An opportunity to make a meaningful contribution: Q&A with Pengana's Frank Gooch February 2018

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With a few months under his belt as chair of listed investment company, Pengana International Equities Limited, we ask Frank Gooch what initially drew him to Pengana, and about the LIC's new investment strategy and its benefit to shareholders. We also find out about some highlights from Frank's 30+ years in the industry, his most memorable investments and the qualities that he believes make for an effective chair.

What was the impetus for you taking up the position of chair of PIA?

Being Chairman of PIA provides me with the opportunity to make a meaningful contribution to the success of a company that I believe has the potential to grow into a substantial business, particularly with its focus on international equities and ethical investing. As Chairman, I am also looking forward to working with the strong management team within Pengana Capital Group as it implements its investment strategy, to deliver consistent long-term returns to shareholders.

Can you tell us a little about the new strategy that has been adopted for the LIC and the benefits to shareholders?

The investment strategy, which is new to PIA and was implemented on 1 July 2017, is a strategy that has been implemented by Jordan Cvetanovski and his very experienced team at Pengana, since 2015. Jordan also successfully ran a similar investment strategy over many years at Carmignac Gestion in Paris, which was a €55bn fund.

Under this strategy, PIA’s portfolio will have a focus on value and growth and will typically hold between 30 to 50 global companies of varying sizes, operating in both developed and emerging markets, across a variety of geographies and industries. The strategy is long-only and shareholders can expect the portfolio to be 80% to 100% invested at all times. Ethical screening and risk management guidelines, which include maximum stock, country, industry and portfolio segment exposures, are applied. This is important, as a number of shareholders are invested in the strategy due to this focus on ethical investing.

The portfolio is designed to be a core international equities holding because it is focused on managing risk and generating returns throughout different market conditions.

Companies that meet the investment criteria are divided into three segments: Core, Cyclical and Opportunistic:

• The Core segment comprises 60% to 80% of the portfolio and consists of stable and growing businesses that generate consistent returns • The Cyclical segment comprises up to 30% of the portfolio and consists of companies operating in cyclical industries that are poised for a cyclical upturn, which is not recognised in their share price • The Opportunistic segment comprises up to 20% of the portfolio and consists of companies that are unique, company specific situations that offer attractive potential upside.

This portfolio structure provides a healthy level of stability with the opportunity for material upside. In other words, shareholders benefit from an actively managed global equities portfolio, that is managed to minimise volatility.

Are there any plans to implement new technology in order to improve communication with shareholders?

Both the Board and the management team have been quite focused on shareholder communications, which spans multiple channels given our diverse demographic and communication preferences. With specific reference to technology, our website has been relaunched with a focus on improved access to information and user experience and we will continue to encourage shareholders to embrace electronic communication by providing their email address.

We are also well progressed with implementing a platform that will enable more targeted and responsive communications to shareholders, based on their individual interactions with us. This will be an important complement to our program of shareholder roadshows, as it will provide shareholders with the content that they crave, as active participants in the market.

Has the board received a response from shareholders regarding the erasing of historical underperformance of the fund?

The resetting of the performance fee high watermark was conditional on the manager agreeing to a reduction in base management fees from 1.5% per annum to 1.2% per annum for the remaining term of the Management Agreement. This represents a significant guaranteed saving with an immediate outcome. In addition, resetting the performance fee completely aligned the investment manager to shareholder outcomes.

It is important to note that the resetting of the performance fee high watermark was approved by shareholders at the annual general meeting held in November 2017. I have had no further feedback from any shareholder since then.

Currently the PIA board is 100% male. Are there any plans for any additional female members to the board?

At this stage the board of four people is adequately resourced in both size and depth of experience, so there are no plans to make any additional appointments at this stage. However, I am very much aware the appointment of a female director may increase the diversity of thinking on the board and we will seek to address this when the opportunity arises.

In your opinion, what makes for an effective Chair?

The better chairs with whom I have dealt have all had excellent communication skills. In the boardroom they encourage constructive debate amongst the directors, in dealing with management they provide mentoring and direction and they actively engage with shareholders.

With over 30 years’ experience in the finance and investment industry, what have been some of your key career highlights?

I have had two employers in 32 years. I worked with Macquarie Bank for 11 years and I have been with Milton Corporation for 21 years. Whilst at Macquarie I learnt a lot about businesses and people that I was able to leverage at Milton. I was appointed the CEO of Milton in 1999 and was elected an executive director in 2004. I have been fortunate to work with some very talented people at Milton and together we have grown the value of the company from around $200 million to $3 billion.

What has been the best and worst investment decision you have made?

I don’t tend to rank my investment decisions and certainly our investment decisions at Milton are a result of significant team collaboration and I would not like to take credit for these.

On a personal note the best investments I have made relate to my education and that of my children. From a stock point of view, buying Macquarie Bank shares soon after it listed and holding on to them through various cycles has delivered both capital growth and dividends over a very long period. My worst investment was probably buying a home in Melbourne at the peak of a cycle many years ago and having to sell it shortly after the cycle turned when I transferred to Sydney.

What was your very first job?

My very first job was packing groceries at our local Coles supermarket on a Saturday morning and over school holidays.

How do you maintain a work/life balance?

I am lucky that I really enjoy my work because, like most people, I probably spend most of my waking hours there. I prefer to work from the office whenever possible so that when I am at home I can focus my attention on my family and friends.

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