Expert: Tim Samway – How a growth fund manager is reacting to markets

Bryce: [00:00:53] Welcome to another episode of Equity Mates, a podcast that follows our journey of investing, whether you're an absolute beginner or approaching Warren Buffett status. Our aim is to help break down your barriers from beginning to dividend. My name is Bryce, and as always, I'm joined by my equity buddy Ren. How are you going? 

Alec: [00:01:09] I'm very good. Bryce. I'm very excited for this interview. One of the, I'm going to say, most inspiring fund managers we've had on the show. One of the interviews where I really remembered why I love investing. We spoke about some of the best known companies the Tesla, the Spotifys of the world. We we spoke to this expert last year. Obviously, some of those names have sold off a little bit from there. So we've got him back on to talk about it and hopefully get inspired all over again. 

Bryce: [00:01:39] That's it. Our audience have been asking for this one, and it is our pleasure to welcome back to the studio. Tim Samway, Tim, welcome. 

Tim Samway: [00:01:46] Pleasure to be here. Thanks guys. 

Bryce: [00:01:48] So Tim is the chairman of Hyperion Asset Management. They're an Aussie based fund manager focussed on buying the highest quality companies at reasonable valuations. Hyperion manages approximately $13 billion, including in the interests of Disclosure and my co-host Ren here. You're in on the fund. I love what Tim is doing, so no pressure, Tim on this interview. Ren will be picking your brains. Hyperion Global Growth Companies Managed Fund is ASX listed. HYGG is the ticker and over the past five years has returned twenty five per cent per annum, beating the MSCI World Accumulation Index by nine per cent per annum. So yeah, it's been pretty fascinating, but we are here today today to talk to Tim about what's going on in markets and particularly the, I guess, the fall in the some of the growth stocks in the fund and how you're viewing it all, Tim. So Ren, let's kick off. 

Alec: [00:02:45] Yeah, let's let's start broad and then we'll get into some of the specific company names. Tim, let's say you've just come back from Canada where you weren't working. Let's say, you know, Bryce and I've been in Canada for six months, haven't looked at markets, haven't picked up our phones or opened a laptop and then we come back in the market is what it is now. How would you explain or how would you summarise what we've seen over the past six or 12 months? 

Tim Samway: [00:03:12] So, you know, I think I'll go out on a limb and say, we're actually now post-pandemic, even though there's cases, I think it's post-pandemic. And so there's been a plethora of demand and and short term growth or is as a result of all that government stimulus, the process of supply catching up with demand has resulted in shortages and and bottlenecks. We've seen wage increases as as employers chase scarce employees. It's fair to say that the lack of, you know, the lack of immigration on the last two years hasn't helped. And freight costs have gone through the roof. So and that's added to the cost of goods. So the oil price has spiked as OPEC has restricted supply and there's now an extra surge due to the war that's unfolding in Ukraine. That's basically the resulting fears of a Russian oil and gas disruption. So they've caused a spike in inflation, and the fear is that that inflation will get out of control. So it's fear. Basically, it's fear, fear of inflation. And central banks normally respond to inflation threats with interest rate rises, and there are companies with long term earnings growth prospects, the sort of companies that we buy. Let's group them into a bucket, I guess, cold growth stocks. These are companies that are still building their competitive positions so that the big cash flows will come in the future. So, you know, not so profitable now, but very profitable in the future. And those companies are very sensitive to long term interest rates, higher interest rates. All other things being equal means lower valuations and prices share prices for those companies due to the long duration of the valuation. So a change in interest rates really affects valuation much more. When you're looking at over ten years rather than just the next couple of years, that's sort of the compounding effect. Rather than a company like a value stock where everybody's only looking out the next couple of years and perhaps mean reverting the the earnings. And there's some uncertainty. cyclicals, for example, a company that can do well for the next couple of years. And that's why we've seen such a big rotation from from growth companies to value companies since, let me think, the last at the end of November. But interestingly, there hasn't been a large. Rotation in the flows from investments into growth funds, into value funds, so it kind of tells me that there's this is not such a this is a short term trade rather than a long term secular trend that is, there's a hell of a lot of people think there's a trade in this. Let's let's make the trade. Mm hmm. I guess that that would be my summary of what's happened in the last four months anyway. 

Bryce: [00:06:17] As always, a lot going on, particularly at the moment. But look, Tim, as a long term investor, you sort of have your average holding period of 10 years for companies in your portfolio and you mentioned there that you're really playing in that growth stage. So how are you approaching this sell off at the moment and thinking about the companies that are in the fund? 

Tim Samway: [00:06:37] Well, I mean, know we haven't changed. We don't change our spots. It's an opportunity to build positions in outstanding businesses that are being sold off on macro fears. I'd argue that a lot of it's sentiment will I'm assuming we're going to get to some companies in a bit? So I'll talk to some of the results we've seen in earnings season, but I think a lot of the fears that are causing the sell off are actually unlikely to eventuate. And certainly, I mean, some of them will that there's some steps along the way, but not to the extent that everybody is fearing. But having said that, we have reduced our cash holdings. We've invested in our strongest names for the long term because that's what clients pay us to do. So removing investor behaviour is really this is the time where actually sticking to your process and not getting into that invested that natural investor behaviour is very important. So I'll talk about some of the stocks we have sold down and the reasons we've done so. And but we'll get to that, I'm sure. 

Alec: [00:07:41] Yeah, let's move to, I guess, some of those individual names, but I want to frame this part of the conversation in a guide to long term investing that we came across on Hyperion website titled Investing in a Winner Takes All World. So as we get as we get to the individual names, the companies that you hold in your portfolio would love to sort of frame the conversation in this winner takes all world concept. And I guess to start with, can you explain why we're in a winner takes all world and how does that sort of inform your view of long term growth investing? 

Tim Samway: [00:08:18] Sure. So, okay, how do I put this in any picture? They'll be companies of varying quality. So and normally the variances in the quality and the duration of their earnings will take be taken into account by the market and expresses the current price in some sectors. However, one company can create a competitive advantage a sustainable competitive advantage that creates what's called a P&L relationship between it and all the other companies. And what I mean by that is that it's not a term that I guess everybody would have come along the expression P&L or but it's when one participant in some particular market accrues a very substantial proportion of the market share or the revenue, particularly of a market and the other all the other participants fight it out for second place. In a way, it's a bit like sport. So say take a sport like tennis, like men's and women's professional tennis, perhaps where the same few players seem to win most of the tournament, they win most of the prise money. They get most of the sponsorships. But if you actually watch a lot of tennis, you realise they actually only win by a couple of points every time. There might be a game or two in it, but the same people tend to win most of it because they've got that lead there and they win a disproportionately larger amount of the winnings than the loser. And it's the same principle with the companies so. So identifying businesses that can become a winner takes most business is essentially Hyperion goal. And a lot of people spend a lot of time talking about network effects and platform businesses and new age businesses that use data really effectively to satisfy customer needs, particularly as a way of identifying. But actually, in spite of the fact that the network effect, for example, is very powerful and I'll certainly talk about that. But the reality is it's about finding businesses with very durable competitive advantages. And one of the best competitive advantages we find is a great product, like a very superior product where a company is spending a disproportionately larger amount than their competitors on keeping their product ahead of the rest of the market. So it's reinvesting to maintain that superiority. And because of that superiority, they end up in a position. Where they attract the capital, they attract the intellectual capital, particularly in these take it, you know, database businesses. And so it enables them just to stay one step ahead. And also it gives them optionality that is, you know, the ability to start other businesses. It's sort of the for want of a better word. It's the Amazon effect. You know, it's like we wave relentlessly trying to come up with new ideas. Oh, look, Amazon Web Services, let's start that. Well, it's basically delivering most of the profit of the company now, you know that sort of thing. 

Bryce: [00:11:23] So, Tim, let's take a look at some of your top holdings. And when we last spoke, Tesla was the largest holding in your fund. Firstly, is this still the case? And then do you still think that Tesla is the winner? Takes all? 

Tim Samway: [00:11:40] Hmm. So not no change. It is still the largest holding, and that's in spite of the fact that the car manufacturers all around the world are really pushing very hard to to produce EVs. They actually possess that first mover advantage. And it's not just in the car, it's actually every part of the supply chain in the car. So it's it's the batteries, it's the motors, it's the software, it's the distribution, it's the cost of production, the margins. And they've only just started to ramp up production. They're about to open two new factories and they've got unmet demand. That is, they're outselling other EVs, just they're all around the world. I've just been in Canada, I was in Vancouver. It's just ridiculous how many Teslas are driving around the city. I mean, every full car seems to be a Tesla, and it's the first time I've actually stood in front of a model on the Y and had a good look at it because they're not out here yet. And I just thought, Oh, I love that car. That's a terrific looking like a little X. And, you know, it's just not, not a monster, so. So, yeah, so they're opening new factories in the US and Texas and in Berlin. And that should help them cement their position. I mean, the work they're doing on on self driving full self-driving is groundbreaking. They're the leader in using artificial intelligence and cameras to use the car. So most other manufacturers are looking at using some mixture of technology, light and cameras. And it's just outstanding what they've been able to produce. And the argument, I mean, this is the argument for podcasts. I must admit, I have listened to a couple of podcasts recently where Musk was interviewed, and it just cemented in my mind how far ahead they are than everybody else because they're really doing fabulous stuff. I mean, if you doubt me, go to YouTube and look up, what would you like a full self-driving Tesla? I think the latest beta is ten point nine beta ten point nine, and watch some of the videos of people driving around in American city with, you know, effectively full self-driving. It's the artificial intelligence is, is is so well developed that it can actually take into account modifications from what's actually on a map, for example. So it's reading the road and quite complex changes. So if I had to summarise it, it, you know, I'm not trying to be insulting to my now 18 year old daughter because she's a fabulous driver now. But when I was teaching her how to drive, Tesla's now would be about the same level as a 17 year old her at about a month after she started driving. That is, yeah, most driving fine. She can drive around the town. She Can do left, turns right turns. But every now and then something happens. You know, there's a car parked in the left lane, you're turning left or the lights, and they were illegally parked there and she drives up behind. And I say, Darling, that's that's a park. They're not turning left the blinking, so you need to go around them. Yeah, or quick flat floor. If we can get around here, you know, like that's the part they're working on. But if you actually listen to some podcasts with Andre carpathy, I think he's the senior director of senior director of AI with Tesla, though theyre actually using AI to train AI with auto labelling. I mean, it's just mind blowing. How they are advancing the use of cameras and artificial intelligence. What's the point of this? Well, robo taxis are just going to just going to disrupt every part of the transport industry like it'll be from everything, from the normal drive you daily drive to to buses and trains, it'll just disrupt them completely. I mean, you know, I own a Tesla, and all it needs is an over-the-air upgrade to become a robotaxi and work all day on my behalf. Good luck with that one, Volkswagen. 

Alec: [00:15:48] We featured a couple of clips from recent earnings calls. One from Tesla, where Elon said he thinks that the self-driving update might be the biggest increase in asset value of any asset class in history. And then we featured the GM CEO who thinks their self-driving taxis will be a $50 billion a year business by the end of the decade. So it's pretty exciting how fast all of this is coming down the pike. 

Tim Samway: [00:16:17] Yeah, I bet on Elon getting there first, though. 

Alec: [00:16:21] Yeah, well, he said. He said I think went off script and said he thinks it will be this year. 

Bryce: [00:16:26] So classic 

Tim Samway: [00:16:30] whether it's this year or next year. I reckon it's, you know, it's so close that you can almost touch it. So, yeah, 

Alec: [00:16:36] yeah, now we just have to be able to 

Tim Samway: [00:16:39] hold it. It's underpriced in our view. And that's not investment advice, just announcing that

Alec: [00:16:45] we're going to be speaking about a lot of individual stocks. So that's an important disclaimer to put across everything. We could talk Tesla all day, but let's move on to some of the next biggest holdings in your fund. And if we're framing this conversation in looking for long term winner takes all stocks, then the next three big companies in your fund are well and truly winner takes all companies Microsoft, Amazon and Alphabet. They've taken all and then some in their respective markets. So I'm not going to ask you how they're going to keep, you know, winning. What I want to ask you is the opposite. What what's the risk when you look at those three giants trillion dollar companies dominant in their respective markets? What could cause are Facebook like 50 percent drop from all time highs? What are what keeps you up at night about these companies? 

Tim Samway: [00:17:36] Well, I thought this earnings, I should correct you that the biggest three holdings today are Amazon Block and Microsoft. OK, so we've actually lowered our weighting in in Alphabet Google. And that's because the data restrictions they're facing as a result of the changes to us by Apple and the privacy changes. So I'll keep my comments to Amazon Block and Microsoft. So the biggest risk for all of them is that they take or take their eye off the ball in their current product and spend too much time improving the future product. You know, Horizon two and Horizon three businesses, that's going to be, I think, the biggest challenge that we've seen that would mirror, and I will cover off on that in a second to because that's that used to be a 12 percent holding a couple of years, you know, in our portfolio and it's now a two and two and a half percent holding. And the very reason it is that is because we think made Facebook has put too much time and effort into the future. But you know, we might cover that in a minute anyway. But so first mover advantages and network effects are really powerful, but you can lose them if the competitors leapfrog your product or service. So, you know, we like all those three businesses for their levels of optionality, you know, as a result of ridiculous cash flows, their retraction of intellectual capital, as I said before. And they're just the general culture of innovation. But they have to keep producing great current product because I think that's the concern. For example, with media, you know, Facebook and Instagram are super powerful platforms with billions billions of monthly active users, but a focus on the metaverse and taking the eye off the ball and we continue existing product has allowed Tik-tok to steal a billion users, a billion users. So right under the nose of them. So, you know, like, that's you. That's your challenge. Yeah. And that's our greatest fear. Is that a business that's got a great network effect is beautifully defendable. One loses trust or, you know, and that could be the Facebook problem or just spends too much time on the future and not enough time on the current. 

Bryce: [00:19:56] So some experience positions have been swept up in the growth selloff. No surprises, but we'd love to do a very quick speed round where we throw out some of the companies and you let us know one. If the sell off has actually affected your view of the company and then to how they will be a winner takes all company in sort of 30 seconds or less if possible. So let's start with PayPal, which is down roughly about 66 percent. Has it? Has your view changed? Is it still a winner? Takes all.

Tim Samway: [00:20:32] Okay, so all time highs are not good starting points. It's called anchoring. That's classic investor behaviour, historical reference points and measure the current situation against it by really saying PayPal's down sixty six percent from its high is actually no different from saying it's. Up one hundred and fifty five per cent since listing. That's how I think of the conversation we can agree on. You got to ask me a bunch of these questions, so I'll just I'll I'll draw conclusions about its future because we can't do anything about the past. So Meta and PayPal are the only two disappointments in our portfolio in the last four months. PayPal lost some focus on its core business, and it was a miss on the number of new accounts. They've got a fabulous opportunity to monetise four hundred and twenty six million active accounts, and that includes thirty four million merchants. It's got a great first mover advantage, so the future looks good. But I think the fall has much more to do with sentiment and macro factors referred to earlier than the terrible result. So while we've let the white fall in the portfolio with the price fall, we're not a seller. 

Alec: [00:21:41] Well, let's move and we won't talk about all time highs again. But let's let's move to block now the owner of Afterpay. What are your thoughts on them? Are they going to be a winner? A winner takes all. 

Tim Samway: [00:21:57] It's been operating in of the information vacuum since November has been nothing. When they finally put their result out, the other day went up 40 per cent in a day. Like This is madness. And then it's back again. Macro factors at work. This is just the thesis on block hasn't changed. It's a modernisation of banking stealing market share from, you know, incumbent banks. The thesis also applies to Visa and MasterCard, although the upside is not as considerable as with blockchain and PayPal. And that's why we have Visa and MasterCard at smaller whites, but no thesis hasn't changed. They go under thirty six. 

Bryce: [00:22:33] Not perfect. So we've spoken about matter, a company that splits our opinion in the group. So let's just move to Spotify. 

Tim Samway: [00:22:41] I should say on Midha, they need to bring the focus back to the advertising business. You know, they took staff and move them to reality labs. They need to keep focussing on on the rivers of gold, which is advertising, Keep going. Sorry, I'm just not like a good commentator. 

Bryce: [00:22:57] That good conversation. So another one that's been making headlines, Spotify announced, but it's not nice. Well, that's all you need to say. What do you think? Yeah. 

Tim Samway: [00:23:09] Look, that was a surprisingly good fourth quarter result with good user growth. The margins were improving. Revenue was up 20 something percent. Twenty three twenty five percent. Monthly active users up to four hundred and something I forget the number four and five for six million active users. They're on a target to reach a billion users. All the signposts of good. No change to our view. 

Alec: [00:23:34] Yeah. And then the final one, one that isn't really present in our lives in Australia, but gets so much buzz in, I guess, the investing world. Roku, what are your phones? 

Tim Samway: [00:23:48] So the shift to the shift to on demand from linear or physical content continues and who sits at the heart of that? It's competitive advantage is largely derived from the data it collects. I mean, seriously, it can deliver advertising based on age six where you are what you're watching. That's really powerful. It's the market leader by a big margin. And the data keeps it there. No change to our thesis that the drop in sentiment. 

Bryce: [00:24:21] Mm. It's an interesting opportunity. It's an interesting company. But look, there are plenty of companies in your portfolio, Tim, that are lesser known names that we'd love to spend some time unpacking. So we're going to do that just after this break where we hear from our sponsors. So, as we said, plenty of lesser known names, some small holdings that aren't often spoken about in the Equity Mates community, so let's have a chat about those. A company we'd love to start with is Intuitive Surgical, which is one of the coolest $100 billion companies that few people have actually heard of. So can you tell us a bit about the company? 

Tim Samway: [00:25:01] Well, you already started hearing it. If you know, if you're a man of my age, when you start thinking about things like prostate cancer and you know, the stuff that you don't want to think about the somatic is the modernisation of health care. It's basically improving surge surgery and surgery techniques. It enables physicians and hospitals to improve outcomes for patients. So it's a robotic surgery. They've got a product called da Vinci. It lowers the total cost to treat each patient episode. It's a robot technology. It's got better. Imaging takes out the tremors from like a surgeon has tremors. It takes all of that sort of stuff out. It's ergonomically designed, so the surgeon doing difficult surgery doesn't need to, you know, in a weird position to do it, they can actually stand comfortably looking at a screen. And the system does it, and it does it through a small hole. Better outcome like it works for the patient. Better outcome. It works for the surgeon. Better outcome and the hospital gets more successful outcomes. And lots of health funds pay hospitals on good outcomes studies. They penalise them on bad outcomes. It's got a first mover advantage. What else? I mean, it's got it's got nine million procedures. Headstart on on its competitors, like most of its competitors, don't even have FDA approval yet and won't for a couple of years. It's already got hundreds of these units sitting out there in training hospitals, training surgeons like they'll be surgeons who who will never use anything else because they've been trained on it. That's just a wonderful first mover advantage, you know, in Apple. 

Alec: [00:26:41] And if people don't know what we're talking about, it's definitely worth a Google image search because it's pretty crazy to look at. 

Tim Samway: [00:26:49] Oh, it's outstanding. 

Alec: [00:26:50] Yeah, it's it's amazing. 

Tim Samway: [00:26:52] Some other things, too, but that's the big product. They've got another one a bit like that, like you don't want, you don't have half an hour on 

Alec: [00:26:58] this, you know? Oh, what? We are Bryce is clearly just Google. Look, we do have a lot to cover, but one when we're looking at Hyperion is portfolio one of the interesting things we found. Well, I guess we assumed was that you have a clear thesis on luxury goods. Hyperion owns a Hermes carrying and LVMH, three of the biggest luxury goods retailers in the world. So can you talk us through your view on on luxury goods? 

Tim Samway: [00:27:29] So it's just built on the structural demand for luxury products? I mean, the reality is it's very resistant to cycles. I produce very high quality products. They've got decades of experience doing this. Some of their products are aimed at a social set that are really the top one percent. And you may may not be aware that the top one percent of American wealth anyway is greater than that owned by the bottom 90. That's a bit scary. So the wealth gap has hasn't been this large since nineteen twenty seven, so the average spend their money on luxury products and it's very resilient. We saw one company during the start of the pandemic, Moncler. We owned lots of reasons we sold it, but $6500 puffy jackets probably weren't going to sell well in the middle of a pandemic. But the reality is that hasn't been the case with, I mean, you know, Hermes. But they produce handbags that cost 30000 euros. 

Bryce: [00:28:32] And it's crazy. 

Tim Samway: [00:28:34] This is crazy. I mean, the collector's items and women line up for them, you know? So it's a whole organised sell. They sell for multiples of the purchase price if they're rare because you just kind of walk into a shop and buy them, you've got to be known. It's, you know, it's a bit like it's been like Ferrari, except we sold Ferrari to because we just didn't think they'd got their head around the ESG component, which is just not going to be able to build your business on internal combustion engines for the next 20 years because most countries will start phasing them out in 2030. California, for example, I may have this wrong. It's either 30 or 35. It's basically said no more internal combustion engines. What are you going to do there? I mean, Ferrari without a petrol engine can't say it. 

Alec: [00:29:19] No. 

Bryce: [00:29:20] Well, I'm sure we

Alec: [00:29:21] will say, yeah, they're not going to shut up shop. They'll figure something out. 

Tim Samway: [00:29:25] Yeah, yeah. I mean, they're already got hybrids, but it's challenging. So, you know, like our view is we don't want to be in a company that can have a permanent step down in the value of its capital because we've missed some company changing moment. And Ferrari, we saw that potential. But you don't I don't see that with these these ones, they don't big whites in their portfolio, by the way they've held their prices have held up so well, they're at very full valuations in our mind. So there's sort of two per cent holdings, each not like Tesla, which is at 12. 

Bryce: [00:29:56] So another thematic that Hyperion appears to be pretty bullish on is payments. We've spoken about Block, but you own both Visa and MasterCard. So why is this theme appealing and how remote do you think the risk of crypto and blockchain is to disrupting the payment rails of Visa and MasterCard in their market positions? 

Tim Samway: [00:30:19] We've looked a lot at blockchain, but it just doesn't have the processing speed to handle the number of transactions. I'm a big fan of blockchain as an idea. It's really clever. It's processing power is measured in the thousands of transactions per second, and Visa and MasterCard made millions a second until computers catch up. It's not a goer PayPal and block of added crypto, but the margins are ridiculously small. And so it's not a big contributor. I can't say Visa and MasterCard any crypto. I mean, I don't know. It's it's not. I don't know enough about what their innards look like to give you that insight. It's their rails. They, you know, they're terrific in what they do. I think both of them aspire to see customers travelling again because that's where they make most of their money. So would be a truckload out of me in Canada. Every time you shut the card down, they, you know, they just smash you. So yeah, that's where they make their money. 

Alec: [00:31:17] Bryce had to find a way to shoehorn crypto into this conversation, so we could keep speaking about growth stocks all day. But as well as Hyperion, you're also interested in, I guess we've grouped them as alternative assets, agricultural land, carbon. And so we wanted to sort of spend the last few minutes of this conversation talking about that. So you chair Packhorse Pastoral, a fund that is looking to acquire, I think now correct me if I'm wrong. Two million hectares of agricultural land over the next five years. So can you just talk? Talk to us about this work. Why agricultural land and how are you going on the journey to two million hectares? 

Tim Samway: [00:32:05] You know who owns lots and lots of agricultural land? Billionaires, why? Because it's grown at a compound rate of seven to seven and a half per cent per annum for the last 20 years. And actually, if you take longer periods and you go back and slice it into any 10 year period, you'll get somewhere about six to seven per cent, that's before the yield. That's just the underlying value of the land. Why? Because the product it produces is in demand as the world population grows and and countries in Asia take people out of poverty into middle class. They demand access to high quality food and protein. The demand for clean green product from Australia is is. So. But the sad fact is, over the last hundred years and actually longer 200 years, we've mistreated our agricultural land. Not not not out of any out of any malice. What we've done is we've brought over the management practises that we used in the UK, where it rains just about every day of the year. And we've just overused fertilisers and we've had lack of regard for soils. And our focus is just on the farmland that we can rejuvenate and regenerate by using natural practises. They've been proven this is this is not voodoo changing the way that you graze the cattle. We just add capital to business, to properties that are degraded. And frankly, it makes a huge difference. We can we can increase the number of cattle we run on it on each property that increases the yield and an increase increases the value of the property. It's a property play. But the nice part about it is if you do all these things right and you follow the formula, you will also add more grass and more leaf and more leaf through photosynthesis puts more carbon carbon dioxide into the ground as carbon soil organic carbon, and the government pays you for that as well in the form of Australian carbon credit units. And you know, last year they were trading at 14 bucks a unit, and today they're trading at 40 something a unit having recently hit 60. There's real money in this in the future. I mean, carbon is a longer burn story, but certainly the property play of buying cattle properties is actually good for the environment and cattle burp methane, by the way. So we're adding legumes that actually reduce the amount of methane, which is a very active greenhouse gas. So that's that's part of the process is to reduce the emissions but also get carbon into the ground and undo the damage that we've done in the last hundred years. We have an sequestered if that's the word, you can use millions of years worth of sequestered CO2. And what did we expect like there would be no consequences. It's called climate change, so we need to stop emitting the carbon by burning fossil fuels. But we also need to get undo the damage by getting the carbon dioxide back into the ground. 

Alec: [00:35:06] So Tim, for those of us that can't buy wood, can't quite afford agricultural land or don't own agricultural land to get carbon credits ourselves,

Tim Samway: [00:35:16] why do we have a fund for goodness? Yeah. Well, I was 

Alec: [00:35:19] going to say there are there are ways for retail investors to access your fund. There's some listed agricultural plays. One of Bryce is best. Best investments of last year was an ETF tracking the carbon price for people like Bryce and I who are interested in, I guess, the the investment opportunity that comes from these decarbonisation initiatives. How do you think about some of those options and are there any sort of watch out for us as we navigate this, this world of alternative assets? 

Tim Samway: [00:35:54] Absolutely. So the first starting point is self-education. It's new in terms of the carbon sequestration component packhorse has has registered is the right word, the largest soil organic carbon project in Australia, and it's only on 13000 hectares. So it's only just nice. And but I encourage you to read wherever you can on this. There's there's some books worth reading. There are plenty of articles. Go to our Pascals website. We just got loads of white papers and interesting information there to have a look through. I mean, by the way, Pexels Pastoral Company is an unlisted public company, and investments are only for sophisticated investors. So it's not just a standard retail product. I should say that up front, but there's plenty of education. We run ESG seminars where we talk about what this is doing for the future, and I just think it's worth educating yourself. This is climate change is going to come and hit us between the eyes in the next seven years. I know everybody talks about one and a half degrees and two degrees. I mean, I get this all the time. What difference does two degrees make? But their average temperatures? The last Ice Age we had the average temperature dropped four degrees and there was two kilometres of ice above Manhattan. Wow. I just let that sink in. So average temperatures do count because it creates massive, massive changes. To the weather as opposed to the climate. So is it any wonder we're having one in one thousand year floods? This is all part of the whole process. So please educate yourself. I mean, that's all I can beg people to do is start reading as much as you can. This is going to be a hot. I mean, I will make one point. I also chair a business, call me, which writes public companies on the global carbon efficiency. And the one statistic that jumped out of me when that business was looking at global companies is that the trillions of dollars of unprocessed carbon risk that's sitting on balance sheets all around the world, that is businesses who are carbon inefficient. And when border adjustment mechanisms or carbon taxes finally come in as they will, they must will go broke. 

Alec: [00:38:07] Wow. Well, I think the yeah, the 

Tim Samway: [00:38:10] second half was negative, but but there's money to be made in this. Follow the money. Why did my Candace Brookfield make a bid for AGL? They didn't do it for the fun. It's a great idea and very good for the planet. I'm sure they did it to make money as well. 

Alec: [00:38:25] Yeah, I mean, the second half of this conversation talking about, you know, the existential risk of climate change definitely puts the first half of the conversation when we're talking about what software companies are going to win in perspective. But but I guess if we tie the second part of that conversation back to the first, you're obviously incredibly passionate about using investor resources to drive climate action with packhorse. But how do you think? How do you take that passion and then apply it back to these software companies and these growth companies you're looking at when you when you think about companies like Spotify and Roku who are, you know, software companies online? Yeah. How does that analysis work? How do you think about 

Tim Samway: [00:39:07] are ridiculously carbon light? So if you're going to invest in things, have a look at the efficiency of their carbon footprint now. That's not to say, I mean, I'm not the sort of person says, never invest in another fossil fuel company. We need fossil fuels. If you shut them all off tomorrow, millions of people in the northern hemisphere would just die from cold. So clearly, you can't do that. It's got to be a stage process, and some of them will make out like bandits over the next 10 to 20 years. And they'll be the really efficient ones who can suffer a carbon tax because they're so efficient in using the carbon. This is something people investors need to educate themselves about because there will be real money to be made on one side and massive amounts of money to be lost. When that carbon risk gets priced in our portfolio, we have a very carbon light portfolio that is very carbon efficient. Most of the businesses we've gone today have very light footprints when it comes to carbon, and we think that's super important. That's a that's a a standard tenant of of Hyperion processes to understand the carbon intensity of the business that they invest in. 

Alec: [00:40:17] So Tim, I'm going to throw one question at you without notice and completely fair if you don't have an answer front of mind. But when you were speaking about that billions or trillions of dollars worth of carbon risk sitting on balance sheets, I wonder, is there a company that has a lot of this carbon risk, this climate risk that might surprise us, that you wouldn't expect to have a lot of that carbon risk sitting on their balance sheet? But when you look under the hood, it really does. 

Tim Samway: [00:40:46] I'll turn it back on you, so I'll give you an example. So we've looked at companies like Santos, Woodside, they've got real challenges. Yeah, but there's a business called Saudi Aramco, which is ridiculously efficient in it because it's large, it has no debt and it's efficient and it rides pretty well on that. So that's why you've got to look just put every petrol company into a pot and say they're all rubbish. And yet there's one that actually writes better than half the businesses here in Australia that aren't in the fossil fuel industry. Wow. 

Alec: [00:41:20] We would not have expected to. 

Bryce: [00:41:23] There you go. People do. Well, Tim, we have reached the end of our discussion today. So thank you so much. I don't say that. Well, there's plenty more opportunity to come on the show, that's for sure. There's always that content. Train never stops, and we've got some exciting things coming up later this year that we would love to hear your comments and involve you in. So this won't be the only time this year. And but we do appreciate you jumping off a plane and speaking to us, I'm sure feeling a little worse for wear after all that jet lag. So thank you very much. It was. It was a lot of fun. [00:41:58][35.2]

Tim Samway: [00:41:58] Absolute pleasure.