Markets: A different take on Paradice

On a table in the modest reception area of the $8.25 billion Paradice Investment Management are some of the founder's favourite works of literature: Green Eggs and Ham, The Sneetches and Other Stories and Horton Hatches an Egg. These books were all written by Theodor Geisel, better known as Dr Seuss.

David Paradice, the 54-year old, parsimonious morning runner who started his eponymous firm in 1999, picks up Horton Hatches an Egg. He says the book typifies what his firm is about: “Sit there and continue to do what we do no matter what happens."

Paradice’s $1.74 billion Australian small caps fund, closed now to new investors, has garnered returns of 18.1 per cent a year since its inception on June 30, 2000.

Dressed in a dark sweater, slacks and a striped shirt, in one of his brown conference rooms that look like it has seen better days, Paradice flicks to a story about 'The Zax', two mythical creatures who refused to move for each other as a parable on how an investor must “move with the times”.

Paradice is also into ethics. In meetings with companies some weeks before their earnings, he will tell management not to tell him and his colleagues information that has not been publicly disclosed. In a trip to New York in June, he was happy that Julian Robertson, founder of Tiger Management Corp, also has the same perspective.

In a one-and-a-half hour meeting with Robertson, Paradice says the billionaire once asked a broker who wanted him to buy shares in a New Zealand company if the seller was aware of the information the broker had confided to him? Robertson told the broker to “tell the seller all the information you have told me and then get back to me", recalls Paradice. “It was a lesson in doing the right thing. The culture of a business is really important.”

Paradice’s small caps fund has been buying shares in building material companies such as Brickworks and CSR, telecommunication company TPG and risk manager SAI Global. Paradice is not keen on mining companies. He says the Australian government has made a mistake in placing so much emphasis on the resources sector.

“Australia and the Australian government has focused too much attention on commodities,” he says, getting up to take off his sweater so he can put on a necktie for a meeting with JB Hi-Fi executives. “Resources at the end of the day is not a great business as the point of difference is price. The Australian government has made a bad decision by allowing Australia to become the quarry of China.”

An inveterate early riser, Paradice is normally up and out of his home running on the streets of Sydney’s eastern suburbs before 6am. He aims to be in the office by 7am and his day is spent flitting from company meeting to company meeting at his offices or around the country.

He has 19 other colleagues who in turn run an Australian midcap, an Australian large cap and a global small caps fund which have returned 8.3 per cent, 3.99 per cent and 17.8 per cent a year, respectively, since they were started. Like the firm’s founder, Paradice’s colleagues enjoy exercise in the morning. At the back of the open plan office where they sit are two bicycles with helmets propped up on handlebars, testament to the transport options of two staff who, like other investment professionals, must be in by 7.30am when the morning meeting starts.

Paradice himself is a bundle of barely suppressed energy. His down to earth, unpretentious manner is at once disarming but cannot completely hide his intensity about markets and companies.  

Although located opposite Sydney Botanical Gardens with superb views of Sydney Harbor out to the entrance of Port Jackson, little is spent on making Paradice’s offices anything more than functional. There is no receptionist. A brown linoleum floor, scuffed in places, leads to a brown conference rooms while the grey carpet where Paradice sits with his colleagues shows signs of past use. The investment firm’s main door and the door into the open plan office where fund managers and analysts sit remains wide open throughout the day.

Paradice takes his responsibilities of managing people’s money seriously. He scoffs at fancy offices saying if you are paying more attention to the decorations you are not paying enough attention to your job, managing a stock portfolio.

Collar half upturned, tie askew, Paradice says it's important an investment firm retains its central ethos which should be: “never try to copy other people and always be true to yourself.”