adding loans to fixed income portfolios – diversification, floating rate, high risk adjusted return. Robin went on to lead IFM’s global debt investments team and I would say that he was instrumental in my early career. Robin has a solid credit background and I learnt much from him, which has been invaluable.
- What was your very first job?
At university I was a part time teller at the ANZ – this led to my first full time role as a graduate in the Business Bank
- How do you maintain a work/life balance?
When I am not in front a computer screen my strong passion is Ford muscle cars from the 1970s. From a young age I have loved these mighty machines and there is nothing better on a weekend to get out on the road and enjoy a drive with like minded friends and a rumbling V8!