The only thing more unique than Tim Callan’s pathway from football player to portfolio manager with PURE Asset Management is the fund he manages itself.

Founded in 2018, roughly eight years after the former Geelong player hung up his boots, PURE Asset Management’s Income and Growth Fund is Australia’s only convertible debt absolute return fund.

It’s a structure which Mr Callan told Reach Markets helps emerging companies access capital at more agreeable valuations than they might be able to source through the ASX.

“The ASX works as a funding mechanism for a lot of companies, but not all … It’s very much the ‘haves and have nots’ and it could be as simple as a company not telling their story properly,” he said.

“The outcome of that is a cost of equity which doesn’t necessarily represent the business.”

Many of these businesses have great potential and strong growth plans, which, with the right level of funding, they can readily execute, Mr Callan said.

This is where Mr Callan sees the role of PURE’s fund, to “break the nexus of reliance on equity markets”.

Investors benefit too, Mr Callan said, because the credit-based investment strategy limits downside risks and offers better risk-adjusted returns than standard equity investing.

“An investment can be underwater in an equity sense, yet provided a company remains in compliance with the credit facility, PURE gets paid quarterly interest, then receives the capital at maturity. While material equity value isn’t released in these instances, it still represents a positive absolute return for investors,” he said.

Mr Callan and his PURE Asset Management co-founders Mike Henshaw and Nick Berry initially sought to deliver a return of 15% per annum over a 3-5-year time horizon with the fund. To date, they’ve returned 19% per annum.

Volatile market conditions could benefit the fund

Although PURE Asset Management takes a sector-agnostic, bottom-up approach to stock selection, Mr Callan expects the current macroeconomic environment to help the fund source new investment opportunities.

“You’ve got inflation higher, rates going up, liquidity being withdrawn from the market, and a lot more unknowns with regards to geopolitical issues – that’s probably leading to more volatility,” he said.

“When you get volatility, you get more companies who are disappointed with their share price, which makes our funding solution more competitive.”

Even so, Mr Callan noted the fund is careful about which businesses it invests in, only lending to companies that are generating revenues and have already commercialised their product or service.

“We come at it a different way to most credit investors in that credit is the entry mechanism for us, and it’s a means to an end because we’re looking to invest in companies that ultimately we would like to hold the equity in,” he added.

“Ordinarily we invest over a 2-4-year period, with exercise prices struck at a valuation some 50% to 100% above the current share price. As such, we’re heavily incentivised to work with the company and help improve their cost of equity.”

Join Tim Callan this Friday, 11th March, at 12pm (AEDT) on our weekly The Insider: Meet the Fund Manager webcast to hear him talk about his favourite stocks, investment strategy, market insights and more. There will also be an opportunity to ask questions during the session. To book yourself in, click here.

Reach does not assume responsibility for the accuracy or completeness of any information provided, and the views expressed are not reflective of Reach Markets’ position

Sources

• PURE Asset Management, About