A report on Tanarra by Malcolm Maiden
By Malcolm Maiden
29 Nov 2021
John Wylie’s alternative asset investment firm Tanarra Capital is named after the house overlooking the Brisbane River that he grew up in. “I had a lot of happy times there,” he says. “It is an aboriginal word. It means “Top of the Hill.”
Tanarra isn’t at the top of the hill it is climbing, but it’s headed in that direction, and the former investment banker is keen to show the world that the firm he founded is now far from a one-person show.
When he stepped down as head of Lazard in Australia in 2014, Wylie bought back a private equity investment portfolio that Lazard had imported in 2007 when it acquired Wylie’s previous firm, Carnegie Wylie. Private equity investors including Sunsuper also crossed over to Wylie’s new firm, Tanarra Capital, at the same time.
Today, Tanarra employs a team of over thirty people, running funds that invest in a broad range of alternative assets: start-ups, private equity, PE-style investing in public companies, non-investment grade corporate debt, and distressed debt.
Behind them sits an advisory board led by Paul Keating that includes British retail industry guru and Marks & Spencer chairman Archie Norman, corporate doctor and prominent director Lindsay Maxsted, industry super supremo Gary Weaven, the Tokyo-based Chair Emeritus of the Australian New Zealand Chamber of Commerce in Japan, Melanie Brock, a former Productivity Commission chairman Peter Harris – and, undeclared publicly by Tanarra’s founder, the female chair of one of the highest profile corporations in the world.
Wylie’s history as an adviser to top companies is evident in Tanarra’s investment strategy, which he describes as “private equity style investing across the alternative asset spectrum.” A total of $2.3 billion is now being managed, more than $2 billion of it for external clients that include Sunsuper, Hostplus Super Fund and UniSuper.
The firm does not act as an aggressive change agent as often occurs with “activist” investing in the United States, Wylie says, because that model would struggle here in Australia.
Instead, Wylie and his team seek to bring skills built over 30 years of advising Australian corporates to the publicly listed companies Tanarra buys into, and to other alternative asset investments. Tanarra differentiates itself from most other investment firms in other words by positioning itself as an internal corporate advisor that is aligned with other investors through the return on investment, rather than conflicted for example by a deal fee, paid regardless of success.
Tanarra also does not take short, or selling, positions in the alternative assets it targets. Wylie notes that assets are currently at prices that would not have been believed even a decade ago, and says that in listed, transparent markets, short sellers can perform a service by exposing and correcting excessive pricing.
“However in alternative assets, venture capital for example, the equity is private and illiquid. It is not visible, and valuations are also often masked by undisclosed rights of different capital tranches with differing terms and rights. There is no way for shorts to operate, no natural counterbalance to the euphoria.”
That comment highlights the challenge that all alternative asset investors face, and points to the Tanarra key response: hands-on investment.
“There are three clear trends in investment markets,” Wylie says. “The first is the shift in listed markets from active to passive. The second is the move from listed to unlisted, a trend driven by the search for better investment returns – for alpha – in this very low rate environment. The third is the expansion from domestic investment strategies to global ones.
“All three trends open up opportunities for alternative asset investment. There are a number of organisations here that service one or two of them. Tanarra is put together to do more.
“We invest right across the equity spectrum – from seed investments in start-ups through growth equity for growing private companies to PE-style investing in public companies – and up and down the credit stack, from high-yield corporate debt to distressed debt.
“The model gives us the opportunity to invest in almost any situation, and gives us valuable information insights that assist all our investments, in particular through our exposure to emerging technologies in venture capital.”
In a time of elevated opportunity but also elevated risk as ZIRP – zero interest rate policy- inflates the price of assets everywhere, “we start at trying to generate good alpha, but we are also cognizant of risk and have a strong capital preservation philosophy” he adds.
There are four Principals in Tanarra Capital, the parent company. John Wylie is the firm’s founder and Chief Executive Officer. Operational experience comes from Andrew King, a former Managing Director and CEO of P&O Maritime Services and member of the global leadership team of P&O Maritime’s parent, Dubai-based global logistic group DP World. The third Principal is Anna Shave, who worked for seven years in New York as an investment banker at JPMorgan and Bank of America Merrill Lynch (now BofA Securities) and later worked with the-then Fortescue Mining CEO, Nev Power, to shepherd Fortescue though its high debt expansion phase to a secure position as Australia’s third mega iron ore producer. The fourth is David Birkbeck, Tanarra’s Chief Financial Officer, who worked in similar roles with Wylie at Lazard in Australia between 2007 and 2010, and at Carnegie Wylie between 2001 and 2007. Senior staff hold equity rights as part of their incentive packages. “The people we have attracted give us a serious edge,” Wylie says. “It’s an exceptional team, and so is the international advisory network we have put together to advise on Tanarra’s strategy and investments.”
Tanarra’s Long Term Value (LTV) fund counts Sunsuper and Hostplus as key investors, and is helmed by Vidhur Rangaswamy, a former investment banking analyst at Macquarie Capital. LTV is also guided by Lee Mickelburough, an Australian fund management doyen who built up Perennial Growth Investment Partners, which was acquired by IOOF and then Janus Henderson.
Performance to date has been strong, with the LTV fund returning high double digit “alpha” returns versus its benchmark, despite Covid related disruptions.
LTV is invested in a tightly targeted group of listed companies that Tanarra works with to unlock unrecognised shareholder value, for example by improving capital allocation, corporate strategy and alignment of executive performance.
Tanarra bought into Boral and argued for the sale of the building products group’s US assets before selling profitably this year into a bid for Boral by Kerry Stokes’ Seven Group that backed the same strategy.
Its largest current holding is Tabcorp, where it and other institutional shareholders successfully advocated for a separation of Tabcorp’s wagering business from its higher yield lotteries business. Other LTV stakes include Healius, the reincarnated Primary Healthcare imaging and diagnostics business, Ampol, where Wylie says Tanarra is working with the company to reshape its asset portfolio, and Humm, a payments group contesting in the buy now-pay later market.
Tanarra’s Private Equity (PE) fund targets Australian companies with enterprise values that are usually between $50 million and $300 million. It does not draw down funding until it is ready to make an acquisition, and does also not set a fixed period for PE exits. The fund is led by Maja Sliwinski, a Wharton School MBA who worked in the US at JPMorgan Chase and Destrier Capital Management before joining Tanarra in 2018.
The firm’s venture capital (VC) fund is overseen by Wylie together with young guns Neil Vinson and Samantha Hauptman. It holds stakes in 27 start-ups, eight of them through its connection with Oxford Sciences Innovation, which at 650 million pounds sterling is the largest university VC fund in the world. The portfolio is global, with investments in Norway, the US, the UK, China, Thailand, as well as Australia, NZ and Oxford.
Tanarra’s focus on capital preservation in an environment where overvaluation of assets is rife means that in both the VC and PE funds, investments are being made carefully. “It’s not a case of ‘have funds, must invest,’ not about generating shorter term returns that may not stack up over a longer period on a risk-adjusted basis,” Wylie says. “We don’t worry about being slower to invest than other VC or PE firms because we only draw capital down when we have something to buy.”
Tanarra’s Australian Recovery Fund buys distressed Australian debt, and Wylie says that in keeping with its corporate partnering investment philosophy, the firm is prepared to roll its sleeves up in restructuring and turnaround planning and execution, with one of its aims being the continuation of as many jobs as possible. Two well-known Australian corporate doctors are involved in the recovery Fund. Ian Carson, the founder of PPB Advisory, is executive chairman of the fund. Lindsay Maxsted has an oversight role with the fund, as well as being a member of Tanarra Capital’s strategic advisory board.
Tanarra Credit Partners has a $500 million fund mandate investing in senior secured non-investment grade debt. Its investment remit is principally in Australia and NZ but also targets selected developed Asian markets – Singapore, Japan, South Korea, Taiwan and Hong Kong. “The Australian market offers very attractive risk-adjusted returns in this asset class: leverage levels are substantially lower, and covenant protection better than typically found in the US and Europe, Wylie says, adding: “this market is growing strongly, and will continue to do so as banks find it increasingly difficult to compete in lending to asset-light knowledge economy companies that don’t have the fixed asset base traditionally sought as loan security by banks”.
The fund is managed by Peter Szekely, Graham Lees and Hong Kong based Peter Han, who joined in August this year to bolster Tanarra’s Asia-Pacific coverage. $300 million was initially raised from UniSuper and other institutions, and Tanarra has raised $250 million with UniSuper again contributing in a planned $500 million to $750 million second round of funding.
Tanarra’s final element is Tanarra Philanthropic , a pro bono financial advice service. “We have tonnes of inbounds on this,” says Wylie. “It’s an opportunity for charities and companies to get financial and strategic advice, and it’s a chance for Tanarra’s investment people to apply their skills.”
There is one alternative asset that Tanarra is not buying so far. “We will leave crypto to others at this time.” Wylie says, adding: “Bitcoin and Ethereum are pointing to the future, and there are going to be crypto currencies: undoubtedly, they will be government-backed ones.”
He adds that Tanarra is seeing interesting prospects in blockchain, the distributed ledger architecture that underpins crypto, but has no specific blockchain-focused PE or VC investments so far.
Tanarra’s take on China’s current ructions meanwhile is cautious, but less negative than some. Market paranoia about China ramped up in September this year after China’s second largest off the plan property developer, Evergrande, began to risk defaulting on US dollar corporate bonds.
“The Chinese financial system is fundamentally strong despite its challenges and has the financial capacity to manage through this situation.” He says. “My prediction is that Evergrande will have little consequence for long-term foreign bond appetite in China. You see problems recurring frequently in developing markets, but they usually bounce back quite quickly as investors once again seek growth and yield.”
Concern in the west about China’s crackdown on its biggest information technology companies is also overdone, Wylie argues. “The US has failed to rein in its tech giants. China is and if it manages to defuse the power of the big tech companies, then it will create more opportunities for emerging techs.
“There is an emerging thematic that the Chinese government is using its power to increase regulation across several politically sensitive sectors such as tech, education and gaming, and while this is at first glance concerning to western investors, it could also create a more stable Chinese society long term, and make the country more investable to global investors. The iron laws of mathematics apply as well, he says. “Chinese GDP growth will continue to outstrip western growth in the decades ahead; its equity market is still small relative to GDP; stock market indices include China at a level well less than its share of global GDP; and Chinese investors still only have a tiny percentage of their assets in equities relative to western investors. A lot of factors are in place for a strong long-term boom in Chinese equities.”
The first of several reports on Tanarra
By Malcolm Maiden