From zero to $21 billion: Kingmaker’s exit is the end of an era for markets

Phil King doesn’t fit the mould of a rock star fund manager. You’re more likely to see him riding a pushbike than driving a Maserati, or lounging by the pool of a Point Piper mansion.

When King founded his company Regal 20 years ago, a couple of million dollars seemed like a lot of money. Now, on the eve of his departure from money management, Regal boasts funds of more than $21 billion.

When he announced plans for his retirement this week, hearts skipped a beat in financial circles. In Australia, where King has been a market kingmaker for the past two decades, crucial for successful block trades, capital raisings and floats, he has been called pivotal. The Australian Financial Review even described him as the market’s plumbing.

His impending departure in June next year has been likened to the end of an era in which active fund managers such as King used valuation skills, delved deeply into companies’ underbellies, closely studied industry sectors and surveyed the wider environment to handpick shares ripe for gain.

King’s influence on investing is immense. He is the bloke who last year took a big bet that shares in our largest bank, Commonwealth Bank, would fall. The stock has dipped just 3.9 per cent this year, but he hasn’t budged on that view.

When asked how successful this trade was, King declares: “It’s not over yet; it’s still playing out.”

He says the banking giant got too expensive for a number of reasons. One is the massive inflow into heavyweight stocks such as CBA from passive funds, including Australia’s giant industry funds. Another reason, he believes, is the Australian tax system, which discourages investors from selling shares because “if you never sell them, you never have to pay capital gains tax on them”.

While many smaller active funds managers remain, the bulk of our retirement savings are these days invested in what is known as passive investment – in which fund managers track stock indexes with the aim of avoiding underperformance, rather than seeking to beat market returns.

King says that when he founded Regal, he wasn’t looking to invest for others. But when people came knocking at his door, he let them in.

He began his professional career as a chartered accountant at KPMG, where he honed his skills as a detailed numbers guy. Then it was off to the Millionaires Factory at Macquarie, where he worked as a broker analysing media companies – a job which he says in those days involved using a ruler to measure the volume of classified advertising in Saturday’s Sydney Morning Herald.

His shift to fund management with a hedge fund in London provided him with additional skills.

“I always say that working for a broker [is] how you learn how to make money, and working for a fund manager, that’s how you learn not to lose money,” which, he says, are vital attributes to have in managing risk.

One of the biggest risks to manage for his firm will now be the “key man risk”.