Clayton Larcombe, head of PAC Capital, emerged from obscurity to become a prominent Sydney fund manager with $40 million in property. How did he do it?
As 2021 came to a close, Clayton Larcombe was in trouble. A computer-game fund that the former stockbroker had hoped would take Australia by storm was going sour. Short sellers were attacking his biggest investment, and an investor backlash had begun towards the high valuations that some of his stocks had built up during pandemic lockdowns.
From the start of November to the end of January 2022, his PAC Global Esports hedge fund fell 53 per cent. It looked like the boutique funds management business he started four years earlier, PAC Capital, might live up to only one of the attributes it was named after: persistence, ambition and consistency.
Clayton Larcombe is the chief investment officer at PAC Capital. Michael Quelch
Then, in the dying days of the summer of 2022, the market started to turn.
In February, PAC’s esports fund recovered 27 per cent, driven by two investments in a California-based maker of gaming computers called Razer, and a New York-based maker of gaming headsets, Turtle Beach.
By the end of the financial year, the fund was up 13 per cent. The good news was a welcome way to attract more investors. Otherwise, the fund looked too small to be sustainable. For the five months to the end of June 2022, it generated just $15,893 in performance and management fees.
But within four months the business was transformed. Last October, The Australian Financial Review reported that PAC Capital had bought another fund manager, Clearwater Portfolio Management, and was now managing $500 million. In February 2023, PAC Capital said it “now has over $US500 million ($730 million) [in] fund under management”.
Larcombe had become, almost overnight, a member of Sydney’s elite club of celebrated investment managers. The Financial Review featured him in its regular Monday fund manager profile. Celebrity Apprentice ex-host Mark Bouris invited Larcombe on to his podcast. “I am always trying to push the limits,” Larcombe told Bouris. He was asked to give a short speech at a glamorous, black-tie charity ball for School for Life at the Star casino in May.
He purchased a $33.5 million house in Sydney’s Bellevue Hill, opposite Sydney matriarch Ros Packer. Larcombe already owned a $7.4 million property near Bowral, which he bought in 2021, and a $3 million Manly apartment bought in 2020, according to Domain.
Larcombe declined to disclose the source of funds for his properties. “That’s really a private matter between me and my family,” he said.
How PAC Capital grew so fast, while reporting unexceptional returns, is unclear. Larcombe now says the February claim that his business managed more than $700 million was incorrect. On Wednesday, in a phone interview, he said PAC Capital managed between $350 million and $400 million. He said he wasn’t aware the higher figure had been cited by his company.
“I’ll have to check that,” he said. “No way. We bounced around four hundred.”
In disclosures to investors, PAC Capital said that it has a specific “investment psychology” based on an obsession with financial markets, a willingness to learn from mistakes, and humility.
In interviews and press releases, Larcombe has said his knowledge of computer gaming gives him an advantage over traditional fund managers. “The future of sports is esports,” he said in a February release that described him as “one of Australia’s most influential esports businessmen”.
Competitive computer gaming, like Gran Turismo World Tour, has become big business. Getty Images
Gaming is popular, but the industry’s stocks tend to be volatile. Over the past year, Nasdaq gaming stocks have risen about 5 per cent, although were down one quarter in November.
Shares held by PAC Capital at the start of 2022 haven’t done well. The esports fund’s biggest investment at the time, Evolution AB, has risen 4 per cent since then. The next three biggest – Skillz, Turtle Beach and Kambi Group – have fallen between 17 and 92 per cent.
In January 2022, the esports fund fell 41 per cent. However, the following month, it did something amazing. Its 27 per cent increase was greater than the performance of its main constituent parts.
The fund’s biggest holdings were, in descending order: Evolution (which fell 3 per cent that month), Skillz, (down 35 per cent), Razer (up 11 per cent), Turtle Beach (up 17 per cent) and Kambi Group (down 6 per cent).
In the interview this week, Larcombe said he didn’t remember the trades well enough to explain the fund’s monthly fluctuations.
“It was a bumpy time in markets,” he said. “It was really early on in the fund.”
The same month, the business underwent a legal restructure. PAC Capital originally managed hedge funds for professional investors. But in February last year, the PAC Capital Fund became a managed investment scheme, which allowed it to accept investments as small as $1000 from regular investors. The esports fund and PAC Capital’s other funds now operate under the managed investment scheme, which feeds them money.
The shift was driven by demand from financial advisers, according to Larcombe. In March that year, it promoted investments in its four funds on Twitter, where it now has 93 followers. “The Future Of Investment Is Here,” one ad said.
Clayton Larcombe’s Manly apartment was renovated by his wife, Kyara Larcombe. Domain
Asked if he was concerned at the time that a halving in value of one of his funds in January might make attracting new investors difficult, Larcombe said: “I didn’t think it was a topic. I don’t recall. We were trying to get the retail under way. It took a long time.”
He said the PAC Capital Fund accounts filed at the end of the 2022 financial year, which showed $4.5 million in net assets, did not include all of the firm’s investments.
Last October, when PAC Capital bought Clearwater, the firm did not issue a press release, even though the transaction more than doubled the business’ size. The Byron Bay-based Clearwater managed $270 million in investments, according to Larcombe, which implies that PAC Capital had approximately $80 million to $130 million of its own investments, based on the amount Larcombe said it manages now. “That was a big one for us,” Larcombe said. “That has really helped define us.”
Clearwater’s former owner, Gary Lucas, couldn’t be reached for comment. A former employee said he was retired and holidaying overseas.
Follow the topics, people and companies that matter to you.
Fetching latest articles
The Daily Habit of Successful People