A century of compounding: inside Soul Patts' permanent capital with Todd Barlow

Todd Barlow (0:00)

Cash has certainly increased a lot. I mean, we're sitting on about just shy of $3 billion in cash at the moment.

Bryce Leske (0:05)

What's that as a percentage of total portfolio?

Todd Barlow (0:07)

About 20%.

Alec Renehan (0:08)

Wow.

Todd Barlow (0:08)

Since 1903, we've never missed a dividend, and that's through World Wars, Great Depression, GFC, COVID. You had invested in Soul Patts 20 years ago, put $10,000 in today, that'd be $110,000. And that's 2.7 times more than an equivalent investment in the index.

Bryce Leske (0:29)

Welcome to another episode of Equity Mates, the show where we explore what's possible in the world of investing. If you've just joined us for the very first time, a huge welcome to our community. My name is Bryce.

Alec Renehan (0:39)

And I'm Ren, and today we are talking to someone with a 123 year investment track record who is trying to convince Bryce to ditch the Bitcoin and embrace a no regrets style of investing. Bryce, is he going to convince you?

Bryce Leske (0:54)

Well, you're about to find out. We are joined by Todd Barlow. He's the Managing Director and Chief Executive Officer of Soul Patts. The ticket is SOL listed on the ASX.

You did say the guest has 123 year history. He himself is not 123 years old, but Soul Patts as a listed company. Yes, listed in 1903

Alec Renehan (1:18)

Yeah. Now the full name is Washington H. Soul Pattinson and Company Limited.

People might know the pharmacy and that's how this company started. When it listed in 1903, it was a chain of pharmacies. It's now purely an investment house, but it's got permanent capital. Doesn't have unit holders giving money in and expecting their money back at a certain period of time. It's just investing its balance sheet. So it really opens up that endowment or family office style of investing, truly long-term and unconstrained. So that's what we wanted to dig in with Todd today. How does that change his investment approach and the opportunities he can chase?

Bryce Leske (2:00)

Well, with that said, let's get into our conversation with Todd Barlow. Todd, welcome to Equity Mates.

Todd Barlow (2:06)

Thank you for having me. It's a pleasure to be here.

Bryce Leske (2:08)

For those familiar with the pharmacy chain, Soul Pattinson, but not the investment house behind it, can you please introduce us to Soul Patts?

Todd Barlow (2:17)

Sure.

The full name is Washington H. Soul Pattinson and Company Limited, which is a bit of a mouthful, so we go by Soul Pattinson. It started out about 140 years ago as a chain of pharmacies listed in 1903, so that makes it the second-oldest listed company on the ASX. Then about 70-odd years ago, they started diversifying into other investments, and I think the other investments became much bigger and more successful than the pharmacy business. In the last few years, we've exited pharmacy entirely and now it's just a pure investment vehicle. Today, we've got about 85,000 shareholders, about a $16 billion market cap, which places us inside the top ASX 50 It's had a long track record of performance. If I look at the last 20 years, we've done about 5.4 percent better than market, which means that if you had invested in Soul Patts 20 years ago, put $10,000 in today, that would be $110,000. That's 2.7 times more than an equivalent investment in the index. So it's lots of happy shareholders, diverse portfolio.

It's one of those things that you can set and forget.

Alec Renehan (3:26)

So we're going to dig into, I guess, how you approach markets and then where you see opportunities today. But let's start at the very high level.

What's the investment philosophy that drives Soul Patts?

Todd Barlow (3:36)

I guess what we're known for is that we are patient, long-term, disciplined investors. What that means is that we are not trying to fill buckets. So when we think about portfolio allocation, we're not allocating to a predetermined size for each different asset.

So what that ultimately looks like is a portfolio that is diverse across asset classes, across industries. We're looking for a portfolio that has defensive qualities, so it protects capital in downtimes. And we have a sort of bias towards businesses that are proven, cash flow generative, low-cost, resilient businesses.

Bryce Leske (4:14)

Now Todd, on the show, we've spoken about dividend aristocrats. They're companies that traditionally are on the S&P 500 and have raised their dividends for 25 consecutive years. Soul Patts is the first Australian company to reach that 25-year milestone. Congratulations.

How does that actually influence your investing approach, though?

Todd Barlow (4:34)

Well, we've always been a strong dividend payer. I mean, since 1903, we've never missed a dividend, that's through World Wars, Great Depression, GFC, COVID. So it's really been an important aspect of the way that we invest and what we do. But in the last 27 years, we've been growing the dividend every year, which is something that we're really proud of.