Ex-Macquarie Banker's Activist Hedge Fund Strategy Soars 42%

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(Bloomberg) — One of Australia’s most-prominent activist hedge funds is notching returns nearly double that of the country’s benchmark stock index, as the once-shunned investment style becomes increasingly popular.

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L1 Capital’s Catalyst Fund, managed by former Macquarie Group Ltd. investment banker James Hawkins, has gained 42% since its inception in 2021. The A$1.7 billion ($1.1 billion) fund is a portfolio of around ten stocks that aims to push for changes — such as boardroom shakeups and dividend increases — at companies it owns.

The fund is relatively unique in Australia, a market that hasn’t historically seen the table-pounding playbook of Wall Street’s corporate raiders such as Carl Icahn and Bill Ackman. Its focus on activism is bearing fruit at a time when the investment approach is seeing new entrants from billionaire company founders to giant agitating pension funds.

“Activism in Australia has evolved from having a stigma associated with it, to being accepted, and to now being valued,” Hawkins, a partner and head of the Catalyst fund, said in an interview from Melbourne.

The fund has become an early shareholder in a number of the country’s highest-profile takeover campaigns of recent years. It made a public call for Australian gas producer Santos Ltd. to mull a breakup in October, highlighting a lag in its shares versus peers. Woodside Energy Group Ltd. subsequently began to court the company for a blockbuster merger, though talks ended this year. Another win was spotting hidden value in New Zealand gas station operator Z Energy’s refinery operations before the company was taken over by Ampol Ltd.

Takeovers aren’t the only catalysts that Hawkins and his team focus on. The fund’s also willing to push for changes such as getting companies to bring new members to their boards, cutting corporate expenses, or boosting dividends.

The Catalyst Fund is up 42% since inception in July 2021 through the end of last month. Over that period, the S&P/ASX 200 Index has returned 22%. It charges a management fee of 1.28% per annum and a performance fee of 20.5% over the benchmark, according to its website. 

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Hawkins began his career as a corporate lawyer covering project financing matters before joining Macquarie’s principal transactions group, a team that deployed the bank’s own capital. Hawkins soon took the strategy to the US, investing chiefly in credit in the fallout of the 2008 financial crisis. In 2011, he returned to Australia to join boutique investment bank Flagstaff Partners.

Now, Hawkins is seeing interest from limited partners who are keen to invest in liquid strategies that can complement their core equity allocations. For all of the fund’s success, Hawkins said Australia remains off limits for many bigger investors as hedge funds in the US and Europe often have little interest in taking board seats in a far away time zone, while many of those with Asia-wide investment mandates see greater opportunity in Japan and Korea.

“All of our investors are very willing to listen to our investment proposition because we are a differentiated strategy,” he said. “We aren’t vanilla.”