Mark Carnegie’s investment ideas: gold, gas, medical devices

The Australian
by Glenda Korporaal
February 18, 2017

Mark Carnegie is one of Australia’s best known investors. A former investment banker, more recently he has focused on private equity and medical technology.

What sort of funds are you managing at the moment? 
M.H. Carnegie & Co has several hundred million invested in a series of funds including real estate, debt, private equity and venture capital.

What is your view of the investment outlook? 
My view is that the stimulus Trump has promised in the US — which I am sure will be followed around the world — is going to lead to inflation.

Which brings us to gold. It doesn’t provide any income over the long term but there are times when holding gold is going to be a good idea on a relative basis, particularly as a hedge against inflation, and this is one of those times.

So are you saying that the US sharemarket upswing has run its course? 
Seth Klarman (a Boston-based value investor) is one of the smartest investors out there. He was quoted recently suggesting the promise of tax cuts and the release of animal spirits under the Trump Administration is going to be much better for US economic growth than if there had been a Clinton administration.

But there is an inconsistency between Trump’s promises of taxing less and spending more. Klarman also argues that there are now “perilously high valuations” in the US stockmarket. He warns that Trump’s stimulus efforts “could prove quite inflationary” which would not be good for investors. He is also concerned about America’s rising debt levels which he feels could undermine the economy’s growth over the longer term.

Outside the US what else are you looking at? 
I think the whole negativity thing about China is wrong. China looks like it is going to move forward. I am not necessarily recommending investing in China, but the emerging market story looks better to me than the developed market. I would not invest directly but buy emerging market ETFs.

We’ve seen you in everything from pubs to radio stations … what are your interests at the moment? 
Just now my venture capital/start-up investments are very focused on US medical device technology.

There is a lot of promising technology in the US which could come to Australia because of the research and development tax concessions.

I have just come back from the JPMorgan health conference in the US. There is deep interest by pension funds with the huge long-term success of our companies such as CSL and Cochlear and also the heart pacemaker company Telectronics, which was bought by the former Pacific Dunlop.

Separately, there is an opportunity in energy in Australia because of the east coast gas market and the fact that so much gas has been sold to overseas buyers. There will need to be more exploration for gas in Australia. But it is essentially a Queensland and South Australian opportunity. Western Australia has gas — but it is not connected to the west coast markets. And then you have the restrictions on gas mining in NSW and Victoria. NSW has become like the Federal Socialist Republic of Europe as far as anti-development and nimbyism is concerned.

Which of your past investments has been the most successful? 
You can’t invest by looking in the rear-view mirror with a view of what the world was like the last time around. You are much better off looking ahead and trying to find the next Cochlear.

Also always remember price matters. But what was a good price in the past will not be a good price now.

I bought in Indonesian television stations at four times earnings. I have since sold out of them but they are now trading at 34 times so they are not nearly as attractive investments. You have to be aware of the price and be ready to sell when the price gets high.

You used to run a pitch competition for start-ups called Carnegie’s Den. Do you do that any more? 
No I don’t. When I was doing it there were not many other people doing it but now there are many incubators and accelerators around Australia.

You know the late Jimmy Goldsmith used to say once you see a bandwagon rolling ... it is too late to get on it. I am focusing on more specific venture capital investments now, such as the medical device technologies.

So what would be your best investment advice to retail investors in Australia? 
There are no short cuts: John Paul Getty, once the richest man in America, said. “Rise early … strike oil” translated into Australian that is “Get up early, work hard and get lucky”.