Forbes Feature: How An Invite-Only Asset Manager From Australia Keeps Beating The Market

A great feature from Forbes picking us out of a global crowd. “Consistently generating annual returns in excess of 25% since inception in 2005.”

Original Article

In 2017, Standard & Poor released research that showed only 17.62% of large-cap funds in the United States outperformed the S&P 500 over a five-year period. The percentage of mid-caps and small-caps funds that beat their corresponding index was even lower, at 12.79% and 6.17%, respectively.

This data helps explain why managed funds have faced increased scrutiny in recent times, fueled in part by Warren Buffet’s much-publicized bet that index funds would outperform hedge funds over a 10-year period — one that Buffet ended up winning quite comfortably.

The takeaway is clear: managing money and beating the market over long periods of time isn’t easy.

However, among those funds that do outperform, a small number have risen to prominence by either consistently beating the market or making a few bold bets that have reaped exceptional returns. Ray Dalio’s Bridgewater Associates is a great example amongst hedge funds, while Kleiner Perkins Caufield & Byers comes to mind in the venture space. Though for every fund that is celebrated, there are just as many that go unnoticed.

An inconspicuous fund

TDM Asset Management is one such inconspicuous fund that I have been following for some time. Headquartered in Sydney, Australia, TDM has gained a reputation as a discreet asset manager that manages capital on behalf of a small group of Australia’s wealthiest families.

Operating a broad investment mandate, TDM invests in both public and private companies across different industry sectors and geographies, acquiring sizable stakes in businesses with clear growth trajectories.

Achieving outperformance in one sector, geography or market is a feat, though being able to effectively navigate across all of them isn’t common, especially for a boutique asset manager. Yet TDM has proven itself in both public and private markets, consistently generating annual returns in excess of 25% since inception in 2005.

Founded by Tom Cowan, aged 28 at the time, TDM was originally conceived as a vehicle for Cowan’s family investments, intended to keep him busy while he was bedridden and recovering from a serious back injury.

With AU$1 million ($790,000) in seed capital and several years of investment banking experience under his belt, Cowan set out to target listed growth companies, investing in the likes of Mineral Resources (ASX:MIN), an Australian mining services company that has grown its market cap from AU$110 million ($86 million) to AU$3.5 billion ($2.75 billion) since TDM invested in the company’s IPO in 2006.

Off to a fruitful start, the fund was soon asked to manage capital on behalf of a small group of wealthy families from Cowan’s family network. A snowball effect quickly ensued and what started out as a small fund was quickly morphing into something much bigger for TDM.

Betting smart

Realizing the need to build a wider management team, Cowan was eventually joined by two of his close friends, Hamish Corlett and Ben Gisz — a move that the three had been discussing for several years.

Sydney-based TDM Asset Management has become the preferred money manager for some of Australia's... [+] most successful families (Photo Credit: Peter Braig)

Cowan and Corlett had met in kindergarten of all places, while Gisz met Cowan at Sydney University where both were undergraduate students. Despite the personal connection to Cowan, both Corlett and Gisz brought key experience to TDM, with Corlett joining from fund manager Caledonia Investments and Gisz joining shortly after from Investec’s private equity arm.

Still in their early 30s, the trio went onto make several significant investments that would catapult TDM into the ranks of Australia’s burgeoning asset managers. Though rather than ride the wave and aggressively solicit new investors, TDM adopted an approach of handpicking clients to ensure that each family was aligned with the fund’s values and long-term investment horizon, allowing TDM to concentrate on cultivating its investments.

In 2011, TDM acquired a 46% stake in Baby Bunting (ASX:BBN), a privately-held company and Australia’s leading baby goods retailer. As part of the investment, TDM recruited a new CEO and put a management incentive plan in place, while helping the company become an omni-channel retailer.

Baby Bunting was eventually listed on the ASX in October 2015 and has since yielded TDM an 8x return on its initial investment, despite its share price falling sharply in the past 18 months.

Another notable investment was Ellie Mae (NYSE:ELLI) Expanding its reach to the U.S., TDM acquired a 4% stake in the NYSE-listed software company that provides loan origination technology to American mortgage lenders. Initially investing in May 2013, TDM saw an opportunity to invest in Ellie Mae as a high-quality business that was disregarded following the fallout of the housing sector after the GFC.

The stock has gained over 300% since TDM’s investment and generated the fund an IRR of 80% over a holding period of nearly five years.

Other investments have included construction software company Aconex (ASX:ACX), which was recently acquired by Oracle, global athletic retailer Lululemon (NASDAQ:LULU) and more recently, Tyro, an Australian digital payments platform, which counts Atlassian cofounder Mike Cannon-Brookes as a major backer.

Invite only

Today, TDM manages in excess of AU$500 million (close to $400 million) on behalf of only 18 families, having never lost a client since inception.

Several clients hail from prominent business families or have retired from the executive ranks of some of Australia’s largest companies. This, in turn, has provided TDM with a uniquely skilled investor base, allowing the fund to go about pairing portfolio companies with select clients, who go on to become advisors and provide assistance to management, offering a rare type of value-add to TDM’s portfolio companies.

Thirteen years since TDM was founded in the living room of Cowan’s apartment, the firm has become the envy of local private equity firms and hedge funds alike. With a staff of 14 and offices in Sydney and New York, TDM is actively scouting the next generation of opportunities, while maintaining an active involvement in its 12 current portfolio investments.

As far as investors go, TDM maintains that having a small group of family investors forms a core part of the fund’s strategy and there is no real necessity to take on new capital. Though like any exclusive club, the harder it is to get in, the longer the line of prospective members. It’s no different with TDM.

Written by Chrystan Paul

About the author

Tom founded TDM Growth Partners from his one-bedroom apartment in 2005, driven by his admiration for investing philosophies like those of Phillip Fisher and Warren Buffett. Eighteen years and nearly 40 employees later, Tom leads the team alongside his co-founders and best mates, Hamish and Ben.

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