Argonaut grows investment activity

Investment bank Argonaut Group is planning to substantially expand its fund management activities by raising up to $125 million for two different funds.

Argonaut is also planning to raise up to $50 million to expand its high-risk proprietary investment activities.

Chief executive Eddie Rigg, who is also Argonaut’s largest shareholder, said the group’s overall aim was to have four business divisions each making a similar contribution to revenue.

The group is well known for its corporate advisory arm, Argonaut Capital, which was established in 2002 and is headed by executive chairman Charles Fear.

Its stockbroking arm, Argonaut Securities, was established in 2004 and is headed by Paul Carter and Kevin Johnson.

Argonaut recruited former Rothschild executive Michael Mulroney last year to run its fledgling fund management arm.

Mr Rigg said Argonaut was seeking new staff to support expansion of its fund management activities, which he believes will be able to make a substantially increased contribution to the group’s profit.

Argonaut’s fourth division is proprietary investment, which is also earmarked for expansion.

Mr Rigg said investment banks such as Goldman Sachs, Macquarie Bank, Babcock & Brown and Allco treated proprietary investment as a core part of their business, and Argonaut had a similar aspiration.

Argonaut’s fund management activities are currently limited to the AFM Perseus Fund, which it has been running for about two years.

It plans to lodge a prospectus in coming weeks to raise up to $25 million for the fund, which has been one of the top performing investment funds in Australia.

With a focus on small and micro-cap resource stocks, AFM Perseus posted a pre-tax return of 183 per cent in the year to June 30 2007.

The fund was established in 2003 by day trading group Capital Intelligence, which lost half of the $1.9 million originally invested.

Argonaut progressively took control during 2005 and since then has lifted the value of the fund’s portfolio from $800,000 to $13 million.

This partly reflected $3 million of new equity but was mainly a result of the increased value of its investments.

Mr Mulroney said the fund put money into deals that were normally restricted to sophisticated investors.

It typically holds 15 to 25 core investments and holds them for six to 18 months.

Investments are spread across a range of commodities and regions, and include Indo Mines, uranium explorer WildHorse Energy, and telco Commoditel.

The fund’s investment advisory committee is chaired by company director Craig Burton and includes Messrs Rigg, Mulroney and Carter.

Argonaut is also planning to raise up to $100 million for its Genesis Natural Resources Fund, which is described as a special-purpose private equity fund.

Mr Rigg said Genesis would be similar to Resource Capital Funds, which recently led a consortium that bought Sons of Gwalia’s tantalum business.

Argonaut plans to raise the money from very high net worth individuals and institutions.

Genesis will aim to invest between $5 million and $20 million in each deal, and will take a three- to five-year time horizon.

The Genesis team will also become actively involved in managing the investee companies.

“It is born of a belief that a lot of companies list far too early,” Mr Mulroney said.

“We will keep them private until they are ready to list.”

Genesis will typically invest in unlisted companies and assist in their development, for instance by helping them identify, acquire and integrate new assets.

It will also help investee companies build up their management team.

It may invest in listed companies if they are judged to be fundamentally undervalued, or if they can make an acquisition that fundamentally changes the business.

Mr Rigg said the establishment of the Genesis fund was inspired by Argonaut’s experience with Mediterranean Oil & Gas plc, an AIM-listed company in which Perth investor Tony Trevisan holds a major stake.

Argonaut advised Mediterranean on its seed capital raising, introduced private equity investor Mizuho Financial Group and hedge fund Stark Investments to the company, and advised on its AIM listing.

“With the fund, we would have been able to invest in it,” Mr Rigg said.

Argonaut’s proprietary investment activities have to date operated through two entities.

Hercules, established in 2004, is a resources incubator jointly owned by Argonaut and Perth investors Craig Burton and Charles Morgan.

It is best known for backing the establishment of Matra Petroleum plc, which listed on the AIM market in April 2006, and uranium company WildHorse Energy, which listed on the ASX in November 2006 and has since enjoyed strong share price gains.

Argonaut Capital, which is owned by some of the group’s staff, has also been an active investor.

It has been closely involved in the establishment of several companies, including Nova Energy and Elixir Petroleum, which have since listed on the ASX.

Mr Rigg said the group was planning to raise up to $50 million for Argonaut Equity Partners, which would allow it to expand its proprietary investment activities.

Argonaut Equity Partners would have an unlimited investment mandate and would typically take a long-term view on investment opportunities.

It offered the potential for high returns but also carried high risks, with the possibility that investors could lose all of their money.

Its activities would include starting companies and buying existing companies.