A country accounting firm gets caught in a Sydney money mystery – The Australian Financial Review

For almost forty years DMG Partners has quietly advised the residents of Sale, Gippsland. Now the firm finds itself involved with the racy PAC Capital.
Every year, in August, staff at DMG Partners, a modest accounting firm in Gippsland, Victoria, bake cupcakes and cookies for their colleagues.
For the cost of a gold coin, which is donated to the RSPCA, the team contribute to their community’s broader welfare. The quiet country town of Sale, where DMG is headquartered, has repaid the favour by keeping the firm in business for almost 40 years.
DMG Partners directors Ben Lancaster and Charles Bagguley from Sale, Victoria, discuss their new relationship with PAC Capital in a promotional video last December. YouTube
Late last week, DMG’s managing director, Mathew Johns – known around town as Johnno – and two directors, Ben Lancaster and Charles Bagguley, sent a note to clients that may have confused some who haven’t been following news about PAC Capital, a racy Sydney funds manager.
The email reported on two DMG investment funds which Morningstar data says are responsible for $240 million – much of which is presumably the retirement savings of residents of Sale and the greater Gippsland region.
The two DMG funds had each invested 13 per cent of their assets – an estimated $31 million – in other funds managed by PAC Capital, the email said. Some of this money was now going to be withdrawn, it said, “due to the departure of a key portfolio manager at PAC Capital”.
The current members of a committee that oversees the funds’ investments were named, and the funds’ solid returns for the last financial year: 7.53 per cent for the low-risk DMG Diversified Portfolio and 11.53 per cent in the more-daring Clearwater Dynamic Portfolio.
The note sounded like the business of making money was operating as usual. Except it is not. Many things about PAC Capital and DMG are unusual, which is why the story has captivated the funds management industry in Sydney, where the upstart PAC Capital has bolted its name atop a building, alongside AMP, JP Morgan, Credit Suisse and other giants of finance.
PAC Capital owner Clayton Larcombe and an unidentified man in Sydney on July 26. Louise Kennerley
PAC Capital bought the DMG funds last October. The email did not mention that fact, even though it means the DMG funds are invested in other funds run by the same, five-year-old asset manager, which has placed itself at the forefront of “esports”, or professional computer gaming.
It did not mention that PAC Capital’s 37-year-old owner, Clayton Larcombe, has left the committee that oversees the DMG funds. Larcombe was listed as the funds’ chief investment officer until a week ago. Nor that the “key portfolio manager”, Sunny Bangia, quit without explanation after three weeks.
Unsaid was a decision last week by SQM Research, which advises financial advisers, to issue a warning about two PAC Capital funds DMG is invested in. SQM took the step after PAC Capital declined to make underlying trading data available to verify returns from a computer-gaming fund that has an estimated $7 million in DMG money.
The DMG directors did not respond to a request for comment from the Financial Review, but have promised to be more open with clients.
“A representative of DMG will be in touch early next week to discuss this letter with you and answer any questions you might have,” the email said.
Why DMG directors still help manage funds sold to PAC Capital is unclear. Few details of the sale are public, and a statement announcing the transaction has since been removed from public view.
In December, Larcombe described the acquisition as “essentially a marriage” and Lancaster said “we’ve now got even more firepower on the [investment] committee” with Larcombe joining.
Now, the decision to “reduce the exposure” of DMG to two PAC Capital funds and Larcombe’s departure looks like a kind of separation.
The PAC Global and PAC Global Esports funds manage $24.6 million in total, according to Morningstar data, which reports with a lag. DMG’s contribution was or is $14.4 million, or 59 per cent, based on Morningstar data and the email sent to DMG clients last week.
The figures suggest that PAC Capital’s purchase of the DMG funds triggered a large injection of money into PAC funds, which will now be reversed.
The biggest slice of DMG money isn’t being pulled, though. It is in PAC Capital’s venture capital fund, which specialises in computer gaming, the Metaverse, blockchain technology, health, artificial intelligence, virtual reality and machine learning.
The size of the DMG investment is unclear. The DMG directors say that 7 per cent of the two DMG funds are invested in the venture capital fund, which would be $17 million, based on the Morningstar data. But last year, PAC Capital said it had received $US15 million, or $23 million, from DMG.
The DMG email doesn’t say why the investment is staying, but it may be because venture capital funds invest in young, high-risk companies that aren’t traded on share markets. Because the companies are so new, they are difficult to sell and gauge their value, which in turn can make it hard to estimate returns.
According to Larcombe, PAC Capital relies on the companies to value themselves.
“Valuations for each of the unlisted businesses that PAC funds have invested in are typically set by the companies concerned (not PAC Capital) and are usually based on funding round prices or the company’s valuation reporting,” he wrote in a note to investors this month.
One of the venture capital fund’s investments is a German company called Bayes Esports, which distributes data about professional computer games. The investment led to Larcombe being appointed Bayes chairman this year.
Kyara Larcombe is a Sydney eastern suburbs property decorator. James Brickwood
Another investment is in a computer games betting website called Picklebet. Until two weeks ago, Larcombe’s LinkedIn profile stated that he was Picklebet chairman. Now he refers to himself as a director.
“I have a considerable personal investment in Picklebet which I see as a positive because it aligns me with other PAC Capital clients who are also invested in the company,” he wrote to investors.
The size of Larcombe’s and PAC Capital’s Picklebet investments are unclear because most of the shares are held through a trust. Two weeks ago, Larcombe’s spokesman said he had sold some shares to help pay for a $33 million home in Bellevue Hill. The spokesman later retracted the statement.
As for the house, Larcombe has stated – and is supported by publicly available records – that he has an option to buy the property, and does not own it. “The terms we have on the property is between myself and my independently wealthy wife (who has her own successful business), and the vendor,” he wrote. “The way this was leaked to the media is under inquiry.”
His wife, Kyara Larcombe, is an interior decorator who specialises in preparing homes for sale in Sydney’s eastern suburbs. She did not respond to a request for comment.
Whether many DMG investors are aware of their connection to the Larcombes is unclear. There are no references to PAC Capital on the DMG website, and nothing about their relationship has been covered in the Gippsland Times, a newspaper located near to the DMG offices.
DMG does assure clients they will receive advice independent of the big finance companies that have their names on Sydney office buildings.
“Most importantly we are locally owned,” it says. “This means you will not receive biased advice in favour of a major institution.”
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