Lessons learned over the last twelve months

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Anthony Aboud

Anthony Aboud

Portfolio Manager
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As we head into the new financial year, we feel really excited by the stocks and exposures we have in both the long and short book. However, if FY21 has taught us anything it is to keep an open mind and learn from where we got things wrong.

After contributing 270bps of alpha for the fund in FY20, Omni Bridgeway (ASX: OBL) was a poor performer in FY21 and detracted from fund returns. In a market up just under 30%, the OBL share price was down 23%. One of the attractions of investing in OBL is the fact that its investment case (as well as the investments it makes) are completely uncorrelated to pretty much any other asset class. 

OBL is a multi-year story, where the company is converting its balance sheet investments into a niche, global leading fund manager in the litigation funding space. While COVID meant that cases were delayed − and therefore settlements and realizations were also delayed − we believe the company remains on track to succeed with its business plan. On top of this, there was also a fair bit of negative press in Australia about litigation funders given the lobbying from insurers and big business around the Parliamentary Joint Committee looking into litigation funding. There was a lot of commentary in the press complaining how big a commission litigation funders and lawyers were getting in large class action settlements. Ironically, these companies are complaining about how the profit incentives of litigation funders are hurting the class participants (typically individuals who have been wronged by big business or governments).

It’s strange because without litigation funders not many of these class participants would have received one dollar of settlement, so it’s a puzzling logic. When I went to school, 60% of something was worth more than 80% of nothing. But I digress. This is not a simple story, and a few things need to go right. We are still slightly in the money on our original investment, however the stock hurt us over the past 12 months. On reflection, the key mistake here was not reducing the size of the position after its strong outperformance over FY20. In saying this, we remain positive on the industry and the quality of the OBL team and thus the stock remains a holding in the portfolio.

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