Soul Patts Turns a 123-Year-Old Tax Liability Into a Weapon
The $15bn Brickworks merger flipped a $1.4bn deferred tax liability into a $792m asset and a $1bn franking-credit bank — just as the market starts punishing the private-credit managers Soul Patts is now backing.
SOL.AX · Earnings Call · 2026-09-23
What Actually Changed
For most of its 123 years, Washington H. Soul Pattinson was an equity-centric Australian holding company. That ended this year. Reporting FY26 on 23 September, the group completed what management calls its largest-ever transaction: the Brickworks merger. Todd Barlow was blunt about the scale — “FY '26 was a significant year for Soul Patts. We completed the $15 billion merger with Brickworks, the largest transaction in our 123-year history.” — Todd Barlow, Chief Investment Officer · 2026-09-23 The structural consequences ripple through every part of the story: a 35% larger shareholder base (84,000 holders), a delisting that moved Brickworks out of listed equities and into private companies and real assets, and — most importantly — a wholesale rewriting of the group's tax position.The Metamorphosis Nobody Priced
Here is the detail that matters most. After resetting the tax cost base of the combined group's assets to market, Soul Patts went from carrying a deferred tax liability of $1.4bn to holding a net deferred tax asset of $792m, or $2.09 per share. David Grbin framed the arithmetic plainly — “This change has arisen from the merger with Brickworks where the tax cost base of all of our assets was reset to market capital... it means we can transact in the future without tax friction.” — David Grbin, Chief Executive Officer · 2026-09-23 Layer on a franking credit balance of just over $1bn ($2.75/share) that grosses up to $2.4bn of distributable untaxed income, and the post-tax net asset value ($14.5bn, +31.4%) now sits above the pre-tax figure — an unusual inversion for any company. Per-share post-tax NAV rose 27.2%; the pre-tax portfolio returned 10.2%, beating the market by 4.2%.The Real Pivot: From Equities to a Multi-Asset Global Machine
Five years ago the portfolio was $5.8bn and 90% listed equities. Today it is $13.7bn with listed equities at 40% and six asset classes, each now carrying a global component. The newest is fixed income, an entirely fresh 20% sleeve built specifically to warehouse liquidity. Barlow's pitch for it is the contrarian one: “the current yield on this portfolio would have beaten the total return of the equity markets over the past year, and we are taking very little risk.” — Todd Barlow, Chief Investment Officer · 2026-09-23 That has produced $2.7bn of net cash and liquid investments, and $4.2bn of total liquidity including undrawn facilities. The group sold $7.7bn of assets and invested $5bn, its highest-ever turnover.Alongside that, the private company book nearly doubled and returned a ~32% IRR, while the private credit portfolio returned 13.5% with net cash flow up close to 40%. The offshore build is the strategically new piece: ~$1bn committed across 17 positions in FY26, a further $660m agreed post year-end, and $2.6bn total committed against only ~$600m drawn. The franking bank is the fuel — as Barlow puts it, “if we get a net 10% return from a credit fund offshore, that is to us, the same as us getting a domestic 14% opportunity.” — Todd Barlow, Chief Investment Officer · 2026-09-23
A Contrarian Bet Against a Selling Tape
This is where the narrative gets genuinely interesting, because the market's own price tape is moving the other way. Over the trailing 360 days, the global losers include a dense cluster of alternative-asset-manager themes — fee related earnings, fee-earning AUM, Private Equity business and management fee growth — all negative, driven by the same names (OWL, TPG, BX, ARES, KKR, CG). Soul Patts is aggressively expanding into exactly the asset class the tape is discounting. The defence is underwriting discipline: it has never written Australian real estate developer loans, which it says make up more than half the domestic private-credit industry, and it has avoided offshore SaaS credit, where it sees stress building.Supporting that: 22 exits since FY22, every one repaid in full with no capital losses, and more than 80 deals turned down in FY26 alone.We see it as a defensive asset class because all of the equity that sits behind us in terms of ranking is our buffer. It's our margin of safety. If something goes wrong, the equity gets chewed up very quickly and the debt stack is preserved.
Data Centers — Riding a Cooling Wave, Carefully
Global data centers exposure is one of the largest 360-day advancers, yet the AI-compute slice is now cooling — the market's "AI data center" basket is negative over 30 days (roughly 7 up, 52 down). Soul Patts' positioning looks deliberately timed to that cooling. Its real-assets data-center book is valued at $344m with $118m still to deploy, structured as cloud data centers with signed customer contracts.Notable by its absence: tariffs, the dominant global keyword across the last several quarters (tariff refunds, IEEPA refunds), simply do not feature here — a natural outcome of a diversified, increasingly offshore portfolio. The year closed with a 28th consecutive dividend increase (total $1.11, +7.8%) and FY27 already 4.3% ahead of a market down 1.1% to 22 September. A tax liability became an engine; whether the market's pessimism on private credit proves right is the multi-year question now riding on it.There is a downside protection with asset backing of industrial land with access to power... We have limited direct exposure to the AI-specific compute demand that gets a lot of attention in this space.