Why the Global Game Has Changed

It’s natural to think Australia is exceptional. 25 years without a recession has that effect, plus the beaches, coffee, and shiraz all help. I get the appeal myself: That’s why my American family settled here in Australia.

It’s a big world, though, and even though I think highly enough of Australia to stake my future on it doesn’t mean that I’ve closed my eyes to the following:

  • 98% of the world’s equity market value is listed outside Australia.
  • The ASX is 1 of only 15 stock exchanges with companies whose value topped US$1 trillion at the start of this year.
  • The world’s most dominant, valuable technology companies — think Apple, Facebook, Google’s Alphabet and others — are not listed in Australia.

Meanwhile, despite Australia punching above its weight, our top-heavy local market is dominated by cyclical, slow-growth companies. Making matters worse is that the enterprising individual investors who do want to push ahead and invest directly overseas quickly find themselves awash in complexity and paperwork.

We wanted to solve for both these problems, plus let our team make the best use of its global experience, by introducing the Lakehouse Global Growth Fund. Our team is excited to help investors back some of the world’s great growth companies, diversify into new markets, and do it with our signature high-conviction, low-turnover style. And, of course, shoot for our ultimate objective: long-term outperformance.

We’ll tell you more about the planned Fund and how we plan to put investors’ capital to work soon. But first let’s talk about the opportunity that I can’t shut my brain off about.

The Opportunity

What has me excited is that value creation is happening at a faster pace and greater scale than ever before. The transition from bricks to bytes is accelerating thanks to the plunging costs of computing and the rising speeds and adoption of the internet. Entrepreneurs don’t even need to buy servers anymore: They can fire up virtual ones with Amazon Web Services.

Facebook, for example, is only 13 years old but has more monthly users than the combined populations of Europe and the Americas. Facebook also made a bigger profit in the last year than the century-old Commonwealth Bank of Australia.

Australia’s own champion technology company, Atlassian, has a similar tale. The business was bootstrapped with a credit card in 2002, went viral and global almost straight away, and is now worth about the same amount as the company that owns and operates the ASX itself.

Such dominant businesses are rare. But they’re out there, more of them are emerging, and the huge majority of them are listed somewhere outside Australia. In fact, as somewhat of a sad coda, Atlassian itself is not listed on the ASX — it’s listed on the Nasdaq.

Successfully building a thriving, scaled business is easier said than done, especially when trying to build a network, but the ones who succeed have the potential to surprise in a big way. One such business that has long held my nerdy interest and is a posterboy for these unfolding themes is Alphabet, which is the parent of Google.

In Search of an Edge

The knock on Google when the company listed back in 2004 was that Google search was just another search engine. It wasn’t the first search engine — I’d seen each of Yahoo!, Alta Vista, and Ask Jeeves all rise and fall in the years before — and myself and many others didn’t think it would take long for someone to simply invent a better widget. For that matter, I didn’t see what would keep searchers from moving on to the new-and-improved rival when one came along.

I was wrong on many levels. What I’d misunderstood was that Google’s search engine wasn’t just fundamentally superior to its predecessors out of the box — its edge was getting sharper with each successive one (of the more than 200 million daily searches) that flowed through and refined its algorithms every single day.

And, one better, not only was Google’s intelligence ratcheting up at an exponential rate, but this was happening on global, national, regional, local, and personal levels. All this allowed Google, which buttered its bread with digital advertising, to serve up ever more relevant ads to an increasingly large and engaged base of users.

The fun didn’t stop there, though, as Google unleashed a slew of new offerings, almost all of which were free. Not all of them stuck — the company has discontinued around 90 different applications over the past decade — but you probably know some of their names. Each of Android, Maps, YouTube, Chrome, Gmail, and Google Play has reached more than 1 billion users.

The net result is that Google now has multiple billion-user-strong platforms that each have their own vast ecosystems that plug into one another and make each even stronger. I can’t speak to what the future holds for Google and its parent, Alphabet, but it is a business I’ve learned a great deal from following over the years. And, as far as case studies go, it makes for a good example of the type of game we’ll be hunting for around the globe.

Our Move

Digital-first businesses are top-of-mind for us but we’re not limiting ourselves to American big-cap tech with the planned Lakehouse Global Growth Fund. We have our eyes on other themes, as well, including urbanisation and the rise of the Asian consumer.

Great opportunities come in many shapes, sizes, industries, and markets, which is why we plan to arm the Fund with the ability to own businesses across the spectrum of listed global markets. Big picture, though, the focus of the planned Lakehouse Global Growth Fund is to back market leaders with long growth runways, most of which will be mid- and large-cap companies and overwhelmingly based outside of Australia.

We love this place, but the big goal with this Fund will be to bring a fresh range of opportunities to investors in Australia, not offer a repackaging of opportunities that are already easily grasped.

What’s Next

We look forward to telling you more about our plans for the Lakehouse Global Growth Fund over the coming weeks. The next time you hear from us it’ll be to talk more about one of the themes I’d mentioned that intrigues us as a global mega-trend: urbanisation.

Also, we and the fund’s responsible entity, One Managed Investment Funds Limited, plan to release the fund’s product disclosure statement on our websites in early November, which all potential investors should read and consider before deciding to invest. It will contain a slew of important information about the Fund’s strategy, risks, fees, and more.

Stay tuned, and thanks for your trust and interest.

Regards,

Joe Signature
Joe Magyer, CFA
Chief Investment Officer
Lakehouse Capital

P.S. The ASX recently asked for my thoughts on how the rise of millennials is shaping markets. I thought you might enjoy my view, particularly as I rolled into a discussion on two of my favourite topics: global businesses and winners-take-most investing.

Members of Lakehouse team may (and likely do) own shares in some of the companies mentioned in this content.

The responsible entity for the planned Fund is One Managed Investment Funds Limited (ACN 117 400 987) (AFSL 297042). The information included in this message has been prepared without taking account of the reader’s objectives, financial situation or needs. All of the commentary, statements of opinion and recommendations contain only general advice. Any person reading this message should, before deciding to invest in or continue to hold the investment in the planned Fund, read the product disclosure statement and seek professional advice.

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