As at the end of December, Regal was managing $A18bn spread across long/short equities ($7.6bn), Credit & Royalties ($6.6bn), Real & Natural Assets ($2.2bn), Multi-Strategy ($1.2bn) and Private Markets ($474m). While Regal has traditionally been an equities manager, they recently pushed into Private Credit via the acquisition of Merricks Capital in June 2024, picking up ~$3bn of credit FUM. We liked the deal, given it moves Regal closer to being a diversified multi-brand, multi-strategy investment manager across different asset classes with scale. However, Private Credit is now an area receiving considerable attention due to ASIC’s renewed focus on disclosure, valuation methodologies, and general business practices.
This comes at a time when one of the Merricks funds, known as the PH Fund, has just experienced its first negative monthly return of -0.02% in February 2025. Although small, one of the selling points for private credit is its stable and growing performance, in part due to the illiquidity and pricing of the underlying loans, as well as the income they progressively generate. Small chinks in private credit funds can signal more challenging times ahead as loans are incrementally revalued lower. This is certainly something that investors in Private Credit should remain vigilant to, and a reason why MM remains on alert in this area.
Performance has been a core strength for Regal over many years, and this has driven FUM growth at a high rate. With an aggressive fee structure, good performance has been effectively monetised while FUM has continued to grow. Phil King, Regals CIO, has proven to be highly effective – he’s a very good operator, and it would be a game person to bet against PK when his back is to the wall!
However, all good managers hit speed bumps where things don’t go to plan. This week, Regal has been hit by a big bet on Opthea Limited (OPT), which has gone wrong. Regal owns 30% of the stock, previously worth ~$220m based on the 60c share price prior to this week’s suspension. That’s a significant bet for a Biotech company going through Phase 3 trials. If it worked, RPL was positioned for a home run, but it hasn’t, and there is now a high probability that OPT will go out the back door.
So far, they have disclosed three funds that held the investment: Regal Investment Fund (RF1), Regal Asian Investment (RG8) & VGI Global Investments Fund to varying degrees, which accounts for around $100m of the stake, and they’ve written the value down to 20c i.e. cut by 2/3rds. Regals Wholesale Atlantic Absolute Return Fund, which is a high-risk/high-return strategy we suspect holds the rest. This is understandably getting some airtime, and it’s not a good outcome nor a good look; however, in the context of the size of FUM Regal manages, it is manageable.
- While RPL is now managing some headline risk in Private Credit and now a big bet gone wrong in equities, the recent ~40% correction in the headstock we think is adequately pricing in these challenges.
MM likes RPL ~$2.50
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