NERO’S NEW EMPIRE
Fund manager Russell Delroy shook up Carnarvon Energy and is on the hunt
EXCLUSIVE
Sean
Smith
Russell Delroy is considering reopening his $160 million small cap resources fund to seize investment opportunities generated by weakness in commodity markets.
The owner of unquestionably the best mullet in WA business is looking at scaling up his Nero Resources Fund with more cash from investors to augment the $40m it is readying to deploy into new stocks offering hidden value.
“We want to hunt,” Mr Delroy tells The West Australian from a coffee shop a stone’s throw away from Nero’s Cottesloe offices.
“Everyone looks smart in a bull market, even the taxi drivers, but it’s not where you make money. You make your money now,” he said, referencing the downturn in critical minerals that has hammered lithium and nickel stocks.
Coming off a successful campaign to shake up Carnarvon Energy and boasting an impressive record of outperformance, there seems little doubt that Nero could tap the large reserves of WA private capital always chasing stronger returns.
However, while Mr Delroy believes the fund’s value-investment model and sometimes contrarian outlook would support bigger investments and plays, he admits to “wrestling” with what changes may come with more money in play.
“I’m very happy,” he said. “I love my life and my people, there’s no egos. I want to evolve organically, I’m not in a hurry, I just care about performing, so I don’t want to do it (get bigger) at the loss of something else.”
In recent years, Nero has built a reputation as an activist shareholder, more often than not trying to work behind the scenes at its investments to unlock value through collaborative of forced changes to the board or management, or asset sales.
A particular focus has been pushing one-asset companies to sell up, rather than undertake development themselves, citing the different skill sets needed. “Very rarely can a management team that’s good at exploration transition to mining. And very rarely is it a good idea to be a single-asset company,” Mr Delroy, pictured left, said.
Carnarvon, which holds the Dorado oil discovery in WA’s Bedout Basin with Santos, is arguably Nero’s biggest scalp.
Mr Delroy was appointed a director in December after Nero and Victorian fund Collins Street campaigned to change the company’s strategy — ultimately winning two board seats and forcing out chief executive Adrian Cook.
Mr Delroy insists activism is not his preferred option, but he makes no apologies if it aligns board and shareholder interests and delivers better value to investors.
“We will unashamedly help and actively work with companies to facilitate outcomes,” he said.
“Most times, they listen, and it’s a collaborative process and we’re very quiet about it. Sometimes, companies don’t like it.
“I would question why they don’t like it. I have to see a good reason beyond misalignment.”
Much about Mr Delroy suggests someone who goes against the grain, including his concerns about the web of “corporate bureaucracy” that enriches layers of business and the insular “corporate apparatus” that can throttle independent thought.
But he’s also been at least partly shaped by the WA business Establishment.
Son of horse-breeder and property developer Trevor Delroy and nephew of South West avocado king Russell Delroy, he attended Scotch College, picked up a university degree in commerce and started out in business as an assistant dealer with stockbroker Patersons Securities. However, he credits the racetrack for helping him understand “probability and risk return”. “I’ve got more time for the professional punter than the average fund manager because a professional punter has a 5 per cent headwind every race,” he said.
“The average share market has an 8 per cent tailwind, so a punter who makes a living doing that knows risk and return.”
Mr Delroy worked in stocks and derivatives with Morgan Stanley in London before returning to Perth, where he managed his father’s share portfolio with considerable success before setting up Nero — Italian for black and a nod to wife Francesca’s nationality — in 2013.
The fund was seeded with the proceeds from the sale of his house and funds from friends and family, including Trevor Delroy. Its staff now includes portfolio manager Daniel Harangozo, pictured below,
It was a tough start. While Nero has outperformed the S&P-ASX Small Resources Index by more than 900 per cent, it was underwater for its first three years during a resources bear market while Mr Delroy tried to find his feet.
“It was absolutely brutal,” he said, recalling the weight of responsibility of protecting the cash entrusted to him.
“It helped frame where I’m at today.
“I make sure I remember those moments, it’s never as bad or as good as it feels.”
More recently, the Nero boss has made no secret of his belief that directors’ fees should be linked to shareholder returns to encourage better outcomes for investors.
He has also questioned the rising influence of proxy advisers outside of exchange-traded funds, suggesting other funds who use them are abrogating some of their responsibilities.
“For the life of me, I don’t understand why anyone allocating capital in a professional manner outsources a view on a company’s management.”
CVN Price at posting:
20.5¢ Sentiment: Buy Disclosure: Held
(20min delay)
