OPINION: Concerns about lack of growth in the mortgage market are behind the decision by Soul Patts to go underweight the big banks and overweight Macquarie Group.
Three things stand out in the latest half-year financial results from Washington H. Soul Pattinson – the big bet on Macquarie Group, the $1 billion push into structured credit and the recognition that the capital structure of TPG Telecom is unsustainable.
Chief executive Todd Barlow says the key numbers in the result are evidence of the success of Soul Patts’Barlow highlights the 35 per cent increase in net cash flows from investments to $246.5 million, the 16 per cent increase in net asset value – which was 10 per cent higher than the index return – and the more than twofold increase in cash on hand to $597.3 million.
To fund its position in Macquarie, O’Dea says Soul Patts sold down its holdings in the big four banks. This sell-down was on top of the liquidation of about $436 million in large-cap shares.O’Dea says the underweight position in the big four banks is because of concerns about the growth in their mortgage books and not because of fears about credit losses.
“Over the last four months or so we’ve been increasing our cash on hand and really positioning our equity portfolio to be more defensive, and allocating a lot more of our portfolio towards private market assets, particularly structured credit, which we think offers a better risk-adjusted return right now,” says Barlow.
“But also the pricing is getting better. I mean, not only have bond rates increased materially over the last 12 or 18 months, the credit spread has widened. What we’re seeing is just better assets and more availability of assets”.
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