Welcome And Guest Introduction

SPEAKER_02 0:02

Welcome back to Finance Friends. I'm your host, Fabian, and this is season four. This season we're diving deep into the world of investing. Not just where to put your money, but how to think like a professional investor. We are bringing you conversations with highly intelligent, incredibly motivated investors with weekly episodes. Make sure you stay tuned in. On today's episode of Finance Friends Podcast, we had Mike Harut, who is the responsible investment manager at Munro Partners. They're an$8 billion Australian investment manager and they invest in global equities. Talks a lot about their climate change leaders fund and their transition to clean energy and which companies they're invested into. He also is a lecturer at Melbourne University in sustainable investment. The last year in the Climate Change Leaders Fund has done over 35%. Have a listen in to understand his investment process and some shares he's invested into. Good morning, Mike. Welcome to the Finance Friends Podcast. How are you this morning? Yeah, very well, thanks. Good to be here. Good to have you in the studio. We were talking a little bit. You've just returned from a trip from London, was that right?

SPEAKER_00 1:14

New York, actually. New York and uh Canada. So yeah, we're seeing some of the companies in our portfolio in New York and some of the companies that we are looking maybe to invest in. But and then we have a uh a lot of our investors are actually Canadian based. So um seeing some of them as well.

SPEAKER_02 1:30

Yeah, okay. So when you talk about Canadian investors, are they big pension funds? Are they wealth firms? Are they a combination of everyone? Everyone?

SPEAKER_00 1:39

It's uh more so the um the kind of the you know financial advisors, some family officers, that sort of thing. We are obviously looking to uh currently build out our institutional investor base in Australia and in Canada. So seeing some of those as um as well and uh attending a conference of uh foundations, endowments and so forth. So yeah, a bit of a mix.

Mike’s Path Into Finance

SPEAKER_02 2:01

Yeah, awesome. Um so let's maybe bring it back to the beginning. So study, was it always a passion for finance as a kid, or did that sort of evolve as you started studying and and started working professionally?

SPEAKER_00 2:14

Yeah, it's a good question. I mean, I so I studied commerce and law at at uni. Um I always my mum is a maths teacher, and my dad uh studied um physics and actually has a PhD in physics. So I was very much and we were new migrants to Australia when I was a kid, so uh I think maths was something that obviously is uh the same in every country. So and I think that was just something that I just naturally gravitated to. So I did have very much, yeah, sort of a maths background, and then applying that to finance was always um something that I found interesting. So yeah, I mean, I kind of went into uni pretty open-minded in terms of what I wanted to do, and then I just found that you know, finance was something that both intellectually interested in me, and I was also, you know, probably better better at the math stuff than the law stuff, to be honest.

SPEAKER_02 3:08

Because you obviously have uh had a successful career to date in the finance field. So, what was your first job out of university?

SPEAKER_00 3:17

Uh my first job out of university was actually working for KPMG, but that was just for a short time. So, my my real sort of first job, I would probably say, was working for a group called AXI, the Australian Council of Superannuation Investors, uh, which maybe probably many people haven't really heard of. Um, but it's uh it's a group that helps the Australian superannuation funds effectively steward their investments in Australian listed companies. So, like what does that mean? We talk about um, or they uh they are large shareholders in Australian listed companies, so 10%, up to 25% in your sort of average ASX company. So collectively they're a large shareholder, and really what Axie's role it was to effectively engage with them as a shareholder representative on how to um you know how these companies are actually thinking about alignment and corporate governance and those sorts of issues. So, how do you align the interests of the super funds with the interests of the management and the board kind of running, you know, the ASX 200, ASX 300? So that was my first role. Um, and it was a lot if we had conversations with directors of listed companies, which was a real um real challenge because they don't hold back in in their views, uh, and the and you know, they're obviously very seasoned people. So um you really had to um think quickly and learn quickly.

SPEAKER_02 4:45

Yeah, so from my understanding of that role, like you might hold a you know, investor briefing with you know the largest uh the the uh CI chief investment officers of the largest super funds, and then you'll have the management team of of uh of the ASX, Australian Sox Exchange listed company, and you give them opportunity and ask them questions on on their behalf, representing sort of the ESG elements of the company and how it runs.

SPEAKER_00 5:10

Yeah, right. Yeah, that's right, that's right. Uh and and really, you know, um directors are elected by shareholders, right? So really the directors in that sense have a uh strong vested interest, honestly, to you know, be responsive to the shareholders. And so, yeah, that's exactly the kind of conversations that we were having. Sometimes the individuals from the various funds would join us as well, but uh often it was just sort of uh us as the sort of representative talking to them. Yeah, talking to the kind of the boards of the companies primarily, a little bit the management too.

Why Boards Matter To Investors

SPEAKER_02 5:44

Yeah, and that would give you a good sense of what it's like to deal with management of of large listed companies.

SPEAKER_00 5:50

Yeah, it does because um yeah, and and you you really sort of see actually that um, you know, I think that there's a there's it really kind of gave me a sense of that distinction between like what the role is of the the CEO, the chief executive, and the what the role is of the board. You know, really I think the um you know the CEO is obviously there day to day, kind of managing that sort of long-term, you know, managing the company and executing on the strategy and so forth. But really, I think like often I think what's missed, uh, and what I'm trying to kind of build into my current role is um just that you know the importance of the role of the board. Like if you have a good board that's actually overseeing the management properly, that does give you I think a lot more comfort comfort as a shareholder. And um really it's just all about that alignment, right? So a good board helps with that alignment between the executives and the shareholders.

SPEAKER_02 6:43

Yeah, and sometimes we've seen um by a recent uh situation, I won't mention company name, but where the you know the board has been held accountable for the poor performance of the company as well as the the CEO, it seemed like you know they weren't necessarily acting in the best interest of of the shareholders.

SPEAKER_00 7:04

Yeah, I mean, um today my role is very much in uh global equity. So it's interesting. I've really um I've really to be honest, uh sort of lot uh I'm I don't have my finger on the pulse as much on how Australian companies are going. But yeah, I there are have been obviously some very large sort of high profile examples of where yeah, where that sort of alignment has really not been there and has um yeah, ultimately led to destruction of shareholder value, which is you know, really in in that sort of corporate from that corporate governance lens, that's what you're you know, you're trying to use these levers and mechanisms to help you trying to avoid those situations.

Future Fund Experience And Teaching ESG

SPEAKER_02 7:42

Yeah. And then from that role, where did where did you end up after that?

SPEAKER_00 7:46

Um so yeah, I went kind of uh uh I had a few different roles, but so I went from uh Axie to the Future Fund, which is obviously Australia's sovereign wealth fund. So I worked there for uh just under two years, again in a sort of similar role, um, helping the future fund at the time. It was only two people, now there's a much bigger team, uh, again to sort of integrate ESG to use their leverage as a shareholder as well to try to influence companies and try to improve that um alignment. I also yeah, I then kind of went back to um Axie, the where I was uh first. Uh, and then now, yeah, for four years I've been at the um yeah, Global Growth Manager, Monroe Partners. Um, maybe one other thing which I'll mention which could be interesting is that um probably about five or six years ago, I started uh a friend of mine in the industry and I started a course at Melbourne University for master's students around um sustainable investing, ESG, and a lot of these sort of topics. So um, yeah, that's been something that I've been fortunate enough to kind of be able to continue while I've been in this um in my role at Monroe too.

SPEAKER_02 8:53

Yeah, awesome. So can we touch on that uh at Melbourne University? What what what made you come to the decision that actually there's a a need for students to understand more about sustainable investing?

SPEAKER_00 9:06

Um so really uh so I did I did my degree, as I said, yeah, I did a commerce degree, I did honors, I did CFA, and really through pretty much all of that there was a pretty uh distinct lack of information around ESG. Uh and really where there was uh um conversations around ESG or sustainability, it was very much in this very narrow uh exclusion-based approach where you just say, Oh, well, there are some shareholders, there are some investors that don't like tobacco, and there are some investors that don't like fossil fuels, and you can exclude those from a portfolio. But um, you know, hopefully to what we've been talking about, is there's actually like a lot more to it than that. And um, so that was sort of the motivation, and so yeah, my friend Claire and I thought, why don't we try to kind of create something here? Um and really yeah, the university took a few years, but they were pretty receptive to it. And um yeah, it's it's really cool to actually sort of see um students kind of grappling with these topics and just getting a little bit more nuanced around these things than often I think is portrayed in you know in the media or in uh the sort of yeah, kind of more basic sort of discussions that sometimes happen and you know with respect to topics like climate change. Just get a little bit more nuanced and beyond the it's good or it's bad kind of uh discussion.

SPEAKER_02 10:36

Yeah, and so are you so you were lecturing? Are you still are lecturing?

SPEAKER_00 10:40

I still am, yeah. It's it's uh it and last year it was basic basically six weeks uh a year, three hours a week, um, and then we do a little bit of marking and things. But yeah, my my it's it's sort of like a side side thing. My my main role is um at Monroe Partners.

SPEAKER_02 10:55

Yeah, so so your role at Monroe Partners is very similar, understanding companies, is that right? Yeah, and and talk a lot about sort of ESG. So you get detail. Well, what's ESG is very different to different people, but can you maybe just give us an overview of what what you see as ESG?

ESG Defined With A Real Example

SPEAKER_00 11:11

Yeah, yeah. Uh so yeah, so my role at Monroe Partners really has sort of two facets. One is to help us integrate ESG types of issues into our investment. So let maybe just let me just give you a quick um overview of what that means. Like, so ESG stands for maybe we should sort of point it out, environmental, social, and governance, so corporate governance, risks and issues that that could be relevant to the performance of a company. That's sort of how we think about it. Like we don't think about it through an overtly ethical or impact lens. We just think that there are some things that have this sort of flavor that are relevant to a company and how it will perform over the long term. So let me just give you an example. You know, I said I was in New York a couple of weeks ago. We one of the companies that was there is a company in our climate change um sort of thematic portfolio, a company called Quanta Services. Quanta Services, what it is, is it's like tens of thousands of um electricians and people in you know hard hats installing uh electrical grid, um, network equipment, uh, renewable projects, etc. For that company, the most important issue is safety from an ESG perspective. So that's an S issue, so social issue, how they treat their workers and how they keep those workers safe. So that's obviously important for the workers and keeping them safe. But for us as a shareholder, why does that matter? It matters because safety actually drives their operational performance. If they can't perform safely, they have to stop their operations, it's harder for them to recruit good people. It's um it's in and actually for their customers as well. Like their customers demand them to work to a particular standard of safety. So for us as a shareholder, we look at ESG as that issue, as a topic for that reason, because we think that this is one of the things that will actually drive us towards a better company, finding a better company, finding a better investment. And so that's really the kind of core part of my role. And then, you know, maybe we'll kind of get into this um a little bit as well separately. So one of the things that Monroe Partners has is this climate change solutions or climate change leaders um strategy or fund. You know, we think climate change is an enormous investment opportunity that has you know many decades to run as we transition from one energy system into another one. Uh, and so we we think that you know that there are going to be many investment opportunities in this sort of area. So yeah, one role for me is to integrate ESG across all of our invest investments and all of our portfolios, and then the other part because you know um climate change is probably the E or environmental issue to sort of help our team find companies that are kind of benefiting from that transition to a low, lower uh carbon economy.

SPEAKER_02 13:58

Yeah, okay. So talking about that company you just spoke about, um do they publish their their this information or is it up to you to dig deeper and ask the management the questions that maybe you know the average sort of non you know non-institutional investor, as we might say, might not be able to out uh to locate this information?

SPEAKER_00 14:19

Yeah, that's a really good question. In this case, they do publish that information, but in a way that actually we found to be a little bit um hard to understand at first. So they they have this measure called um stuff that kills you. And when we talk to them internally, the S has a different um word, which I'll let people come uh figure out for them themselves. But stuff that kills you is like this kind of conglomer um conglomerated, I guess, a measure of injury rates, like are there fatalities and that sort of thing. So they do publish that information, but in that case, it's it's actually quite difficult to kind of compare it to um peers. So this was a company that we actually put onto our sort of engagement list to say, let's have a conversation with this company, understand like have there been any fatalities in their operations, you know, how do they think about safety, and just sort of unpack a little bit like what that stuff that kills you measure actually means. Uh so we yeah, we've had some success in, yeah, we think we've got a better understanding of what that is, and we can see like the important thing here is to just like look at the trends over time. Over time, yeah, just despite what's actually like a much busier workload for this company because of all the um electrification going on that needs a lot more grid equipment, despite that um really strong uh recruitment that they've had to do, additional work that they're doing, their safety performance um is actually really strong. So um, you know, that was an example where through that engagement we got a better understanding and and therefore now have a um you know more confidence, I guess, in that investment.

Building A Climate Investing Universe

SPEAKER_02 15:54

Yep, awesome. And and so how big is your investment universe? Like, because it's it must be the amount of if we we talk, let's talk about the the climate change leaders fund. Like how many possible investments are there in in in you know global equities at the moment and how do you then filter down to make a decision whether you invest in you know your your holders? Because it is quite a concentrated fund, is that right?

SPEAKER_00 16:19

Yeah, it is. It's a it's a it's a fund of um 15 to 25 names. Um the universe is you know, you just it's actually pretty hard to pull together the universe, honestly. So we're global growth investors, so we're looking for not just any global equities company, not just any um company that's kind of growing, but companies that are sort of structurally growing. So that sort of narrows the universe down. And then to kind of narrow it down further into that sort of climate opportunities, sort of thematic or area of interest. Ultimately it's about 250 companies that we, you know, that we have um uncovered, I guess, through our work. And really the key, just one thing that I really should mention here is that there are people that will, you know, for a very large feast, sort of sell you a list of here are all the companies that sort of help make this happen. But we've found honestly that A, a lot of that information is kind of out of date, B, it's quite narrow. So often, like, for example, companies that help install transmission lines, um, you know, which enable renewables to be put onto the grid, like so it clearly is helping enable decarbonisation, like that sort of company isn't always actually captured. Um so yeah, there are lists out there, but we've basically discovered um and continue to believe that it's hard to actually put that to you know, to just rely on somebody else's list. Like you've really kind of got to do the work yourself. Yeah. So once we come up with that universe, um, then it's really about just applying the standard Monroe Partners process, bottom up, and trying to find companies that really meet our objectives in terms of their growth uh trajectory and so forth.

SPEAKER_02 17:57

So when you talk about bottom-up, so you're looking at like what earning a revenue growth, earnings per share growth, yeah, the the the um, I guess the addressable market, et cetera. Yeah. Some of the key things you look at.

Munro’s Bottom-Up Stock Selection

SPEAKER_00 18:09

Yeah, absolutely. So our investment process is effectively, yeah, to once we sort of like narrowed it down to that universe, we really kind of bottom up look at um six factors effectively for every company. We look at you've got the two perfectly, uh the first two perfectly. So it's yeah, revenue growth, we want earnings to grow faster than revenue, which means that the company is kind of capturing some operating leverage effectively, like you know, they're expanding margins, etc. The other one that we look at is like earnings durability, which is um which is basically you know how volatile are the earnings through time. We you know, we prefer a sort of smoother ride. Uh, we look at control, which actually is goes back to really my early influences from um working at Axie. Like control is all about we're looking for companies that have founding shareholders that are still sort of managing the company because we tend to find that those tend to be better run companies. So that sort of control is agency theory alignment, exactly, like agency theory, agency risk, the whole, you know, 1930s, Berlin means um and all of that. That's how we run our business, and hopefully that's attractive to our investors too. That Monroe, you know, is sort of um, you know, our CIO, Nick, is the largest um effectively owner of Monroe Partners. So in the same way that we want companies to act like that as well. We look at customer perception, you know, what do the customers think of the product? And then the final thing um is this sort of ESG analysis as well. So all of those things kind of help us to determine what we think is the appropriate um earnings multiple for the stock. And then beyond that, we you know, we we look at the um we model the PL effectively, profit and loss statement. And uh we're looking for companies that can you know double their earnings over the next five years effectively.

SPEAKER_02 19:57

Yeah, okay. And that'd have you know great control over achieving that, and then less, probably, as you mentioned, you know, less cyclical earnings.

SPEAKER_00 20:07

Yeah, yeah. Yeah. Yeah. That's one of our kind of core sort of foundational beliefs. Like we think that um, you know, structural earnings growth and earnings growth generally is what drives stock prices. Structural earnings growth is m worth more than cyclical earnings growth. And then often you know, we find that often the market misprices the duration really of um the sort of structural winners. And there's a sort of there's this sort of tendency for the market to think that you know it's all kind of just going to mean revert, but we think that you know, for something like decarbonisation that happens over many decades, you know, it should present um you know multi-decade potentially tailwind for some of these companies.

GE Vernova And The Power Demand Shift

SPEAKER_02 20:48

Yep. Um no, thank you for sharing that. Appreciate that. So you did mention uh one company that you're invested into. Um maybe let's talk about uh your top holding in that fund. You said G Verona. Now I know nothing. Venova. Venova. Venova, sorry, my handwriting's not great. Can you maybe share I I don't know what they do, I've got no idea about that, and it's very rare that I'm not sure about a company. So I'd love to love to maybe share a little bit about it, how you came across that company and and what they do and the investment thesis behind it.

SPEAKER_00 21:18

Yeah, no worries. I mean, really um maybe just to start with the investment thesis, sort of shorter term. You know, the longer term view for us is you know, we do think that we'll go from this sort of higher emitting energy system to a lower carbon one over time. Short term, what really attracts us today is really the inflection in the US of electricity demand. So for 20 years, um the the demand for electricity in the US has effectively been flat. So any new demand sort of offset by A industries leaving the US, you know, like manufacturing, industrials, and so forth, which are all very energy hungry. Um Then also like energy efficiency, so you know, better light globes, that sort of thing, like all of that does add up and will continue to sort of add up. But now with AI and you know that sort of power required to run these bigger and bigger data centers with electrification. So, you know, if you have an EV or two in your garage, you're doubling your consumption of electricity, um, as well as that sort of US trying to re-industrialize, like to bring these industries back from China back into the US. You know, those three things AI, industry reindustrialization, and electrification, all of those are driving higher electricity demand. And really, our view is that you need effectively like an all of all of the above solution to that. So you need more supply from gas, from uh renewables, from nuclear, from storage, do things more efficiently. Um, and G-Enova effectively provides equipment that helps you know that helps sort of effectively try to sort of meet that supply challenge. So G Venova makes turbines for gas. Uh they also do electrical grid equipment, they also do um wind. So for us, you know, the the the the majority of their revenue comes from electrical grid equipment and wind. So for us, that sort of counts from our perspective in terms of fitting into this climate change leader strategy. Um but the but it's actually at the moment, to be honest, it's been the gas that's been a really big driver of um their performance. Not that they are necessarily sort of adding lots of capacity to make more gas turbines, but they're effectively making a lot more money on the gas turbines that they're selling because there is this sort of need to um, as I said, add electrical supply to the grid in the US, but also gas has this um you know important role at helping meet peak demand. So if you um yeah, um G-Venova effectively can make higher margins on selling their turbines, but then also on the servicing of the turbines as well. So bit of a long answer, but that's effectively kind of what we're going for. There's an inflection in demand, um, and G-Evanova provides many of the solutions to help meet that demand uh inflection.

SPEAKER_02 24:21

And imagine, you know, to re to create competition for this company would be very hard. It's not something they could, you know, competitive that can just pop up overnight.

SPEAKER_00 24:31

Yeah, exactly. Like these companies all suffered pretty much like near-death experiences a few years ago when you know, as I said, like it's been this kind of flat environment for many, many years. There are effectively three large gas turbine makers, and and similarly on the electrical grid stuff, and similarly on the wind, too, actually. Um, but yeah, just to give you an example using gas as the example, there are basically three companies that do that. Um G V, G Evanova, Siemens Energy, Mitsubishi Heavy. Siemens Energy, one of their competitors, which we've also invested in, basically had to be bailed out by the German government a few years ago because you know it's they were running at yeah, they were underutilizing their capacity, and you know, they weren't very profitable. So none of these companies have any incentive really to add new capacity. And I saw Given over a couple of weeks ago in New York, and that's basically the message. Like, you know, we'll sell you a gas turbine, but we're not going to be like putting together like some giant new factory to make more of them.

SPEAKER_02 25:33

Yeah, okay. So it's it's really it's like you said, it's you know, the supply will be limited. It's just whether the the price that they get for their for their the items they're selling.

SPEAKER_00 25:43

That's right, exactly. Yeah. And then they also can, I think, now increasingly sort of, you know, if you want a gas turbine, you know, get in the cube, but then also we'll sell you the electrical grid equipment, which you probably want anyway. Yeah, so too. So that there's that piece too, where they can really grow the market. Complementary revenue options.

AI Data Centres And Grid Build-Out

SPEAKER_02 25:59

So let's you talked about uh sort of AI data center build outs. So this it's been a hot topic in the press, and yeah, you know, there's a lot of debt required. I think Amazon raised some some capital recently and some other these big, you know, I said say Mag 7 or big US tech companies that are building out data centers, uh which obviously creates opportunity. But you know, is there a you know, maybe can share some insight into what you're seeing in in this space?

SPEAKER_00 26:32

Yeah, I mean, uh at a high level, what we're still seeing is the capex for a lot of the sort of hyperscalers, you know, Amazon, Microsoft, um, Meta, etc., that CapEx continues to go up. And really um what we like about these sort of um electrical equipment and sort of the companies helping to solve the sort of electric electricity part of the solution is um, as I said, like it is more consolidated in in some parts of the industry, it's sort of hard to replicate in the same way that it's hard to replicate a G even over um you know grid equipment or gas turbines, it's also hard to replicate you know the the people from Quanta that I talked about in the hard hats actually um putting this stuff together and connecting it to the grid and all of that. Um so yeah, so I think you know, if you were speaking to our CIO, Nick Griffin, you know, he would still say that we do still see you know the kind of capex from these hyperscalers continuing to go up. Um they they're you know they're in an arms race and they've been in these sort of technology arms races before, and um they've always sort of been willing to spend a lot of money effectively on them. Um so yeah, so we think that that does continue. I mean the the the nice thing really about some of these um companies in the in the in the fund today is that it's not just as well, it's it's also like not just the AI AI that's driving that um you know real reacceleration in electricity demand. It is also yeah, it is also that sort of electrification of not just cars, you know, um, but also buildings and things like that, which which provides it another tailwind for these companies and that reindustrialization and that sort of you know, that kind of like policy priority of the Trump administration to you know bring it bring um jobs and manufacturing and all of that back to the US. So it's it's not just the AI that's driving these companies, but it yeah, it is definitely part of it. And we still continue to be positive on the AI piece.

Policy Whiplash And Active Turnover

SPEAKER_02 28:41

And um in obviously Trump's uh in his second term and coming up to midterm elections at the moment. Yeah. If we do get you know the next president that comes back and he's a big you know bullish on globalization, does it does it change your investment thesis a little bit? Or it's just uh you just something you reconsider at that point in time?

Oil Prices And Battery Winners

SPEAKER_00 29:00

Yeah, I mean, especially uh it's probably a good opportunity just to um to talk briefly about you know that we we are an active manager and the turnover in this fund across all of our strategies is actually reasonably high. But so but one of the things that I just mentioned in this case is you know, this is a fund that's all about companies that are helping enable decarbonization and climate change. And so the whole policy piece has been really like a wild ride. You know, when I joined in 2021, it was, you know, um, you know, Joe Biden, and then he brought in the Inflation Reduction Act, which is a huge stimulus for all sorts of green spending, green capex, etc., like really supported this whole industry. Donald Trump kind of comes back, climate change is a scam, and you know, you sort of think like the whole area is is dead. Um, but we've been managed, we've managed to sort of navigate that reasonably well, you know, to Nick and James's credit. Um so yeah, so I think that we know we continue to be kind of attentive to I guess what's happening on the sort of politics and policy side. Um on the kind of globalization piece, I think it has been really a consistent like bipartisan piece, honestly, probably since um late in Obama's administration, that sort of US-China thing. So I don't I don't re I'm not an expert in the geopolitics of all of this, but I don't really personally think that that's likely to radically change anytime soon. And then if the politics in the US does change and it goes back to the Democrats, like you know, from a policy perspective for climate change sort of policy support, that can only be a positive. Yeah, of course.

SPEAKER_02 30:38

And and so it's the uh we're not sure when we'll release this uh episode, but it is the 17th of March 2026 today, and there's all prices above a hundred dollars, US dollars, a barrel on this concern around you know, the conflict in Iran and and um you know whether you know 20% of oil can actually be distributed across the globe.

SPEAKER_00 30:59

Yeah.

SPEAKER_02 31:00

Um, that must be positive for your fund in terms of high oil prices. It means that you know the substitute greener energy becomes more viable.

SPEAKER_00 31:10

So yes, conceptually, yes. And I would say I'll give just one example, um, a company called CATL. I'm not sure if you're familiar with that, but this is this company is basically the largest producer of batteries globally. Um, so they make batteries for electric vehicles, they also make batteries for the electrical grid. And as I said, you know, on the grid, it's really that challenge of like meeting that kind of peak demand, which is hard to decarbonize, honestly. So CATL and their grid batteries really are a key part of that solution. So you'd think that you know, all L SQL higher higher oil price should mean um a you know more of a push by China to support a company like CATL because every electric, you know, every combustion engine vehicle that's substituted for an EV means less dependence on oil. And you know, the majority of you know Iran's um exports, my understanding is do go to China. So it's you're right. Like I think broadly speaking, yes, it's true that it should be positive for this fund. Um I just suppose that there are also obviously all sorts of macro factors that we have to think about. So if higher oil price means higher inflation, then you know we have a few utilities in this fund, you know, which we think still meet our growth uh trajectory. But uh, you know, utilities tend to do um you know well when there's lower interest rates. And so if you get sort of a higher interest rate environment, the utilities probably won't do kind of as well, relatively. So we are trying to not, I think you know, if James was here, he would say we're we're trying not to effectively overreact to all of this. Um so I don't think we've made really like super radical changes, but you're right, at the at the um, yeah, any any company that helps reduce reliance on oil in this environment, particularly for China, is probably, you know, should continue to be, you know, continue to do well.

Fund Track Record And Staying Nimble

SPEAKER_02 33:07

Yeah. And in terms of the the fund, you said 15, 25 holdings, and how long's the again, we're talking about the Monroe Climate Change Leaders Fund. Um, how long's the fund been running for? And can you share some insight into performance? I saw that up to February 2026, your one-year numbers were 35% and since inception 19.5%. Yep. So how long's the fund been running for?

SPEAKER_00 33:33

And yeah, so the fund itself has been running since late 2021. Uh, but Nick and James have been investing in this area of interest, as we call it, or theme, um, really, I think, since you know, late 2000s, so for for for a lot longer. Um so yeah, so yeah, we've been sort of very um happy with the performance. It's an area that a lot of things have changed that we wouldn't have necessarily expected. So through that period, we've had uh you know, big increase in interest rates, which sort of obviously hurts higher uh you know utilities and also sort of high valuation stocks. We've had like a full 180 in the uh policy support for climate change in the US. Um the rest of the world has actually been much more um I guess predictable and hasn't changed too much in terms of the policy support. Um and then I think the other thing that obviously we wouldn't couldn't have predicted at the time was just this kind of um this energy electricity demand inflection and the and just the simple fact that you know apart from gas, all of this, you know, most of the solutions to meet this are low-carbon solutions. So um yeah, it's been it's been one where definitely the active management has helped us a lot. Active management, you know, our stop loss process, which I can go into all that sort of thing, has really helped us a lot at um achieving that. Because if it was just like a, you know, you've seen lots of these sort of similar kinds of funds that are more passive, I think, um, just sort of struggle just because of the quality of some of the kind of solar names, electrical vehicle companies, that sort of thing. You've had to be very, I guess, um, yeah, nimble and that sort of looks look at things bottom up to find the actual um winners that can be profitable in this area.

SPEAKER_02 35:25

Yeah, and also the long-term value because there must be a lot of volatility in these stocks. But you know, the if they're able to continually grow their revenue and earnings per share, etc., and there's there's demand for their product over the long term, then you, you know, the earnings will, the share price will follow the year.

SPEAKER_00 35:40

Yeah, exactly. Yeah, that's right. Um it's uh it's it's um yeah, we that's exactly like our philosophy. You know, we're looking at companies that can grow their earnings, that's what we're focused on. We're not sort of focused on the shiny new technology necessarily out there. Some of these companies uh have been around for a really long time, like you know, G Ivanova was an example that we talked about earlier. Quanta, you know, the people in the hard hats putting up transmission lines, another example. They're just like good, well-run companies that are profitable that are now benefiting from the structural tailwind. And so it's that sort of company I think that's been more successful for us rather than you know chasing the latest um, you know, transformative solution, that company that doesn't have any revenue, let alone profit. Yeah, yeah.

SPEAKER_02 36:29

And Monroe Partners, can you share a bit of information about Monroe Partners as a as a as a as a firm? Yeah, as a firm.

SPEAKER_00 36:35

Yeah, so um, so we are based in Melbourne. We have an investment team, which is all based in Melbourne, and we're global growth um equities and structural growth equities. So we have about seven and a half or yeah, close to eight billion dollars funds under management. And really, you know, all we're looking for across all of our areas is structural changes. So I think we've talked about it a few times, but the kind of classic example is you know, cash to card and the winners from that um transition in the same way that's how we think about climate change as a transition from um you know a high emitting um uh energy system to a lower emitting energy system, and who are the winners from that, and try to find those structural winners. Um yeah, that's that's sort of how we work. We have um we effectively have you know four strategies. Um we have a global growth equities um strategy, which is an absolute return, which has some, you know, can be you know, can go to all 100% cash, has some currency um hedging and some yeah, hedging more broadly. We have a a long-only strategy, Monroe concentrated global growth fund, which invests across really the same themes as the first absolute return fund, many different themes or areas, and tries to find you know the best companies across all of those. Uh, as I said, we have this sort of climate change one, which is just focused on that one area where we think um, and there's a lot of yeah, overlap amongst um with the other fund as well, but that that climate change thematic, and then we have a small and mid-cap fund, which is effectively the same team, same process, uh, and working on companies yeah, in the sort of um small and mid-cap um range where we think you know there are many undiscovered um companies that are you know benefiting from the same tailwinds as our sort of all cap fund as well.

SPEAKER_02 38:33

Yeah, and is there a minimum market cap that you would consider for a small mid-cap fund?

SPEAKER_00 38:38

Uh yeah, I mean across all of them, like they're we can get pretty small, but I mean in reality, we tend to be probably, you know, this is like small and mid-cap by US standards. So they they tend to be like fit, you know, five billion kinds of five five billion market cap kinds of companies. Um yeah, and it's really, you know, we we look to yeah, companies that that can be like up to you know uh 25, 30 billion as well.

SPEAKER_02 39:06

Yeah, awesome. And from my understanding, uh no partners is the key people in the business are our partners in the firm.

SPEAKER_00 39:14

Is that right? Yeah, that's right, that's right. Um, I think we sort of touched on this a little bit earlier when we were talking about um companies and how we think about companies and we want companies with a controlling shareholder. Uh that's how we run this business um ourselves. So in the beginning, uh it was Nick Griffin, our CIO, Ronnie uh Ronald Calvert, who's our CEO, and another gentleman, um John Spencerly, who sort of founded it. And they were the kind of equity partners at the very at the very beginning, and they have had some others in the team as well. And really, like throughout this entire period, it's been basically a process of trying to align the rest of the team with the, you know, and make them partners effectively. So uh I've been fortunate enough to have been made a partner, and that's effectively all of that is effectively like Nick and Ronnie um essentially kind of diluting themselves and sort of sharing that um opportunity to, I guess, participate in the in the profits of the of the business, which we think kind of really ensures that alignment amongst the team. You know, I'm not um upset or jealous if uh you know James or whoever um um takes a different view on a stock to me and they say, oh look, we should sell that stock. I'm not really upset about it because I know that they're 100% aligned with what I'm doing. And in the same way, you know, that they when I'm proposing something, you know, they know that I'm aligned in terms of what I'm trying to achieve as well. And all of that is ultimately as well aligned to what our investors um, you know, um what our investors' goals are as well. So uh yeah, it's a really it's a really nice thing about this organization that we are, you know, we are sort of small, we are, I guess, boutique and we're you know, we are kind of founder-led. Yeah.

SPEAKER_02 41:03

And and across your strategies, I believe you have uh listed strategies through active ETFs on the ASX, and then also through a unitized managed fund that if people are on a platform they can access as well.

SPEAKER_00 41:15

Yeah, that's right. So um of the four strategies I mentioned, three of them being the absolute return, the concentrated global growth, which invests across all of the themes, and then the climate change leaders fund, they're all available via the fund and the ETF. Uh the sm the SMID is only available um via the fund. Um yeah, and there are a few sort of reasons for that. You know, one being around um kind of disclosure of the names in the in the portfolio, which I think you know we're a little bit more sort of sensitive about on that fund. But uh yeah, if you go on our website, MunroPartners.com, you can find kind of all of that information and and go from there.

SPEAKER_02 41:54

Yeah, well, thank you very much for coming on, Mike. It's been a pleasure and sharing your your story of you know how you got to where you are today and and uh you know working at Munro Partners, a very uh you know reputable and and well-known fund manager uh here in Melbourne and and nationally and obviously internationally now you've got some international investors as well. So congratulations and we look forward to seeing the the growth of fun continue.

SPEAKER_00 42:17

Yeah, thanks very much for the opportunity. It's been really uh fun conversation and um hopefully we can do it again sometime. Definitely, thank you.

SPEAKER_02 42:27

Thanks for listening this week. Stay tuned for our next episode and keep up to date with us by following the Finance Friends podcast on Instagram and TikTok. Plus, connect with us and our guests over on our LinkedIn page, all linked in the show notes.

SPEAKER_01 42:45

Disclaimer. This podcast exists for informational and entertainment purposes only. The personal opinions of the speaker and guests do not represent the view of any other party. If this recording contains reference to financial products, that reference does not constitute advice nor recommendations and may not be relied upon.