Hains at the reins

For the first time ever, the very private head of one of Australia's most private family businesses talks about how he built a hugely successful investment house - and how his experience of golf and horses fed into that success. Ask the average bod who David Hains is and, if a view is proffered at all, they might hazard 'business-man' or 'someone to do with horses'. Ask the average punter at the TAB, and the answer might be a little more precise, if less accurate: he's the trainer. A few, no doubt, would be more accurate, knowing Hains as the owner of Kingston Park, home of some of Australia's most famous thoroughbreds - some of which indeed were trained by David Hayes, the legendary trainer. Hence the confusion. Yet, even in Collins Street, where Hains has come to work for almost 50 years in the same office and at the same desk, few would recognise the slim, fit and unassuming man with an old-school air as the founder of one of Australia's most successful investment houses, the Portland House Group. Hains prefers it that way. A fixture in the billionaire category on the BRW Rich List, he is no Howard Hughes. Nor does he desire to be a public figure. Hains is fond of saying "keep your tongue in your cheek and your pen in your inkwell". He has never before agreed to a profile. "And this will be the last," he says firmly, after finally agreeing to talk to The AFR Magazine. Yet Hains is discreet rather than secretive; many more people would have seen and spoken to him, in Collins Street, at the races or on the Mornington Peninsula, than would realise it. He is unfailingly courteous. When the old Bakelite rotary phone in his Portland House lounge rings, he answers it himself. "I just don't see the point," Hains says in his quiet, precise voice, when asked why he doesn't have a higher public profile. And with a private company and one of Australia's biggest fortunes, he can choose as he pleases. What he pleases to do is work, following much the same pattern of deep, hands-on involvement in Portland House, constantly questioning the business model, starting up new ones. "I have enjoyed every day of my working life - some-times more or less - and for that reason feel that I have never really worked a day of my life," he says. "On top of that, I have been privileged to do what I enjoy doing and have been paid for it, as well." Indeed, one comes away from any encounter with the 78-year-old Hains realising how totally engaged he remains with the investment world. His sharp questioning of received wisdom, whether about leverage or counter party risk or commodity prices, defines his investment philosophy and that of Portland House. This is a man who still has meetings with directors of the world's biggest banks; who can put someone with a good idea in touch with some legendary investors and business figures around the world. Melbourne identity, Major Events boss and Fairfax Media chairman Ron Walker shares a mentor with Hains: former Melbourne retailer and prime ministerial economics adviser, the late Sir Frank Richardson. Walker lives two doors down from Hains in Toorak. "He has this ability to stay risk-averse and he's a deep thinker about his investments," Walker says. "He has always operated below the radar and hasn't sought publicity. I compare David and Lloyd Williams in the same way, in that they are both very good poker players." Hains denies he's any good at cards at all: "I can't even remember the previous hand," he says. Williams, a regular golf partner of Hains for 40 years, says the billionaire is a man of the "highest integrity". "He's very well read; he's got a great understanding of issues. [Hains says he's a four-newspapers-a-day man.] David's the type of person who wants to know and he knows what he doesn't know. You are fortunate to know somebody like David Hains." An engineer by profession, Hains started work at 15 and by 18 had moved into management, set up his own business at 20 and grew by buying, restructuring and selling businesses before stepping away from operations to become an investor. It is a remarkable story, too: having managed companies through a succession of economic downturns in the '50s and '60s, he found the trauma of redundancies and the desperation necessary for corporate survival just too taxing. He turned down several restructuring plays because he "simply could not face the idea of mass retrenchments, invariably part of a restructuring program". So, in the late '60s, he decided to play golf. Not just take it up as a hobby but play seriously, convincing the great Norman von Nida to coach him. Hains took nearly seven years off to play golf, returning to business only when he began to appreciate that he was starting to worry about things that "really weren't very important". Although very serious about his business, the one thing to which Hains is committed is his two weekly golf games at Huntingdale and at the National on the Peninsula, in all weathers and with the same partners for decades. It's a high stakes game: the losers buy breakfast. Retired Melbourne real estate agent Don Carmichael, who has been a good friend for more than 40 years, says Hains is "a very good competitor on and off the course - he's a very interesting golf partner, yet he only very rarely talks about business at the club". Carmichael also got to play many a round with Hains and von Nida. "Even to this day, [on the course] we will say, 'Norm would have said do this!'," he jokes. And von Nida also introduced Hains to horse breeding. The golfing legend and Hains became very close friends and Hains credits von Nida with more than just taking his game to low single figures during the years they toured the world. "Norm's attitude to class and quality in sport gave me a clear picture of what class really meant," Hains explains. "Top horses, for example, really do have class. If a horse does not have class it is no good hoping it will win classic races. Class enables participants to overcome problems and still win." One suspects, though, even when playing golf or when Kingston Park was at its peak as a stud in the '70s and '80s, Hains still thought about business. "My experience with golf and horses led me to evaluate people and business in the same way," he says. "A business has to have class to be really successful. Customers patronise a particular firm because it provides something that others do not - or at least equally as well as others but with better service." While Hains has come through engineering, manufacturing, retailing, oil and resources in his business career, it is essential concepts, such as class, that inform his thinking. He is fascinated by the inner workings of business, by how markets work, by individuals. And he is fundamental in his approach: despite his manufacturing businesses having been very early adopters of computer technology, and Portland House having massive computing power manned by physicists and mathematicians, he has no personal computer and admits he can't use email. His favoured accompaniment when driving is talking books - loaded on to a digital player by one of his sons. He has just finished a biography of Andrew Mellon and moved on to a history of Bear Stearns. (But at night he does relax, reading thrillers - in French, with a proficiency also picked up in the golfing years.) In agreeing to speak with The AFR Magazine about his business history and the foundations of Portland House, Hains is adamant he won't speak about the group's businesses beyond very general outlines. Moreover, he adds with a mix of pride and wistfulness, he may still be chairman of Portland House but his sons run the business. "I now take orders from them," he says. Three sons joined the business in 1987, Stephen from Citibank, Richard from a City of London broker and Michael straight from university. Daughter Cathy also joined the firm in 1987 and ran the bloodstock business. The youngest Paul, a commerce graduate, joined for a few years but later moved into psychology. Cathy now has her own farm and is a serious commercial horse breeder, literally taking the reins as Hains himself has wound back breeding at Kingston Park. The 2009 BRW Rich List puts the Hains family fortune at $2.01 billion, noting Portland House managed to "escape the downturn in sharemarkets and commodity prices around the world relatively unscathed". Portland House Group "normally carries little debt and takes an international approach with its investment strategy", according to BRW. "It releases little information about the performance, though the family did say it only lost about 3 per cent from its funds in the second half of 2008, when global markets were plunging in value. Currently debt-free, the group has substantial cash reserves, having sold out of many investments in the past few years." Even though three sons run the business, Portland House is not a family office but concentrates on group commercial activities. The company runs as a hedge fund in the true sense, carefully managing risk and taking positions in diverse asset and debt classes. "Family business is not easy as there are inbuilt family issues which have to be dealt with by both parents and children that are not always simple to balance," Hains says. "I really enjoy working with my children, and the influence they have had on shaping and running Portland House Group has been instrumental to its development over the past 20 years." Portland House today is one of Australia's largest private investment funds, employing around 100 people worldwide with offices in London and New York, says David's son, Stephen. "We invest across the world equity and bond markets and run a sophisticated treasury operation handling more than 20,000 transactions a year." The business has a bespoke technology platform, FMO, which is now available to outside investors. Stephen says that over its 50 years in business, Portland House has always had a strong inter-national focus. "Back in the '80s, the local investment scene was very Australian security-focused and there were few portfolio management tools available for a fund with an emphasis on international shares and bonds," he says. "We began developing some basic information technology capable of handling the complexity of multiple time zones, multiple currencies and multiple strategies. The arrival of the internet gave us the opportunity to link analysts worldwide and develop our systems significantly further." As David Hains is hesitant to define the business and, indeed, its history of global investments - covering asset and debt classes, including direct and indirect investments - most descriptions are accurate only in the breach. But the business philosophy is perhaps best summed up by Hains technology specialist and chief operating officer, Gary Weatherley, who set up FMO with the Portland House culture built in: "We are commonsense people and our system provides a commonsense way of asking commonsense questions about the world." Hains was born in melbourne's inner north at Fairfield in 1930. His father, who worked for the State Electricity Commission, was wounded at the Gallipoli landing in 1915 and died at 55 when David was 17. Hains says his father was mathematically sharp - and a brilliant card player. Since childhood, Hains wanted to be an engineer. His father built him a work shed when he was 10. "I can remember the final scenes from a film about a Birmingham steel mill I saw in my teens, in which the brother, who had finally won back control of the family mill, walked back through these scrolled iron gates to take control," he says. "I suppose I dreamt of being in charge of a large industrial complex, even at this stage." Hains would achieve that ambition in 1976 when, after long experience in manufacturing and retailing, he bought the large engineering firm Malcolm Moore. He had started manufacturing part-time more than 30 years earlier - ornamental brass candlesticks, which he says quickly taught him the importance of gross margins - and then built his own company with an original-design washing machine and clothes dryer, branded the Hydromat, at 20. In the early '90s, he even had his Birmingham moment when, after extraordinarily difficult negotiations with intransigent management, receivers and hard-nosed union officials, he and his partners took the failed Wheeling-Pittsburgh steel company in the US out of bankruptcy as a turnaround play. "The entry to the main plant had a wrought-iron canopy over the gate, exactly the same style as the one I could remember from the film," he says. "By then, however, I had learned how difficult the manufacturing industry could be and, while I was prepared to play a part in restructuring the company, I had no wish to run it." This low profile disguises a career richly entwined with corporate Victoria. He remembers moving his whitegoods factory to Footscray around 1952, near the Smorgon meatworks. "The patriarch of the family drove along Somerville Road each morning and, if he saw me, he would pull up and talk for a few minutes," Hains says. "It was Norman Smorgon - a very pleasant man who quite often gave me useful advice on how businesses should be run." It's a quintessential Hains anecdote, capturing his humility - and connections - and one imagines there's probably quite a few people who have had the benefit of advice from Hains himself who may not have quite realised what they were getting because of the informality of the exchange. When he sold out of his first major business, Oriole Industries, Hains says one of the foremen said he was a decent bloke but a slave-driver while, "an English spray painter once told me all bosses were bastards but that I was a decent sort of bastard". He admits he was schooled in management in a very tough industrial environment. He has mellowed. In 1959, Hains and his wife Helen had decided to buy a farm on the Mornington Peninsula, settling on Kingston Park, a cattle property with good rainfall in rolling hills. "During the extremely difficult times of the early 1960s, I am sure the farm helped to keep me balanced and I would go there nearly every weekend with Helen and the children," he says. Kingston Park, of course, on the suggestion of von Nida, also became one of Australia's most successful thoroughbred studs, with a succession of winners, including Lowan Star, Rose of Kingston and the triple Cox Plate winner Kingston Town. Some paddocks are right on the road and Hains cheerfully recounts how, in Kingston Town's heyday, visitors would be constantly knocking on the door to see the champ. But the thoroughbred was notoriously antisocial and highly strung. "We had another stallion, a spitting image, and we had him in the front paddock," Hains chuckles. "People would stop and look and you could hear them say how you could just tell he was a champion. But that one couldn't run down a well." With 34 Group 1 wins, Melbourne, Sydney and Brisbane Cups, four Guineas, three Cox Plates, four Derbies, six Oaks and a Blue Diamond, he is happy to hand over the breeding to his daughter. In 1963 Hains was also looking for office premises and he bought, for what he thought a 'full price', one of the 19th-century buildings at the Paris end of Collins Street that he had long admired. But the name of his company, the Portland House Group, comes not from its headquarters but from the name of the Portland Motel in country Victoria that he owned at the time. He says the critical lesson from his long, varied business career is to expect the unexpected. "There are not many benefits of being 60 years in business but one of them is to have seen many major downturns over the years," he says. "And you realise that any business caught short during the down cycle did not survive to reap the benefits of the recovery which inevitably will follow. The current cycle was probably always going to happen at some time, except that nobody could have expected it to be as severe or anticipated the speed of the onset." He says he's not immune to the restlessness investors invariably have to do something or to "believe that this time is different. But, unfortunately, the reality is every bubble bursts. The experience of many downturns and recoveries has greatly influenced our relatively conservative culture [at Portland House]." The myriad booms and busts he has seen in six decades in business have all had unique features, but even more similarities, he says. "Every boom has a predominant theme - in the early 1950s, it was retail and hire purchase; the late 1960s, mining shares like Poseidon; the late 1980s, debt-driven conglomerates like Bond Corp and Quintex; the early 1990s, property; the late 1990s, dot-com companies; in the 2000s, it was a stockmarket boom with highly leveraged property and 'financial engineering' companies like Centro, MFS, Allco, Opes Prime. Any business which expands rapidly during a boom using high leverage can be vulnerable when the bubble bursts." Lloyd Williams remembers a pleasant afternoon in the second half of 2007 when he and Hains had just played a round at Williams's exclusive Capital Golf Course at Heatherton, regularly used by Crown Casino's high rollers, and were chatting over a warm pot of tea in the clubhouse. Williams says he started littering the table with major company balance sheets from Reuters. They weren't happy. "We both took the view back then that the major investment banks of the world, among others, were substantially overgeared. We both thought this was a real worry," Williams says. In the '60s and '70s, Hains also toyed with politics, both federal and local government and was instrumental, behind the scenes, in John Gorton's manoeuvring to reclaim the prime ministership from Billy McMahon, even negotiating the release of some internal party polling supportive of Gorton to Rupert Murdoch. But having lost a close-fought local government campaign, he decided politics was not for him. "The ensuing publicity [from both episodes], which was completely unexpected for me, dissuaded me from further political involvement," he says. Hains's story is truly remarkable for having touched so many major people and events though so little known itself. He has been on several public bodies such as the Gobbo Commission, and he and his wife have lived for 45 years in the Toorak house formerly owned by Rupert' Murdoch's parents. Close friends include Mark Leibler and broking eminence Sir Lawrence Muir. Potter Partners executive and close Kerry Packer confidant, Muir first met Hains in 1950 when he was a "fresh-faced 19-year-old engineering graduate" and he subsequently worked with this "quiet achiever". "Despite his wealth, he is a modest, generous and charming man," Muir says. "He is very comfortable with working with his family and his family is very important to him." Three years ago, Muir approached Hains on behalf of the Baker Medical Research Institute, of which Muir is patron. "We wanted an association with the racing industry, and David gave us some great advice and actually offered to pick out one of his best yearlings for us," he says. "He is now trialling several and, when one is good enough, it will race for the Institute with its prizemoney donated to the Institute." Hains had brief dealings with failed '80s entrepreneur Russell Goward and knew junk bond king Michael Milken. Australian Competition and Consumer Commission chairman Graeme Samuel acted as Portland House's legal adviser during several takeovers, including Malcolm Moore. Yet he remains at heart a practical, counties-style but certainly never flashy man. He's long been able to fly first class - indeed he bought his first Bentley at 30, "a bit over the top", but he had the money and wanted something safe that could carry five kids and a Labrador - and there's a "very modest" boat on the Riviera and a London house in Mayfair. His current car is a six-year-old Mercedes - with variable suspension, allowing it to be bounced around the grounds at Kingston Park. But he baulked at the price of an Hermès handbag when he'd popped into the Collins Street boutique to buy a present for his wife. And his driver, Chris, was hired because Hains wanted someone who was handy; whether that was maintenance on the house and garden or running confidential errands. (Chris has time for other tasks as Hains has always driven himself to work and to the Peninsula, and his wide brief includes looking after Portland House. "The boss likes you to be able to have a go at pretty much everything," says the multi-skilled Chris.) Hains pays for lunch with cash (he tips well but not lavishly) and the modest Kingston Park weatherboard farmhouse could well be mistaken for the gatehouse by someone who knew the stud only by reputation. Indeed, were it not for the walls of pictures of Group 1-winning thoroughbreds that adorn the lounge room and framed family snaps in the living room rich in faces well known to corporate Australia, often in exotic locations, the owners wouldn't even appear especially wealthy. Air-conditioning was only recently installed. "It is only a weekender, after all. It's comfortable," Hains says. A down-to-earth escape for a down-to-earth billionaire. David Harold Hains Moments from a life in business 193o Born August 19 * 1946 makes first whitegoods as technical school project, discovers newspaper-published plans for refrigerator don't work * 1947 joins engineering firm Mineral Drillers * 1949 starts Oriole Industries, selling it in 1954 * 1953 marries Helen Amelia Monsbourgh * 1954 opens Peter Kaye Appliances, named after the local dentist who had a "pleasant-sounding name", a hire-purchase business * 1958 founds Portland House (cont. overleaf) * 1959 acquires Kingston Park * 1964 approaches golf great Norman von Nida "for lessons"; plays the Spanish Open * 1963-65 buys put options in MLC, the acquirer of retailer HG Palmer, in the belief Palmer had massive bad debts. Is proved correct * 1967 buys the Collins Street address of Portland House Group * 1969 buys first horse, John Knox, in partnership with von Nida * 1976 buys Malcolm Moore, selling to BTR in 1986 * 1986 sells out of an interest in Russell Goward's Westmex pre-crash * 199o-91 restructures Wheeling-Pittsburgh Steel out of bankruptcy DAVID HAINS ON THE GROWTH TRAP Hains is extremely reluctant to proffer business advice but, when pressed, repeats an early mentor's line that the difference between a bankrupt bum and a wealthy merchant is "about two and half per cent". He emphasises there are too many factors to lay down fixed rules but that history reveals some key insights. Here are two examples: In a young business, taking significant risks is not only justified but a prerequisite of success - while luck in timing can be a major factor. But many a mature business has succumbed by adopting an excessive continuous expansion strategy financed by debt and fatally 'betting the farm'. A growth rate of say 20 per cent a year compound means one in five people at year end are new. New to the organisation, new to the culture. At the end of the next year, it is two in five relatively new, some learning from last year's intake. "Executives and staff need time to assimilate the culture and business model," Hains says. "One can never overestimate the importance of a sound culture in business."