If there is one rule above all else that governs David Smorgon’s investment mantra, it can be said in two words: no surprises.
It was shortly after the catastrophic breakup of his family’s empire, Smorgon Consolidated Industries. And since then, Generation has invested in an eclectic array of businesses.
But its best and least known bet has been the millions it has quietly pushed the way of a deeply private Melbourne investment group known as Wingate. Some of the richest people on Collins Street know and love the firm. But it has never had a public profile. Until now.
“It is about trust and track record. The track record of Wingate is impeccable and the trust factor is high. That gives you confidence with whom you are dealing with. And they do what they say they are going to do,” Smorgon tells The Weekend Australian.
“You don’t get surprises from Wingate. Which reflects on their communication and their involvement with you as an investor.”
For the past eight years, Wingate’s founder and Smorgon’s close friend Farrel Meltzer has also chaired the Generation Investments board. Meltzer founded Wingate in 2003 after a successful career as an investment banker, including roles as head of ANZ Private Bank and group managing director of Investec Bank Australia.
“I have the highest respect and regard for him as an individual and as a leader of an investment group,’’ Smorgon says.
“And Farrel from day one has recruited people of high integrity and excellent experiences to Wingate and he has moulded a very good team,” Smorgon says of Meltzer and his 80 staff.
Wingate has become an investment house of choice for a string of high-net-worths, family offices and more recently institutions across its four arms of funds management, consumer finance, property lending and private equity.
It now also has a presence in Sydney as well as its home town of Melbourne. Its point of difference is that the firm invests its balance sheet and its principals’ and shareholders’ capital in deals together. And it is best known among rich-listers for its property lending business.
“Many will evaluate risk, price it and pass it on to someone else. Our view is different. If we don’t like the risk, we don’t do the deal and that’s what our co-investors like about us. That permeates everything we do. It always has,” says Wingate managing director Ryan Levin.
Now the firm is seeking more sophisticated investors to back its Wingate Investment Partners Trust (WIP) funds, under which funds under management have grown from an initial $5 million to $250m since 2012. WIP invests in a diversified portfolio of secured debt with contractually determined outcomes, offering returns that are uncorrelated to volatile financial markets.
The performance of the WIP Number 1 fund since its inception is 12.9 per cent a year over almost four years. Wingate is now up to WIP number 3, for which Levin has bold ambitions.
“There is no reason why it could not get to $1 billion. We are doing $250m-$300m a year of new investment and growing. That would suggest we would be of that size in three to four years. But it is more about growing at the right time and the right place rather than growth for growth’s sake,” he says.
Seek co-founder, Wesfarmers and AFL director and Square Peg Capital principal Paul Bassat, another Wingate investor, says the firm’s team “has done an outstanding job of sourcing attractive investment opportunities with a great risk return profile”. He says: “They have built strong long-term relationships with property owners and developers and this has underpinned the model.”
While some have described Wingate as something of a Melbourne Jewish investment clique, Smorgon says it is anything but.
“People say it is just the Jewish fraternity but you go to one of their meetings, and it is far more broad — there are lots of other well-known families and individuals there that are not Jewish,” Smorgon says. Ryan Levin prefers to speak of the firm as “a bit of an exclusive private club”. With an emphasis on the private.
“There is a sense of exclusivity among our co-investors,” he says. “Naturally as we grow we will be less under the radar but we aren't the type to be out there blowing our trumpet or advertising on TV.” He says the firm’s penchant for privacy until now has been driven by the personalities.
“And that has been driven by our team and our clients. They are private, our co-investors are private. So that is the nature of the beast if you like,” he says.
Levin says the biggest selling point of WIP in the current market is that it is a portfolio of highly yielding debt investments.
“We believe that each individual debt investment has a higher return than is warranted by the risk we are taking,” Levin says.
“When you add the portfolio effect, you’re getting pretty much the same return with lower risk because of the diversification. It is producing double-digit returns consistently in an environment where people are getting 2 per cent (on cash).” He says Wingate currently favours short duration investments to avoid the current “duration bubble”, in which long duration assets such as consumer staple equities, infrastructure and real estate investment trusts have been overpriced.
“Wingate translates long duration assets into short duration assets because of the debt secured against them,” he says.
“The average term of the investments is around 18 months. So they are quite insulated from market movements because they are debt instruments that are typically geared to well below the value of the assets they are secured against.”
Wingate now has interests in a pipeline of more than $1bn worth of Gold Coast high-rise apartments and last year provided mezzanine financing for the $68m redevelopment of a shopping centre in Byron Bay. In the five years after the GFC, it lent about $370m in 50 financing deals, secured against $3bn in residential projects in Melbourne, Perth and Sydney.
Levin says the local residential market is around its peak but that he does not anticipate a crash, rather a softening. “We are certainly more conservative than we have been historically,” he says.
In its private equity business, the firm’s most notable move was to establish a joint venture with the maker of Weetbix, Sanitarium, to launch its market-leading liquid breakfast product, Up&Go, in British supermarkets in January last year. More recently it launched gluten-free Weetbix in Britain.
The launch of the Up&Go deal was one of the only times Meltzer — one of the best connected people on Collins Street and beyond — has been quoted in the media. And he declined to be interviewed for this story. But Levin says that’s just the way he likes it.
He sums up Meltzer’s importance to the firm in highlighting his vision and his ability to make connections with people.
“He builds very deep relationships very quickly and those tend to be very often the source of opportunity and growth for the business,” Levin says. “That is really where Farrel comes into his own. I've never met someone with the ability to build as deep relationships as he does.”