hen Treasurer Jim Chalmers presented his fourth consecutive Federal Budget there was a large focus on the deficit growing to $42.1 billion in the next financial year – but this was only considering the underlying figures, with economists pointing out the headline numbers paint a very different picture.
Off-Budget spending has soared to $85 billion over the forward estimate period, resulting in cumulative headline cash balance deficits of $236 billion over the four years to FY28/29, according to KPMG analysis.
“If we look at the headline figure right now, the Budget deficit looks even worse,” AMP deputy chief economist Diana Mousina told the Financial Standard podcast.
“This is a problem because the government is making ‘investments’ into specific things. These go into the off-Budget measures because they count as an investment, so it’s not necessarily the usual day-to-day spending or revenue measures.
“The problem is that [the money] might be going into an unproductive source, and it is still a source of spending for the government. It’s just been a strategy to keep things out of the underlying budget deficit numbers.”
Economist Saul Eslake tells Financial Standard it made sense, historically, to look at the underlying figure, but since around 2007 governments from both sides of the fence have used off-Budget spending to somewhat spin the actual Budget position.
The concept of the underlying cash balance was introduced by former Treasurer Peter Costello in 1996 to prevent the perception of the true state of the Budget from being “flattered” by privatisation proceeds. This was because former Prime Minister Bob Hawke used proceeds from the sales of Qantas and the first slab of the Commonwealth Bank to make the Budget look as though it was in surplus.
But the headline balance is no longer disguising proceeds, but rather, major debts.
Eslake says since 2007, when Kevin Rudd took power, the so-called “net investments in financial assets for policy purposes”, or off-Budget spending, has grown significantly.
The major problem, as Eslake points out, is that calling this spending an “investment” implies an eventual financial return, which for some “investments” is unlikely to ever come.
For example, the NBN was funded through off-Budget spending by subscribing equity and making loans. Eslake says this meant the government could claim it was not paying for the construction of the NBN, but rather buying shares in NBN and making loans to it.
This same method was then used by the Turnbull and Morrison governments to fund the Snowy 2.0, build the WestConnex and fund the Northern Australia Infrastructure Facility, none of which have provided any significant return on investment.
“The idea that these are investments that will yield a return to taxpayers is, I think, somewhat fanciful,” Eslake says.
After years of numerous governments using these “net investments in financial assets for policy purposes”, off-Budget spending has skyrocketed, leading to where we are today, with this spending forecast to reach about $12 billion per annum to 2028/9.
The blowout is due to billions of dollars being “invested” in things like the Clean Energy Finance Corporation ($4.2 billion per annum), the National Reconstruction Fund ($2.4 billion per annum), the Housing Australia Future Fund ($2.5 billion per annum) and then “commercial in confidence” spending ($2.6 billion per annum) – which the government does not disclose.
“All this spending tends to get ignored and there is less individual scrutiny given to each decision in there,” Eslake says.
“Despite the fact that it’s called the headline cash balance, it doesn’t attract headlines. Everyone has been trained to look at movements in the underlying cash balance, which was the right thing to do during the Howard and Costello era, because all that was really in there was privatisations plus a bit of student debt.
“Whereas, ever since the Rudd/Gillard government, governments of both political persuasions have had a growing tendency to ‘hide’ spending in this category.”
Eslake says the problem is not that money is going to these initiatives, but rather why governments are choosing to leave these expenses out of the underlying figures.
“It’s just not subject to the same scrutiny, and it gives people who have been trained to focus on the underlying cash balance a misleading idea of the true state of the Budget; an unduly flattering picture of the state of the Budget,” he says. fs
Eslake economist
Insurer Code breaches rise
Andrew McKean
Breaches of the Life Insurance Code of Practice (the Code) increased for a fourth consecutive year, with life insurers reporting 14,670 instances of noncompliance, a 19% increase from the previous period.
The Code, the industry’s north star for good practice, was breached in cases affecting more than 200,000 customers, nearly double the number impacted in the previous year, according to the Life Code Compliance Committee’s 202324 annual report. Most insurers saw their breach count climb, with five companies responsible for 90% of all reported incidents – the report didn’t disclose their identities.
As in previous years, insurers cited human error, staff failing to follow established processes and procedures, and resourcing issues as the main causes of breaches.
Human error was the most common factor, accounting for 44% of breaches, up from 36%.
Failures to follow established processes also rose sharply from 14% to 22%.
Continued on page 4
AMP surveillance slammed by FSU
The Finance Sector Union (FSU) has slammed a “draconian” employment contract issued to AMP staff.
Staff were recently given one week to sign the new employment contracts that enables AMP to carry out continuous video surveillance of them no matter where they are working - including when working from home, the FSU said.
Additionally, the proposed contracts would also allow AMP to require workers to undergo a medical examination by a doctor chosen by AMP.
The FSU said around 2000 AMP staff were issued new contracts on 17 March 2025, with a requirement to sign and return them by 24 March 2025, giving up important rights such as overtime, penalties and annual leave loading in exchange for a ‘flat rate’ of pay.
Staff are being “incentivised” to sign these new contracts with a $1000 share plan grant, and if they do not sign, will not be eligible for employee incentive programs, the union said.
Continued on page 4
Saul
By Jamie Williamson jamie.williamson@ financialstandard.com.au
Disappointments all round
When it rains, it pours.
In amongst the Federal Budget frenzy, we saw some major developments on several regulatory fronts. Most importantly, we finally saw some progress on the Delivering Better Financial Outcomes (DBFO) package, and the much-awaited release of ASIC’s review of super funds’ handling of death benefit claims landed.
The latest round of DBFO reforms came first and boy, did it disappoint.
With the second tranche of changes expected to include everything we’d been waiting three years for, it ended up looking more like a Tranche 1.5.
Crucial elements, like the removal of the safe harbour steps were missing, still being worked on by Treasury. This also included clarity around the new class of adviser.
Treasury also provided little detail alongside the reforms or, in the case of the Statement of Advice (SOA) changes, essentially rehashed exactly what’s already required by advisers in delivering SOAs, just with another name: Client Advice Record, or CAR. Not to be confused with the existing CAR acronym used widely
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within the industry for corporate authorised representatives, of course.
Really, the release raised more questions than it gave answers, but that may change with the third tranche (the other half of the second tranche?). When that will come remains anyone’s guess, however it will certainly be interesting to see what comes of these proposed changes; the consultation is open until May 2, and the federal election is called for May 3. The Opposition has committed to passing reforms in a timely manner thereafter, but will they look the same? Recall, Luke Howarth, the shadow minister for financial services, famously backed a proposal last year to instead have SOAs replaced by the Record of Advice – something that would actually put a dent in the time and effort taken to develop an SOA.
Meantime, ASIC’s review of death benefit claims has also dominated headlines of late.
The review found that not one trustee involved was tracking claims end-to-end, excessive delays, and that communications to grieving beneficiaries were often “ineffective and insensitive.”
www.financialstandard.com.au
And while much of the blame has been laid firmly at the feet of administrators in recent examples, like those of AustralianSuper and Cbus, or levelled at the beneficiaries themselves who have no clue how to go about making a claim, ASIC found that close to 80% of delays were due to processing issues within the super funds’ control.
The Association of Superannuation Funds of Australia responded to the report by apologising to Australia on behalf of its members. It claimed “significant improvements” have been made on this front in recent years – a point perhaps not as reassuring as the association thought it would be, and certainly cold comfort for those who have been left waiting years for payouts; ‘Half your luck – a few years ago you could have been waiting even longer.’
So, we add another review to the mounting pile of evidence a Royal Commission into the super sector just might be needed if we’re to see any real, meaningful change.
As it stands, the ordering of one any time soon remains highly unlikely. However, as with the DBFO reforms, all that we think we know may well change with the outcome of the election. fs
The total cost to keep APRA’s enforcement activity going is set to be $243 million in the 2026 financial year, with the superannuation industry taking up about 30% of this amount.
Super funds have been allocated $72.9 million to fund APRA’s operations, while life insurers and friendly societies are apportioned $19.5 million, the new discussion paper released by Treasury yesterday shows. ADIs have the lion’s share at $110.8 million.
APRA’s focus on the super sector continue to be asset valuation and liquidity risk management.
“APRA is finalising its initial review into trustees’ approaches to investment management internalisation as bringing investment functions in-house can lead to meaningful changes in an RSE licensee’s risk profile. APRA will continue its review of trustees’ investment governance practices for platform products and address findings, as needed,” Treasury said.
Retirement outcomes, member outcomes, and expenditure are three other core areas of supervision.
APRA warned it will “maintain intense scrutiny of fund-level expenditure to hold RSE licensees accountable for improving practices, reducing spending that is deemed not in members’ best financial interests and promoting the financial interests of their members.”
For life insurers, APRA flagged product and industry sustainability are still high in its supervision.
The levies for Small APRA Funds (SAFs) and Single Member Approved Deposit Funds (SMADFs) – a flat rate of $590 per fund – remain unchanged for the next financial year. fs
WT Financial enters JV
WT Financial Group has entered a 50/50 joint venture with Merchant Wealth Partners to invest in Australian financial advice practices.
The newly established entity – WTL & MWP Investco (Investco) – intends to provide strategic growth capital to high-potential financial advice firms across Australia. In line with Merchant’s Wealth’s global model, Investco will also take noncontrolling interests and will offer the practices it partners with long-term, “patient capital”.
WT Financial founder and chief executive Keith Cullen has been appointed managing director of Investco, while Merchant Wealth partner David Haintz will serve as executive director.
Investco intends to invest in a series of “hub entities” (Hubcos), each representing either a single practice or a group of complementary practices with multi-million-dollar revenue.
A hub may be selected for investment if it has developed a scalable front and/or back-end administration or investment model; specialises in particular advice types with potential for broad geographical rollout; operates within a specific advice market thematic that is scalable; or has a branded front-end marketing or referral model that generates consistent and qualified client flow with potential for growth. fs
01: Joe Longo chair ASIC
ASIC tiptoes around private markets intervention
Karren Vergara
ASIC chair Joe Longo 01 is keeping all options open before the corporate watchdog is forced to intervene in the private markets, he told the Australian Council of Superannuation Investors (ACSI).
Longo said ASIC is prepared to engage with industry bodies, such as ACSI, rather than directly intervene in the growing private markets sector that until recently has flown under any regulator’s radar.
When I think about regulation, I’m not talking about more rules.
“Or is there a role for the state to pull levers to say, ‘we need to be standardising that approach to valuations, or we need to be raising expectations on some element of corporate governance?’,” he said.
“From my perspective, ASIC’s role [is] how can we help make the system work better? And to my mind, we can’t really do that, and this really goes to the heart of the public-private markets paper we published a few weeks ago. We really can’t be a player on that question unless we know what’s going on and are open minded and prepared to engage.”
Since the global pandemic, IPOs experienced a drastic net decline – the lowest in over a decade.
In 2021, there were 210 new listings that excluded LICs. However, this dropped to 94 in 2022, followed by 38 in 2023 and 28 in 2024, according to the ASX. Furthermore, 400 companies delisted between 1990 and 2024.
“Listings on our public markets have been in decline for some time, so we need to understand more about whether that’s a problem or not.
In the private markets, we’re seeing increasing levels of investment by people particularly [by] superannuation funds. We need to understand what’s going on in the private markets in Australia with that growing investment,” he said.
The question he has been “grappling” with now is: do private markets need regulatory intervention? Pressing concerns for Longo are the need for transparency and the “data deficit” in private markets.
“When I think about regulation, I’m not talking about more rules. I’m talking about levers. Some of them can be led by organisations like ACSI, as to what the best practice is. But I think the question of regulatory complexity and what’s happened in private-public markets has a real link there. I’ve got no desire to re-regulate more than we have at the moment. It’s a big subject,” he said.
Longo acknowledged that the ASX has “topped out” for super funds.
Between one quarter and one third of the ASX comes from superannuation money, he said.
“I would expect, I think, that superannuation funds are doing the right thing looking at alternative investments,” he said, noting that the need for investments in infrastructure and artificial intelligence (AI) is “huge.”
“We all have an interest in orderly, efficient, fair markets. Whether they are deemed private or public, because that leads to confidence in investment, and it builds confidence in the system. It’s that systemic result that I’m looking for,” he said. fs
CSLR costs driven by poor advice: AFCA
Eliza Bavin
The Australian Financial Complaints Authority (AFCA) lead ombudsman, investments and advice Shail Singh has told financial advisers that poor practices are the main contributor to the soaring costs of the Compensation Scheme of Last Resort (CSLR).
“It’s important to remember that, ultimately, the main driver of the cost of the scheme is flawed business models leading to consumer complaints,” Singh said.
“What we are seeing here at AFCA is that conflicted advice models and inappropriate use of self-managed super funds (SMSFs) are the most prevalent issues behind complaints that then lead to CSLR claims.”
Singh said one in five of the complaints AFCA received in 2024 in investments and advice alleged failure by the adviser to act in their client’s best interest or to provide appropriate advice.
“We have observed troubling behaviour where some advisers recommend products based on incentives rather than what is in the best interests of the client,” he said.
“To put it simply, instead of finding a product for the client some advisers are finding clients for a product. “
In addition, Singh flagged that AFCA had also noted instances
where advisers were recommending SMSFs primarily to direct client funds into in-house investment products.
Singh said an associated trend is also the increased number of complaints linked to cold-calling tactics.
“AFCA has seen cases where individuals have been contacted by call centres, often after submitting their details online to secure a superannuation ‘comparison’,” Singh said.
“These calls are typically from unlicensed representatives who persuade consumers to switch to an SMSF and invest in a specific product. While AFCA can’t consider the actions of unlicensed entities, consumers are then referred to a financial adviser who formalises the transaction.
“Again, the aim is to lead consumers into an investment that benefits the firm rather than the client.”
Singh said the financial advice industry “plays a crucial role as gatekeepers protecting consumers’ wealth and ensuring their financial security”.
“While most advisers act in their clients’ best interests, problematic business models - particularly those involving conflicted advice, misuse of SMSFs and aggressive sales tactics - continue to drive complaints to AFCA, potentially feeding through to CSLR claims,” he said. fs
The quote
Insurer Code breaches rise
Continued from page 1
The report noted insurers most often classified these breaches as isolated incidents, reflecting a growing tendency to attribute them to individual staff errors rather than systemic failings.
“We understand there will always be a level of human error. However, the current rate of human error must, and it’s reasonable to expect that it should, come down,” it said.
“When breaches arise from human error or process failures, insurers should approach the issue holistically, rather than treating incidents as isolated or case-by-case occurrences.”
When things go awry, insurers most commonly reported providing staff training. This was cited in 6356 cases affecting 10,399 customers, comprising general staff training and targeted sessions on Code compliance.
Given that most breaches were attributed to human error and staff not following processes, it was unsurprising that staff training remained the most reported response, the report said.
However, it cautioned that while training will always play a role in addressing breaches, insurers must ensure they’re correctly identifying the root causes and assessing whether training is effectively stemming the flow of breaches over time.
The most frequently breached Code chapter was claims, with 9698 breaches, broadly in line with the previous year. Breaches relates to buying in life insurance more than doubled to 3021, while policy changes and non-claims communications fell 35% to 845. fs
AMP surveillance slammed by FSU
Continued from page 1
FSU national assistant secretary Nicole McPherson said the union was shocked when it saw AMP’s proposed replacement contract and urged workers not to sign it.
“This is a draconian contract that features some very disturbing surveillance and medical privacy provisions,” McPherson said.
“It is shocking that any employer would propose the right to video monitor its workers in their own homes, force them to undergo a medical examination by the employer’s doctor of choice and give up their right to privacy of medical information. We are advising AMP workers not to sign.”
McPherson said important rights were also omitted from the new agreements including details of any guaranteed pay increase, leave or redundancy entitlements.
“AMP needs to come to the table and urgently negotiate an Enterprise Agreement which would give its workers rights and protection,” McPherson said.
FSU said the contracts feature an annualised salary so workers would receive a “total fixed package” which is a salary that is inclusive of entitlements such as overtime, penalty rates, annual leave loading and superannuation.
In addition, some contracts include a requirement for employees to work an unspecified number of additional hours for no additional pay.
A privacy clause was also included which allows AMP to give away the personal information of its employees to a third party. fs
01: Simone Constant commissioner ASIC
The quote
The money from a death benefit can make a huge difference and each day a trustee delays that payment causes real harm to families. Trustees need to do better.
THREE LINE HEAD
Not one trustee tracked endto-end claims handling times
Andrew McKean
Areview of major superannuation trustees by ASIC found that not even one monitored or reported on the full process of death benefit claims handling.
The review of trustees including Australian Retirement Trust, Avanteos (Colonial First State), Brighter Super, Commonwealth Superannuation Corporation, HESTA, Hostplus, NM Super (AMP), Nulis (MLC), Rest, and UniSuper, found widespread failures.
ASIC found examples of excessive delays and poor service, gaps in trustee data and reporting, and inconsistencies in some trustees’ processes and procedures.
ASIC also noted that communication and engagement with beneficiaries was often “ineffective and insensitive,” reinforcing concerns previously raised by Financial Standard , including a case where Rest was accused of showing “zero compassion” to a family struggling to facilitate an insurance payout for a terminally ill loved one with weeks to live.
“At the heart of this issue is leadership that doesn’t have a grip on the fund’s data, systems and processes – and ultimately it’s the customers who suffer…,” ASIC chair Joe Longo said.
“This kind of disconnect is unacceptable in any area of corporate Australia, but in the superannuation sector it is particularly serious, because super affects everyone…”
ASIC’s review revealed that 27% of claim files reviewed involved poor customer service, including unreturned calls and dismissed queries, while 78% were delayed due to processing issues within the trustees’ control. Additionally, 17% of claimants were identified as experiencing vulnerability, and a third of those cases were “handled poorly.”
The disparity in claims closed within 90 days was also highlighted, with the fastest trustee
resolving 48% of cases within that timeframe, compared to just 8% for the slowest.
ASIC commissioner Simone Constant 01 said while some trustees demonstrated good handling practices and were providing helpful services to claimants, “systemic failures” by other trustees “exposed grieving Australians to added and unnecessary distress.”
“Grieving Australians should not have to suffer further stress because of the failure of superannuation trustees to approach claims in a timely, clear, and respectful manner,” Constant said.
“Trustees have not put in place meaningful performance objectives, tracking or reporting, and have failed to approach claims handling with consumers front of mind.”
Constant highlighted one “distressing” complaint in which one trustee took over 500 days to pay a death benefit of around $100,000 to a First Nations woman who was grieving the loss of her husband.
Constant noted the trustee failed to respond to her concerns about financial hardship and didn’t support her when she struggled to understand and navigate the claims process.
“The money from a death benefit can make a huge difference and each day a trustee delays that payment causes real harm to families. Trustees need to do better,” she said.
Following the revelation of the “devastating impacts” of poor industry practices, ASIC has issued 34 recommendations to superannuation trustees. These include improving customer service and response times, improved monitoring and reporting on claims handling timeframes, streamlined processes and procedures, better guidance and training for staff, removing barriers for First Nations members and claimants, and more support for members. fs
Dutton doubles down on ‘super for housing’
Eliza Bavin
Opposition leader Peter Dutton put his party’s policies on the table during his Budget reply speech, in which he campaigned on energy price reductions, a tougher stance on immigration and increased spending for healthcare and education. While Treasurer Jim Chalmers’ Budget on Tuesday had little mention of policies that would impact superannuation or financial services, Dutton doubled down on the Coalition’s ‘super for housing’ policy.
“We will allow first home buyers to access up to $50,000 of their super for a home deposit – because it is better to get into a house sooner,” Dutton said.
The policy has long been slammed by the superannuation sector with Super Members Council chief executive Misha Schubert reiterating the point in the wake of Dutton’s speech.
“Raiding retirement savings for house deposits would just unleash a supercharged price hike in house prices, not create more new home buyers,” Schubert said.
“That would mean home buyers in future would have to pay higher repayments on bigger mortgages for longer, worsening housing affordability and cost-of-living pressures on younger Australians.
“And if people retire with less super, that will also push up Age Pension costs - a bill that every Australian taxpayer would pay.”
Along with the ‘super for housing’ policy, Dutton laid blame on increased migration for Australia’s housing woes. He said his government, if elected, would curb migration to help free up homes.
“I don’t want young Australians locked out of the property market – or having to rely on the bank of mum and dad,” he said. fs
01: Peter Labrie executive director, FirstChoice Colonial First State
Lowering the cost to serve
How FirstChoice is helping
Australia’s financial advice industry is staring down the barrel of an enormous opportunity: the chance to deliver ongoing advice to more than 650,000 Australians while also dolling out one-off advice to many, many more.
As individuals, the nation’s 15,500 financial advisers currently work with about 110 ongoing clients, but research conducted by Colonial First State (CFS) and Empower Business Advisory shows they want to serve more, with 152 ongoing clients apparently the sweet spot. This would mean servicing close to 40% more clients; imagine that – 2.4 million Australians experiencing the transformational power of financial advice.
But there’s just one, big problem standing in the way of these ambitions becoming reality – every single day advisers are faced with many smaller challenges that collectively form an unyielding roadblock to increasing capacity and profitability.
In large part, they relate to the overwhelming compliance burden. Two-thirds of advisers say inefficiencies in generating Statements of Advice and Records of Advice, completing regular client reviews, managing fee consents and other elements of the advice process are their biggest hurdles. Others say it’s primarily capacity constraints and bottlenecks created in specific areas that are holding them back, while some 32% said it comes back to clients’ ability to afford advice or the practice’s ability to service clients profitably.
As we know, particularly from the Quality of Advice Review and all the discussion around the Delivering Better Financial Outcomes reforms, the affordability piece is key here. So long as cost remains a barrier to access, the advice gap – where only those who can afford it get it while those who need it most can’t – is only going to widen.
“The financial advice gap in Australia is impacting both Australians and the advisers who support them. Fewer Australians are accessing the advice they need, particularly middle Australia,” says Peter Labrie, executive director, FirstChoice at CFS.
For CFS, the solution is obvious – do what it can to improve the efficiency of advice practices and lower the cost to serve, thereby making financial advice more affordable. Over the last two years, CFS set out to do just that. It’s starting point? The flagship FirstChoice platform.
“We have been focused on improving our FirstChoice platform to address the challenges advisers face with technology integration and fragmented systems,” Labrie says.
“We believe that by making FirstChoice more efficient, we enable advisers to service more clients efficiently and effectively.”
Integrations have been a central pillar in uplifting the platform. In particular, Labrie points
advisers service more clients
to the partnership entered with Elemnta in November 2023 which added functionality that allows advisers to use existing client data via integration with advice planning software including Xplan, Midwinter, Morningstar AdviserLogic amongst others.
“This allows advisers to open multiple accounts simultaneously with secure and simple digital consent, cutting set-up time by up to 80%,” Labrie says.
“This reduces the time spent on administrative tasks, minimises the risk of human error, and enhances overall efficiency.”
According to the Advice Practice Profitability report, it now takes just 34 minutes for new clients to be onboarded to FirstChoice; the industry average is 75 minutes. Further, about 69% of users agree that FirstChoice has reduced complexities in their business.
And to ensure advisers are truly making the most of the added benefits, CFS also introduced the FirstChoice Business Optimisation service, which sees platform specialists travel to practices to review their existing use of FirstChoice and show them how, with small adjustments, they could maximise efficiencies. This includes using the integrated functionality and the use of managed accounts.
“Our specialists visit practices across the country, helping advisers review their operational setup and identify efficiency opportunities,” Labrie explains, adding that take-up by advice businesses has exceeded expectations.
“This service has been instrumental in helping advisers enhance their practice management and serve more clients effectively.”
According to the Advice Practice Profitability report, 85% of clients were served profitably by advisers who were primary users of FirstChoice, and this is despite new clients typically having smaller average portfolio sizes. Supporting this, about 69% of FirstChoice users agreed that the platform lowered their cost to serve.
FirstChoice excels at providing profitable service to clients with simpler advice needs. In fact, three-quarters of advisers surveyed for the report highlighted low fees and costs as key factors that make FirstChoice well-suited for these clients.
Labrie points out that advisers using FirstChoice serve more ongoing clients compared to those using other platforms – a clear example of how FirstChoice helps advisers achieve their business goals.
“Efficiency enhancements are crucial for these goals. FirstChoice supports this with low fees, simple administration, a diverse range of investment options, and a simple easy to use platform,” Labrie notes.
Advisers shouldn’t have to weigh affordability
The quote
Together, we can ensure that more Australians have access to the quality financial guidance they need to secure their financial futures.
and profitability, particularly in the face of the largest intergenerational wealth transfer Australia has seen and the silver tsunami of retirees that is beginning to peak.
“CFS is taking a holistic approach to helping advisers service more clients,” Labrie says.
“This includes practice management support and workshops to help advisers integrate artificial intelligence into their processes.”
Labrie says advisers can leverage artificial intelligence (AI) to significantly enhance their efficiency and service delivery. He points to the recent CFS 10x events, held in partnership with Microsoft, which were hugely popular with advisers and highlighted several practical applications of AI in the financial advice industry.
“At the Sydney event it was demonstrated how AI can be used to analyse large datasets and provide personalised recommendations to clients,” he says.
Labrie notes that this capability enables advisers to offer tailored advice based on individual client needs and preferences, thereby improving client satisfaction and retention.
“Additionally, AI-powered chatbots and virtual assistants can handle routine client inquiries, freeing up advisers’ time for more complex and high-value tasks,” he explains.
“AI-driven tools can also automate the generation of Statements of Advice and Records of Advice, reducing the time and effort required for these tasks. This automation not only streamlines the process but also minimises the risk of human error, ensuring greater accuracy and compliance.”
By leveraging technology and innovative solutions, CFS aims to bridge the advice gap and support advisers in delivering high-quality financial guidance. This approach not only enhances the efficiency of advice practices but also ensures that financial advice is affordable and accessible to a broader range of Australians.
According to CFS, by enabling advisers to lower their cost to serve, platforms can contribute to a more accessible, scalable, and client-focused industry.
“Together, we can ensure that more Australians have access to the quality financial guidance they need to secure their financial futures,” Labrie concludes. fs
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01: Cristean Yazbeck director Hamilton Blackstone Lawyers
Dear ASIC: How to respond to a regulatory notice
A poorly planned and inadequate response to either a general inquiry or statutory notice from ASIC typically leads to protracted surveillance and action.
Trying to avoid an ASIC notice is futile. AFSLs and advisers should accept that, at some point, they will get one, and probably multiple.
Responding to notices and dealing with regulators is just part of being in business.
A notice, in and of itself, isn’t cause for concern. It isn’t necessarily a sign of wrongdoing, although it’s natural to worry. Even the most seasoned legal and compliance professionals get nervous when they see that blue bricked diamond.
Every year, ASIC receives thousands of tipoffs about misconduct and also uncovers misconduct through its own monitoring and surveillance activities.
As part of a formal investigation, ASIC gathers information from those that are the subject of investigation, as well as people and entities that may have relevant information but are not suspected of any wrongdoing. This may even include clients.
Voluntary or compulsory
At a high level, ASIC may seek a person’s voluntary participation, or they may issue a statutory notice, which is compulsory. They are both very different and require a different approach.
A general enquiry will usually be by email or phone call. If a formal statutory notice is not attached to an email, it is a voluntary request.
It’s natural and commendable to think, ‘I’ve done nothing wrong and I’ve got nothing to hide so I’ll hand over information,’ but that approach may not be in a person’s or company’s best interest. As a general rule, businesses should not voluntarily hand over information.
Responding to a general enquiry
1. Don’t ignore it
Read the request carefully, treat it seriously and enact your Regulatory Response Plan (RRP).
Every business should have a formal RRP that helps them to respond quickly and effectively to various requests. For businesses that are yet to formulate a plan, the points below provide a good starting point.
2. Get to the bottom of the matter
Examine the basis of the request and consider the events, past and recent, that may have given rise to ASIC’s communication. In the initial request, ASIC may not spell out the reasons for making contact, especially if it’s a fishing expedition. That said, the information they are requesting will provide an indication of their agenda.
3. Seek professional advice
The average advice business does not have the necessary skills and experience inhouse to fully understand if, firstly, they should provide the requested information and, secondly, the consequences of providing (or not providing) that information.
4. Respond in a timely manner
Do not keep ASIC waiting, as a lengthy delay can raise concerns. In most situations, the appropriate response will be to acknowledge ASIC’s request but state a preference to respond to a statutory notice to ensure that statutory protections are in place. In some cases, ASIC will not issue a subsequent statutory notice, however, firms should expect and prepare for one. Statutory notices which request information and records from the business, are usually addressed to the licensee. However, advisers may receive is a Section 19 notice compelling their attendance at an examination.
Responding
to a statutory notice
A compulsory notice shouldn’t immediately be treated negatively although, historically, they have very quickly become negative for AFSLs.
The biggest single mistake people make is not treating the notice as a legal exercise. If your business is on ASIC’s radar, your RRP needs to be enacted.
1. Enact your Regulatory Response Plan
Again, if your business does not have a plan yet, the points below provide a good starting point.
2. Treat the notice extremely seriously
It is an offence not to comply with a statutory notice, which will usually ask a person or company to produce certain books and records, and/ or appear before ASIC to answer questions.
3. Determine why ASIC is interested in you and your business
A statutory notice is a legal document that will contain more information than a voluntary request, including the reasons why ASIC is seeking information. Under the ASIC Act, ASIC has the power to seek information for the purposes of an investigation or in respect of ‘an alleged or suspected contravention’.
4. Seek professional advice
A statutory notice signals that ASIC is in liti-
The quote
It’s natural and commendable to think, ‘I’ve done nothing wrong and I’ve got nothing to hide so I’ll handover information,’ but that approach may not be in a person’s or company’s best interest.
gation mode. It is investigating someone, usually in your business. ASIC is trying to obtain evidence in a form that may be used in subsequent enforcement action. A lawyer can help you understand the scope of a notice, ask for clarification, and craft your responses without disclosing too much and exposing the business.
5. Ask for an extension or for the scope to be reduced
Depending on the type of notice, companies will be given a specific amount of time to respond, typically up to 28 days. By law, a person or company must provide ‘all reasonable assistance’ to ASIC but, in some situations, a request could be deemed unreasonable. Negotiating an extension can be difficult, as the concept of reasonableness is subjective. The onus is on AFSLs and advisers to establish unreasonableness, and businesses can, and often do, come undone by claiming a lack of resources.
6. Be honest and truthful
Do not mislead or conceal information from the regulator. It can be easy to think, ‘If I don’t tell them, they won’t know’, but ASIC is clearly investigating a specific issue and will not stop until the full truth is uncovered.
7. Do not waive legal professional privilege
AFSLs and advisers don’t have to, and in most cases shouldn’t, produce documents that are protected by legal professional privilege. All too often, businesses hand over privileged material or disclose the substance of advice provided by a lawyer, which waives legal professional privilege.
Take your time but move swiftly
While it’s never a good idea to keep ASIC waiting, the quality of your response to a notice will determine what happens next.
A poorly planned and inadequate response to either a general inquiry or a statutory notice typically leads to protracted surveillance and action.
On the flipside, a thoughtful, well-planned response can demonstrate to ASIC and other stakeholders the strength of a company’s risk and compliance function. It can highlight the quality of a licensee’s records and files, and the presence of robust controls including monitoring and supervision. fs
01: Stephen Jones minister for financial services
02: Sarah Abood chief executive Financial Advice Association Australia
Tranche 2 of DBFO dumps SOAs, enables ‘nudges’
Jamie Williamson and Andrew McKean
The long-awaited Tranche 2 of the Delivering Better Financial Outcomes draft package switches Statements of Advice for Client Advice Records and clarifies what topics super funds can collectively charge for.
The second round of draft legislation, released on March 21, covers three key areas of reform: the eradication of SOAs; the advice topics super funds can collectively charge members for; and allowing super funds to ‘nudge’ members at key life stages.
SOAs will be replaced by Client Advice Records (CARs); “a principles-based, technologically neutral record that is in plain English and supports the client to make an informed decision about the advice.”
The CAR must include the scope of the advice, the advice, reasons for the advice and how it meets the client’s objectives, the cost of the advice to the client and benefits received by the provider, and details of the provider including whether they are an authorised representative. A CAR will not be required in all circumstances, including for small investments below a threshold amount and where the client has already received a CAR and their circumstances have not drastically changed.
When it comes to the advice super funds can collectively charge for, Treasury is proposing they do so where it relates to contributions, investment options, insurance held through super, and retirement income.
In terms of what personal circumstances may be considered in the provision of that advice, Treasury has suggested the member’s cashflow and household income, household assets and interests outside of super, financial position of the spouse, household debts and liabilities, and eligibility for government services and payments.
Super funds will not be able to collectively charge for advice where it relates to the purchase or disposal of non-super assets or other financial products, holistic financial planning, and estate and tax planning advice.
Finally, funds will be able to send targeted prompts to members - or ‘nudge’ them - at specific lifestages to boost their engagement with their super.
Trustees must “develop an assessment framework before sending any targeted superannuation prompts, which will involve identifying the targeted group, considering the appropriateness of the advice for the group and taking steps to identify and manage any risks.” Provided the trustee follows the guidelines, the advice will not be considered personal in nature.
“This is about cutting red tape that adds to
cost without providing a benefit to consumers. It will also expand access to financial advice about savings, retirement and insurance for all Australians,” minister for financial services
Stephen Jones 01 said.
“The government continues to develop legislation to modernise the best interests duty and create a new class of adviser. Reforming the best interests duty and removing the safe harbour steps will provide advisers with confidence to deliver appropriately scaled advice.
“The new class of adviser is also vital to allowing life insurers, financial advice licensees, superannuation funds and other institutions to expand the supply of quality and affordable advice to consumers.”
‘Pretty disappointing’: FAAA
The Financial Advice Association Australia (FAAA) came out swinging against Treasury, saying it can’t support the reforms without “substantial change.”
FAAA chief executive Sarah Abood 02 said the result was disappointing, given it follows more than three years of time and resources invested in efforts to deliver high-quality advice to more Australians.
“Our single biggest concern in relation to the draft legislation is that it appears to give super trustees the ability to collectively charge for comprehensive retirement advice,” Abood said.
Abood said, “this is concerning on many levels,” warning the cost of collectively charged retirement advice would likely far exceed that of collectively charged intra-fund advice.
“Members of these funds will be paying much higher amounts for advice they aren’t actually receiving - including members who’ve sought, and paid for, their own personal financial advice but must still pay for the collectively charged advice provided to other members...,” she said.
The other area left unstated, she added, is who’ll be permitted to provide this type of advice - whether it’ll fall to the proposed “new class” of adviser, or only professional financial advisers, many of whom are “already working successfully” in super funds.
The FAAA has consistently maintained that retirement advice should only be offered by licensed professional financial advisers.
“This type of advice is both complex and high stakes for the consumers involved - if poor advice is given in this lifestage, it can be extremely difficult for a consumer to recover their financial position when no longer earning income from personal exertion,” Abood said.
Abood noted professional advisers have the education, experience, and ethical obligations
The quote
Cohorting members based on anything other than age is going to be very difficult for super funds to achieve at present, without the support of a dedicated data collection function...
that enable them to provide this advice safely, and that by saying these are no longer required for such an important facet of consumers’ financial affairs would undermine the whole point of professionalising financial advice.
Abood also raised concerns that the draft legislation doesn’t impose any obligation on superannuation trustees to provide advice on key areas of retirement to consumers, like, estate planning, aged care, and the Age Pension, including the Home Equity Access Scheme.
She noted that funds have little commercial incentive to offer advice in these areas, as they don’t affect the assets held within the fund.
On nudging, trustees would be required to develop a framework to target groups of members with advice that suits the cohort as a collective, rather than individuals, a detail that also raised concerns for Abood.
“While there’s a list of characteristics given that could be used for cohorting - such as age, income, homeowner status, relationships status - the reality is that super funds generally don’t hold much of this information on their members,” Abood said.
“It’s one of the most important and highestcost areas where a professional adviser adds value - by helping a consumer pull together all this information and build a comprehensive picture of where they’re at as well as where they want to be.
“Cohorting members based on anything other than age is going to be very difficult for super funds to achieve at present, without the support of a dedicated data collection function - across, for some funds, millions of members - which would presumably be collectively charged.”
Abood added that the FAAA is concerned these provisions could effectively staple a member to their super fund for life, with no trigger for them to consider whether their current fund is still the right one for them in retirement, and no support for their retirement needs beyond an allocated pension or annuity - “this is not advice, it is product sales.”
Abood concluded that the section of the draft legislation “we all had high hopes for” - simplifying SOAs - “sadly... is also disappointing.”
“Analysing the requirements for the new CAR we haven’t found a material difference between these obligations and those for SOAs...,” she said.
“We were hoping for a much lower level of prescription, and greater recognition of professional judgement, as well as indications as to how the other areas of prescription (notably the impact of ASIC interpretation) would be dealt with.”
This round of draft legislation is open for consultation until May 2. fs
Private equity returns have been superior to public markets for a very long time – a fact many people seem happy to accept without asking why. Andrew McKean writes.
It’s generally accepted that the higher risk and illiquidity of private equity should command a premium of 3-5% over public markets – a hurdle the Australian Private Equity and Venture Capital index has consistently cleared across periods, according to a report prepared by Cambridge Associates for the Australian Investment Council.
Ultimately, the connection between the shareholder – a private equity firm – and a company’s management team is much stronger. There’s no procession of non-executive directors to work through; it’s a proper partnership with management, and that set up engenders faster decision-making, clarity around strategy, and an understanding of what everyone’s trying to achieve – creating and maximising value.
By contrast, public companies are beholden to a crowd of shareholders and stakeholders, each with their own agenda tied to their stake in the business. It’s a dynamic which can quickly turn messy, especially in takeover talks, where competing interests tend to muddy decision-making processes, according to commentary published by Russell Investments.
Governance structures in public markets are also cumbersome. While a large board may be appropriate for companies with tens of thousands of employees, it’s a different story for a $100 million revenue business in Australia, Pacific Equity Partners managing director Cameron Blanks 01 says.
For smaller companies like that, he says, having six non-executive directors subject to remuneration committees and proxy advisers “is distracting for management teams,” adding that their investors only hear from them every six months, which is “kind of crazy.”
“Our model is: you source a deal, sit on the board, and then you sell the deal – it’s cradle to the grave. If it’s one of my deals and I’m sitting on the board, I’m talking to the chief executive of that company every day. But it’s not like I’m micromanaging the company,” Blanks says.
“The chief executive is running the company day to day, but there’s all sorts of stuff we’re talking about – when we’re going to meet, who we should talk to next, whether I know someone in the industry. Talking about their team, what they’re doing, their strategy, it’s a collaborative environment.
“And then, if they want capital – if they say, ‘I want to do a bolt-on acquisition’ – we can move really quickly because we’ve got this very close relationship. We don’t have to go back and bring everybody on the journey in a big board environment… it makes a huge difference to nimbleness and the way that you can go about executing strategy.”
Capital goes private
Private equity has steadfastly outperformed public markets, though notably, there is a dispersion of returns between top quartile managers and the median. Even so, private equity in Australia remains a fraction of the public market in size.
But it has “grown significantly” in recent years, according to the Reserve Bank of Australia (RBA). Assets under management in Australian-focused private equity funds – a “key component” of the market – have nearly tripled since 2010 to $66 billion as at June 2023.
Importantly, this represents only a portion of the total stock of private equity financing to Australian businesses, as the value of private equity financing from other sources – including friends, family members, and angel investors – is often undisclosed.
The RBA said that while some of this growth was driven by returns on investment portfolios, fundraising has also played a role in recent years. In 2022, private equity funds with an Australian focus raised a record $11.7 billion – well above the $4.1 billion annual average (inflation-adjusted to
Feature | Private equity
01: Cameron Blanks managing director Pacific Equity Partners
2022) of the prior decade. This also outstripped capital raised on the public market via initial public offerings (IPOs), which totalled $1 billion in 2022, compared to a $9.8 billion annual average (inflation-adjusted) over the prior decade.
On the one hand, a large, competitive private equity market can contribute to promoting an “innovative, efficient, and dynamic business sector” in Australia, the RBA said. This applies to not only companies that receive private equity backing, but also to peer companies where the prospect of a takeover can “provide more discipline on existing management.”
However, the central bank questioned whether private equity’s growing footprint might also reduce the size and diversification of the public market.
Blanks notes total market capitalisation of exchanges globally is about US$125 trillion, compared to around US$12.5 trillion in private markets – a 10% share. A decade ago, private markets represented about 5%, and he expects this could rise to 15% over the next 10 years.
“At some point, it will level out – whether that’s at 20 or 25% – but it’s not like the public markets are going away. It’s a slow, steady shift from public to private,” Blanks says.
“There are very large companies, like Apple, that clearly are going to be public companies. They are just so enormous. But for a lot of smaller companies, it makes no sense to put all the reporting burden, government burden on top of them – they don’t need to be public. They can have access to capital by staying private –that’s the real thing going on.”
Crescent Capital managing partner Michael Alscher02 explains that the pile-on into alternatives has been brewing for years, underpinned by, among other things, the growing weight of capital seeking long-term returns rather than short-term returns.
Investing consistently over the long term through public markets has become difficult, Alscher says, amid, “constant gyrations, movements, and challenges,” which he adds is why there’s been a big move away from active managers and into index funds.
At the same time, he says, alternative assets have emerged in such a way that managers own assets outright, are much more engaged with the management of those assets and can optimise those capital structures in different ways to create outsized returns.
“You’ve seen a level of outperformance from being unlisted in alternative assets versus listed markets, and that has continued. Then you overlay on that an incremental trend, which is the more money and more weight of money finding its way into alternative assets, the more buyers you have outside of the traditional IPO exit pathway that you once had,” Alscher says.
“Also, as a result of the material move to index funds, you’ve got less managers that are listed that are willing to support IPOs. Strangely, these things all feed on each other…”
Michael Alscher managing partner Crescent Capital
There’s this narrative that private equity builds up huge amounts of leverage, and it’s just not true. It was true in the 1980s – they were doing 90% debt, 10% equity – but that was the ‘Barbarians at the Gate’ days. It’s not like that anymore. The industry has moved on…
Cameron Blanks
Alscher adds that the explosion of money barrelling into alternative assets was extremely accelerated between 2010 and 2020 – “like someone poured accelerant over the fire” –thanks to a decade of benign global conditions: low inflation and low cap rates.
That environment primed a large troop of the private equity community to prosper, enabling them to leverage assets in ways not possible in listed markets, which accentuated returns. But in the past few years, that trend has reversed.
Since 2023, private equity activity has slowed, in part due to higher debt servicing costs, with Australia’s experience mirroring private equity activity in other developed markets, according to the RBA. Earlier strength, it said, occurred against a backdrop of rapid economic expansion during the pandemic recovery, low interest rates, and strong company balance sheets, including elevated cash assets.
Alscher says since 2021 – “the peak of fundraising” – inflation has reared its ugly head, profit growth has been lower, and many businesses have tracked sideways. With cap rates going up, business valuations have been falling, the cost of capital has been rising, and the cost of debt has also risen. As a result, many private equity managers are “kind of stuck.”
But stagnation is applicable to listed markets too. Stripping out the Magnificent Seven from the S&P 500, the index has meandered sideways over the past few years. Without those tech titans, gains were relatively subdued, with returns of 4.1% in 2023 and 6.3% in 2024, according to DataTrek Research.
So, yes, private equity activity has been limited – but “it’ll sort itself out. It’s just a cycle,” Alscher says, adding that the march to alternative assets will continue because its returns outperform listed markets over the long term. While investors pay for this with some degree of illiquidity, for those with a long-term view – like a family office or superannuation fund – seeking a capital return rather than income, “private equity is perfectly aligned with that.”
Blanks, however, disputes the idea that private activity has meaningfully slowed due to higher debt servicing costs, arguing “that’s not what we observe in the real world.”
“There’s no shortage of deal activity at all. There was a small period of time when the overnight interest rate went from zero to 4% very
quickly, and there was a time of readjusting to the new normal. But even 4% interest rates aren’t high,” Blanks says.
“They’ve been way higher than that and had lots of private equity activity. And remember, we don’t borrow at the overnight rate – we’re borrowing on a five-year slot, and the difference on that five-year slot is much less than the overnight rate difference.”
He goes on to say there’s a real misconception about the use of debt in private equity, arguing that the industry is “very prudent” in how it uses debt.
“There’s this narrative that private equity builds up huge amounts of leverage, and it’s just not true. It was true in the 1980s – they were doing 90% debt, 10% equity – but that was the ‘Barbarians at the Gate’ days. It’s not like that anymore. The industry has moved on…,” Blanks says.
Super steps back?
The main external investors in Australian private equity funds are institutional investors, particularly foreign institutions and superannuation funds, and, to Alscher’s earlier point, the RBA notes this reflects, in part, that these investments are relatively illiquid.
The RBA said the share of capital committed to Australian private equity funds from foreign investors rose steadily to 45% in 2019, compared to less than 10% in 2010. Over the same period, the superannuation industry has gone from being the dominant investor class in Australian private equity to accounting for one-third of capital committed. Their exposure to unlisted equity has also declined from around 12% of total assets in 2013 to 5% in 2023, according to APRA. Schroders head of business development and private markets for Australia Claire Smith 03 says that private equity is one of the more expensive asset classes to invest in, especially the “really good” funds, which can clip a 2% management fee and 20% performance fee. Most super funds
02:
operate within a fee budget or are looking to minimise costs under RG97 fee disclosures, which makes private equity “quite difficult.”
“The thing about private equity is the dispersion in manager returns is huge. Top quartile managers are earning 20% plus internal rates of return, while bottom quartile managers could be earning less than listed markets. If you want to get access to the best managers, you usually have to pay full fees because they don’t really offer discounts,” Smith says.
“The other thing is, superannuation funds are getting bigger and bigger, and research shows that the best returns in private equity are in the small to mid-cap segment. When you’re managing $200 billion, you can’t go out and invest in a company worth $100 million, because you’ve got to monitor it, value it, and from a return-on asset perspective, even if you make five times your money, it’s probably not worth it for the whole super fund.”
Alscher says superannuation funds fall into two camps. One continues to invest steadily in private equity, both domestically and offshore. The other, he says, had previously allocated to Australian and some global private equity but has scaled back because of concerns over management expense ratios.
“They all get judged on what their management expense ratio is. And superannuation funds hate being in the bottom quartile on their management expense ratio. They don’t like showing the amount of money they pay to private equity because it represents a disproportionate amount of fee expenses for the size of their portfolio,” Alscher says.
“When you’ve got a listed manager willing to work for you [a super fund] for 30 basis points, and a private equity manager charges 2% and 20%, they really struggle with that. If that [private equity] fund does, you’re paying them 20% of the gains – and yes, that’s because they’ve outperformed the broader market. But irrespective of the amount of money returned, a large part of the superannuation industry doesn’t focus on net returns.”
Instead, Alscher argues, super funds remain fixated on expense ratios. It’s a familiar story told through glossy marketing: low fees, compounded over time, are sold as the panacea to “a lot more money.”
He says that’s one way of looking at it, but that’s because super funds are assuming they’re going to get average returns. Meanwhile, private equity managers are outperforming – citing, in this case, Crescent Capital’s 20-year return of 19% net to investors per annum.
“They [super funds] can’t get that, and that’s after fees. But if they see it [outperformance] generates a high fee expense, then that creates an issue for them to reinvest,” he says.
“One of the big changes that’s happened in superannuation is that some funds have either de-emphasised alternative assets because of the fees, or they’ve internalised the function. That’s
Private equity | Feature
going to be an interesting strategy. I think it will end in failure at some stage.
“Then the third thing that’s happening, besides the internalisation, is that a number of funds are moving to a fee-free co-invest model, where they give money to asset managers to invest in private equity on a zero-fee basis and paying that asset allocator a fee to find the managers that will take money on a zero-fee basis. As a result, the market’s bifurcating the different types of superannuation funds based on their own individual strategy.”
Private wealth steps in
So, who’s replacing them at the table? Smith says foreign capital is becoming a much bigger percentage share, as reflected in the RBA’s data, alongside a growing cohort of wealth and family office groups.
“There’s a lot of evergreen private equity funds launching in the market. I think they’re all trying to capture private bank, independent financial adviser, family office wealth as well. It’s getting harder and harder for superannuation funds to allocate to private equity when the fees are higher,” Smith says.
TownsendCobain Private Wealth partner Tim Townsend04 says that, partly because institutions aren’t buying as much, private equity managers have had to find a place to sell, and where they’re coming to is the private wealth space.
“They’ve been banging on the door over the last few years with lots of stories to tell like ‘we’re missing out’ and ‘the institutions are doing great.’ But that’s at the same time as the institutions are backing away to some degree. It’s an interesting combination,” he says.
“Half the job is knowing what you don’t know and then not making significant decisions in areas of ignorance, and I think there’s a fair bit of learning for us to do…”
He says the danger for those in wealth management is that as they cross this threshold from public investing to private, they must come to understand the rules of the game really well and not burn clients’ money in the learning process.
“We’ve spent most of our investment lives, or a large part of it, in the zoo, where there are rules, regulations, disclosure requirements... We are now hunting in a jungle where – don’t get me wrong, I think there are things in it that are good and could benefit my clients – but I suspect there’s also the possibility of getting your throat ripped out by something,” he says.
Australia’s already a heavily regulated market, and every additional reporting requirement for private equity managers adds costs – costs that ultimately fall to investors. That said, transparency is still a good thing.
One of the challenges with private equity, however, Smith says, is that while managers are often happy to show a company is performing, that changes when the business becomes a potential IPO candidate or is being prepared for sale.
“For us, when you’re in, you know all the details. But then, as soon as there’s M&A activity
We’ve spent most of our investment lives, or a large part of it, in the zoo, where there are rules, regulations, disclosure requirements…We are now hunting in a jungle where – don’t get me wrong, I think there are things in it that are good and could benefit my clients – but I suspect there’s also the possibility of getting your throat ripped out by something.
Tim Townsend
going on, suddenly we have to stop talking about the company in great detail. What we often do, to try and increase transparency for investors, is show statistics around aggregates of the portfolio. So, what’s the aggregate EBITDA margin of these companies? What’s the aggregate sales over the past 12 months? Or we’ll take the top 10 holdings within the portfolio and do reporting on those in a look-through basis…” she says.
But sometimes Schroders, like others in the industry, is restricted at the individual holding level, because if that information falls into “the wrong hands” and something goes awry, that could breach confidentiality agreements with the company.
One of Smith’s bigger bugbears, though, is valuations. She says some funds in the market don’t run particularly robust processes, meaning investors could be trading off valuations that could be several months old.
“There needs to be more scrutiny around that valuation process, because you have people trading off these valuations every month, and you need to make sure that all investors are treated fairly,” she concludes.
Financial Standard understands there’s also quiet concern among others in the industry that some smaller funds may be cutting corners on valuation practices – and if investors get burned, it could have a contagion effect across the whole industry.
To improve transparency for investors, Schroders reports aggregated portfolio data rather than company-specific disclosures. This includes metrics like the portfolio’s average EBITDA margin and aggregate sales over the past 12 months. It also provides look-through reporting on the top 10 holdings to give investors a sense of how the underlying companies are performing. fs
03: Claire Smith head of business development and private markets Australia Schroders 04: Tim Townsend partner TownsendCobain Private Wealth
Pearler Super launches
Karren Vergara
Trading platform Pearler is taking on the superannuation sector in launching Pearler Super and will shortly release HomeSoon to help young Australians maximise the First Home Super Saver Scheme (FHSSS).
Pearler Super is strictly targeting young members. It is not available to those born before 1 January 1970 and therefore does not offer a pension account.
Members can select from more than 40 ETFs to invest their savings, offered by the biggest ETF providers such as BlackRock, Vanguard and SSGA.
Pearler Super is offered through Super Simplifier, a product under RSE, Equity Trustees Superannuation.
DASH is the investment administrator and promoter of Pearler Super, while DDH Graham is the member administrator.
The super fund charges 0.438% in administration and transaction fees, and 0.11% for brokerage fee per buy/sell.
Pearler Super is only accessible for Pearler customers. Some 85% of Pearler’s users are invested in ETFs.
“We’ve seen growing demand from our community for a simple, transparent super product that aims to mirror the way they already invest outside super,” Pearler co-founder Nick Nicolaides said.
“Pearler’s product development has been heavily shaped by user demand. A recent survey of 1421 Pearler customers found that 74.6% preferred ETFs as part of their super investments, and within that 27% specifically favouring all-inone or diversified ETF options.” fs
Qantas Super, ART merge
Qantas Super and Australian Retirement Trust (ART) officially merged on March 29.
About 25,000 members with $9 billion in funds under management (FUM) have moved from Qantas Super to ART.
Qantas Super chief executive Michael Clancy said: “It has been our profound privilege and honour to serve our current members and the tens of thousands of former Qantas employees who have previously been members.”
ART had nearly 2.5 million member accounts and $310.2 billion in assets under management at the end of June 2024, according to APRA statistics.
“As we pass the baton to ART, it is the close of this present chapter in the fund’s history and the beginning of another – with the establishment of the Qantas Group Super Plan in ART. And although this is a bittersweet moment for the Qantas Super team, I am super confident that merging Qantas Super into ART is in the best financial interests of our members,” Clancy said on LinkedIn.
“Qantas Super was founded in 1939 to provide retirement benefits to Qantas Group employees. In the 86 years since, we’ve been delivering on that commitment; through the turmoil of World War II, economic highs and lows, the technological change of the 21st century and everything in between.” fs
01: Louis Christopher managing director SQM Research
SQM places private credit sector on watch
Matthew Wai
SQM Research has placed the private credit sector on watch, saying it is increasingly encountering red flags when rating offerings.
The research house has been covering private credit since 2007. SQM currently rates on some 70 private credit funds across both retail and wholesale, representing approximately $33 billion of funds under management (FUM).
The quote
It must be stated there is no imminent event that SQM Research is aware of that may trigger a series of fund failures...
It said it is increasing its due diligence and placing a greater emphasis on governance when rating products. While it said the bulk of existing ratings will likely remain unchanged, “it cannot rule out some funds to being downgraded or discontinued over the next 12 months.”
SQM said it has observed “with increasing frequency” a lack of transparency on who borrowers are and around group financials; questionable categorisation of asset holdings; highly leveraged balance sheets; overall inadequate disclosures; elevated loan to value ratios (LVRs); and vertical and horizontal related party structures pointing to possible conflicts of interest.
It also noted dubious marketing strategies involving financial advisers, mismatches between stated liquidity and the underlying liquidity of loan assets, as well as increased loan arrears and increasing frequency of refinancing existing loans.
It added that while these issues are not endemic of the sector, they are more likely to occur within wholesale funds and new products. In the last 12 months, the research house has screened out 20 funds, most of which were wholesale offerings.
SQM managing director Louis Christopher01 said he expects the same level of transparency for both retail and wholesale funds.
“On that front there is no question there has been a rapid increase in wholesale fund offerings which we think has been driven in part by a rapid increase in the number of Australians who now qualify as a sophisticated wholesale investor/ high-net-worth individual,” Christopher said.
“As our financial regulators have stated in recent months, there is a clear link between weak governance and poor outcomes for investors.
“While we have throughout our ratings research history, placed an emphasis on fund governance, we are determined more than ever to reduce the risks for investors by taking an increasing cautious approach to potential governance issues.”
Christopher added that the private markets sector has a positive future ahead, providing genuine opportunities for investors.
“It must be stated there is no imminent event that SQM Research is aware of that may trigger a series of fund failures and that overall, SQM Research expects the sector to weather current challenges,” Christopher continued.
“What we are observing to date is nothing like what was experienced back in 2008 when a large number of mortgage trusts were forced into redemption suspensions. However, I think the risks within the sector have increased in recent times and so increased diligence is required.”
The announcement comes amid ASIC’s increased scrutiny of private markets. fs
ASIC, RBA slam ASX: ‘Deeply disappointed’
Eliza Bavin
The Reserve Bank of Australia (RBA) and the Australian Securities and Investments Commission (ASIC) have written a damning open letter to the ASX to address their increasing concern over the management of operational risk.
In a joint letter to the ASX, the regulators expressed their deep concerns about the potential for operational incidents, referring specifically to the CHESS batch settlement failure.
“The RBA and ASIC are increasingly concerned and deeply disappointed over the management of operational risk at ASX, following the CHESS batch settlement failure that occurred on 20 December 2024,” the letter said.
“For some time, the regulators have been raising serious concerns about operational risk at the ASX clearing and settlement facilities. These risks were realised in this major operational incident.”
The regulators also highlighted their concern about the speed and nature of ASX’s remediation actions following the initial incident.
In response, the RBA has taken the unprecedented step of reassessing the compliance of ASX Clear Pty Limited and ASX Settlement Pty Ltd with the RBA’s Financial Stability Standards outside the usual annual assessment cycle.
The RBA has downgraded its assessment of these entities’ compliance with the “Operational Risk” standard from ‘partly observed’ to ‘not observed’. A rating of ‘not observed’ is made when the RBA has identified serious issues of concern that warrant immediate action.
“It is deeply disappointing that the regulators need to take these actions today. But they are necessary. ASX operates critical infrastructure that plays a central role in the financial system,” RBA governor Michele Bullock said.
“ASX’s management of operational risk has been a concern for RBA staff and the Payments System Board for some time, and the recent CHESS incident has underscored those concerns. The underlying issues that we have raised need to be addressed as a matter of priority to strengthen the resilience of the CHESS system.”
In addition, ASIC has directed ASX, under section 823BB(4) of the Corporations Act 2001, to engage an expert approved by ASIC to undertake a technical review of CHESS.
ASIC said this review and any remediation will provide greater confidence to regulators, and the public, in the stability and operational resilience of the current CHESS platform. fs
Executive appointments
Anthony Doyle rejoins Pinnacle
Anthony Doyle 01 has left Schroders Australia just six weeks after joining the firm’s global equities team and returned to Pinnacle Investment Management.
In February, Doyle jumped from Pinnacle-backed Firetrail Investments – as head of investment strategy – to Schroders in a similar role
But in March, he returned to the wider Pinnacle group as chief investment strategist reporting to Kyle Macintyre, head of wholesale and retail distribution.
“In this new role Anthony will provide valuable additional technical research capabilities within our distribution team and also deliver economic updates and strategic asset allocation insights to clients,” Macintyre said.
Doyle brings more than two decades of experience in funds management across institutional, intermediary and direct client channels.
Before landing at Schroders - where he oversaw the firm’s global equity alpha strategy and global quantitative equity products - he spent nearly three years at Firetrail as its head of investment strategy.
Active Super PM opens firm
Active Super senior portfolio manager Ken Pholsena has launched an asset consultancy to help wholesale clients fine-tune their investment strategies across multiple asset classes.
Pholsena spent 16 years at Active Super and its predecessor the Local Government Superannuation Scheme but found himself without a role after the super fund merged with Vision Super.
He is one of a growing number of investment professionals turning to private wealth firms and family offices as senior roles in superannuation disappear.
Pholsena said Altivate Consulting is drumming up business mostly from these investors.
“It’s very early days, but despite the uncertainty, someone with my background can help wholesale clients fine-tune their portfolio and identify private equity and private debt opportunities,” he added. With his technical skills and established relationships with a vast network of fund managers, Pholsena offers clients exclusive entry points to traditional assets, alternative investments, and illiquid assets - all carefully tailored to meet their
Buyout firm nabs GQG executive
Daniel Bullock - who worked at GQG for six yearshas been appointed EQT’s head of private wealth in Australia.
Under his leadership, GQG’s distribution team raised over $5 billion in assets under management and built a strong network with private wealth managers, financial advisors, and family offices. Consequently, his appointment is a key step in EQT’s broader strategy to enhance its private wealth presence in Australia.
Bullock will oversee all EQT’s private wealth initiatives in Australia, including EQT Nexus.
Guy Debelle to chair Funds SA
Funds SA has announced the appointment of Guy Debelle 02 as chair of the Funds SA board from 24 April 2025.
Debelle joined the board in July 2024 after having spent 25 years at the Reserve Bank of Australia (RBA), the last six of those as deputy governor.
He also holds several board and advisory roles across private, listed, and public sector entities both in Australia and overseas.
Debelle also holds the position of honorary professor of the School of Economics and Public Policy at Adelaide University, and is a director of the Clean Energy Finance Corporation and Tivan.
Debelle replaces outgoing chair Paul Laband, who will be leaving the Funds SA board following nine years, the last seven of those serving as chair.
“As a proud South Australian, I am honoured and humbled to take on the role as chair of Funds SA.”
Plenary names chief executive
Plenary Group has named its new chief executive as incumbent David Lamming exits the post on July 1.
Chief investment officer Paul Crowe takes over the top job. He joined the firm in 2005, involved in structuring and executing most of the major infrastructure investments and leading the origination team for almost 10 years.
Before Plenary, Crowe worked at NAB executing transactions within the infrastructure and utilities sectors. Plenary has yet to name a new investments chief.
Lamming will remain in board positions within the group and will also chair the Middle East unit. He joined in 2004 when Plenary launched and took over as chief executive in early 2020, overseeing the day-to-day running of the business in Australia, New Zealand, Asia, Middle East, the UK and Europe.
Plenary chair Paul Oppenheim said the change is part of a long-anticipated leadership succession process.
“Paul has been at the forefront of Plenary’s growth having led our origination function and driven our successful expansion into the Middle East and European markets,” he said.
MSC appoints operating chief
MSC Group’s Shelley Brown 03 will become second-in-command at the trustee firm following a promotion to operating chief.
Credited with bringing commerciality to the risk side of the business, Brown has served as both the chief compliance officer and chief risk officer, covering regulatory responsibilities for the group’s
trustee, custody and fund administration services.
She has also been an integral part of the current executive team, which includes group founder and managing director Matthew Fletcher, general counsel Lauree Blair and finance chief Robert Szyszko.
Before joining MSC, Brown worked at KPMG and ASIC, ahead of a 15-year career at National Australia Bank.
Brown’s promotion follows other recent appointments in the risk and legal teams at MSC, including Adam Swanwick as general manager of risk and compliance and Sheridan Handley as senior legal counsel.
iExtend adds operations chief
iExtend has appointed Michael Hull as chief operating officer with the aim to enhance its operational frameworks and to ensure compliance and regulatory standards continue to be delivered as the business grows.
Hull brings a broad business background to the role, having spent more than two decades in equity markets where he worked as a trader before moving into management roles and international appointments.
Hull has held senior appointments at BT Financial Group, Merrill Lynch and ANZ where he was the head of trading. Prior to this, Hull ran a franchise, working with Australian families to provide a technology-delivered education solution.
iExtend chief executive David Sarkis said Hull joins the iExtend team at a crucial time in the business’ growth trajectory.
Challenger names RI lead
Charlotte O’Meara 04 has been promoted to head of responsible investment at Challenger.
The annuity provider said O’Meara is tasked with leading the ESG framework across the investment teams at Challenger, helping the life and funds management businesses integrate ESG factors into investment strategies and decision-making.
As senior ESG specialist for Challenger, she has worked closely with investment manager Fidante and its 17 affiliate partners.
Before moving into ESG, O’Meara was a risk and compliance manager at the listed group. She also previously worked as a risk and compliance analyst at Pendal Group and worked in financial services risk management consulting at EY.
O’Meara was named in the FS Sustainability ESG Power50 in 2024. fs
04: Charlotte O’Meara
03: Shelley Brown
01: Anthony Doyle
02: Guy Debelle
GRE AT ALT NS
Never have generations enjoyed longer life expectancy than Baby Boomers and Generation X, and no generation so far is likely to retire with greater wealth. This great wealth transfer is a major social challenge but arguably a massive opportunity for the advice and financial services industries. Lachlan Colquhoun writes.
TFinancial planning |
he finale of the dynastic hit television series Succession is a disaster for the siblings squabbling to lead the media empire their father built.
With family relationships destroyed by toxic infighting, the siblings are so divided that they lose control of the business to outsiders.
Meanwhile, in a Las Vegas courtroom the real-life saga of the Murdoch family, who inspired the series, succession has also been on the line as patriarch Rupert Murdoch seeks to amend the family trust to guarantee his political legacy.
These two examples, from fact and fiction, have transfixed viewers and news junkies around the world, possibly because the stories resonate – as a cautionary tale – with what many families are experiencing in terms of transferring their own intergenerational wealth.
Succession and the Murdoch saga make great viewing, but in most families, the wealth transfer will be significantly less toxic.
In most cases, the good news is that while there will be challenges, much of the wealth will be transferred in an orderly and equitable way to the people it was always intended for.
The challenge – beyond ensuring relations between siblings and the generations do not fracture – is in understanding the regulatory framework and whether the financial industry has the right products to optimise the transition.
Supplementary to that is where the balance lies between enabling wealthy families to transfer their wealth smoothly and disadvantaging families which are not so well off. Another conversation is how wealth transfer has the potential to widen wealth inequality.
Australia abolished death duties in the early 1980s, and while there are no suggestions of bringing them back as they were, the Australian Taxation Office still reaps millions of dollars a year from non-dependent adult children when they access their parent’s superannuation.
While there are no probate duties, there are ‘de facto’ death taxes which adult children often pay in stamp and transfer duties, income tax, capital gains tax and non-dependency taxes.
And there is a lot of wealth to transfer. As the first Baby Boomers move into their 80s, with Generation X following at their heels, an estimated $3.5 trillion will transition to younger generations over the next two decades.
Wealth gap
According to KPMG, it is Gen X which has now overtaken the Baby Boomers as measured by wealth in property and shares.
On average, Gen X’s housing equity is at $1.31 million, against $1.3 million for Baby Boomers, while the average for shares is $256,000 and $206,000 respectively.
The Boomers still have more cash on hand, at
$242,000, and this liquidity makes it easier for them to make transfers.
Gen X are not far behind, with average cash holdings of $176,000 and with many of them still working these balances are likely to increase, creating more wealth to be passed on in succeeding decades.
This great wealth transfer is arguably the biggest demographic issue facing Australian society, exacerbated by the unprecedented wealth gap with the younger generations.
The KPMG report found that the average wealth for Generation Z across all asset classes was barely $100,000.
Where many young people are locked out of the housing market and are in the early stages of building their superannuation balances, older generations have seen their family homes multiply in value several times over and have spent three decades accumulating super.
The ‘Bank of Mum and Dad’ and even the ‘Bank of Nana and Grandad’ are simply immediate and pragmatic responses to an issue which is concentrating the efforts of financial and estate planners, policymakers and manufacturers of new financial products which are a fit for this purpose.
At KPMG, the firm’s urban economist Terry Rawnsley01 says the gun has been well and truly fired on the transfer of wealth, which is becoming more of a gradual process than a “big bang” inheritance when a relative passes away.
“The older generations with the wealth are spreading the wealth more broadly through the different age groups, and that is helping with financial equity and also with better timed and more efficient access to homeownership for younger people,” he says.
“It’s not so much the case now that everything is divided when a person’s will is read out.
“Some people are saying ‘I’ve saved up $2 million in super to see me through and I’m almost there, but I’ve got a million in my account, which I don’t necessarily need so I’ll pass some of it on now.’”
Gifts and transfers to younger generations to help them into the housing market is one of the top two issues facing families, adds Rawnsley.
This requires frameworks and structures to enable an “orderly and smooth” transition which do not unfairly penalise people – largely in terms of tax – or encourage older generations to “hoard their wealth or give it away in one splurge at the very end.”
For many families, property and the family home are the basis of their wealth while for others, it can be tied up in family businesses, often founded by Baby Boomer parents and nurtured for decades.
Family business
Kristen Taylor-Martin 02 is a partner at accounting firm Grant Thornton, and national head of the firm’s family business consulting practice.
01: Terry Rawnsley urban economist KPMG
Feature | Financial planning
02: Kristen Taylor-Martin national head of family business consulting Grant Thornton
She estimates that 70% of families will lose inherited wealth by the second generation and 90% by the third, and only one in 20 families will pass on more wealth than was inherited.
“As a nation we need to change these statistics,” says Taylor-Martin.
“With an ageing population we are more frequently seeing the impacts of divorce, death, second marriages, stepchildren and blended families on family businesses, which makes the task of protecting and building family wealth more complicated.”
The key to better outcomes, she says, is communication and education, and not just of the younger generation.
In many cases, the older generations will have set up self-managed superannuation funds and family trusts, but the listed beneficiaries will be at variance with the beneficiaries of the will, which in many cases is then contested.
“Often we meet with families, and they’ve done a will which leaves everything to their spouse, so it’s really about getting them to think about what the future looks like and ensuring the estate planning is aligned to deliver what they really want,” says Taylor-Martin.
She talks about “family governance” and recommends “family council meetings” where issues can be aired and discussed, so the younger generation can learn.
“A lot of family businesses now are really large, and the younger generation don’t get the same opportunity to grow with the business,” states Taylor-Martin.
“Also, the Baby Boomers who have created the business have never been mentored and many of them are not comfortable in mentoring their children.
“We always try and put it into a positive light and ask people ‘what would good look like for you.’”
Taylor-Martin often mentions the example of the British Royal family in her discussions with family clients.
“When Prince Harry left the family business, could a conversation about what was good for him have enabled the family relationships to stay intact?” she says.
“They could have put a structure in place so that when he decided to leave, he knew exactly what he would receive and where he stood.”
It is an example she uses in cases where someone wants to leave the family business, but still believes they are entitled to a share of the wealth.
There are also cases where a family member could fall ill, and not be able to contribute to the business but still need financial support.
Then there are cases of divorce and remarriage which might bring in stepchildren.
“These scenarios need to be discussed, preferably before these events occur, so families understand how they can be addressed because although it’s hard to form a consensus it is often harder to do it after the fact,” states Taylor-Martin.
03: Felipe Araujo chief executive Generation Life
With an ageing population we are more frequently seeing the impacts of divorce, death, second marriages, stepchildren and blended families on family businesses, which makes the task of protecting and building family wealth more complicated.
Kristen Taylor-Martin
While there is no “one size fits all” solution, as families have different levels of wealth and are all configured differently, one consistent principle she advocates is to build financial security outside of the family business.
“We see it time and time again, that they put all their money into the business and keep reinvesting,” says Taylor-Martin.
“If there’s no financial security outside of the business it doesn’t allow people to step away, and it also puts more pressure on the business if there are more family members to fund.
“So, we are looking at property and superannuation.”
In some cases, Taylor-Martin has seen instances where older generations provide financial support, through helping with house purchases or school fees.
While this is done “with the very best intentions,” it can sometimes be setting up younger generations to “live beyond their means” if it is not accompanied by some education on how to manage wealth, or a meaningful role in the family business.
For the older generation, who are usually the business founders, they can struggle to find anything “meaningful” to do in retirement after spending their lives focused on building wealth.
Golf, tennis and cruising are sometimes not enough, and Taylor-Martin sees examples of older people discovering, with some disappointment, that what they had assumed were close friendships were largely business and work relationships.
Then there was the issue of succession, and she has seen successful examples of joint successors from a second generation while the older founding generation still has a role in the business in mentoring and guidance.
“With an ageing population we are actually seeing three generations working in a family business as the one time,” she says.
“So, the big issue is around alignment, and that needs much more communication that we have had in the past, and it can also mean more advice – even though family businesses are often resistant to advice from outsiders.”
Product development
Emerging problems require new – or reinvented – solutions and the wealth transfer issue presents an opportunity for the life insurance sector.
Providers have been putting new energy into insurance bonds, which have been rebirthed as investment bonds and products well suited to family wealth transfer, effectively combining a managed fund with a life insurance policy.
Felipe Araujo 03 , chief executive of Generation Life, says his goal is to create a generation of “investment bond kids” as the bonds become as popular as family trust structures.
“The current generation that has accumulated the wealth is now looking at opportunities to ensure that this wealth can be passed on to future generations, in a tax-effective manner and with control and certainty,” says Araujo.
Investment bonds come under the Life Insurance Act and can bypass the estate planning process in a structure which gives access to a menu of leading fund managers.
Distributions also avoid the “superannuation death tax” paid by non-dependents when superannuation is passed on, and investors are also advantaged by a ’10-year rule’ under which withdrawals on earnings are tax free.
Araujo says they provide a streamlined approach to wealth transfer and can minimise delays and the administrative issues which often come with settling estates.
They enable the transfer to an intended recipient tax-free on a chosen date, either before or after the investment bond owner’s date of death, and intrinsic in the design there are also options to restrict how recipients can access the funds.
“For the first time, financial advisers have got a structure that they can directly recommend to their clients, as with a will, they’ve had to refer clients to an estate lawyer. It’s not a silver bullet, but it’s an incredibly effective and efficient structure for addressing the specific needs of their clients,” says Araujo.
Australian Unity has also offered an investment bond product since 2019 and conducted a recent survey on the financial aspirations of 500 of its policy holders.
The results showed that 74% were investing to give their children or grandchildren a financial kickstart, while 43% wanted to use the investment to pay for their child’s education although a majority were seeking government or lower cost education instead of elite private schooling.
Another insight was that 13% of survey respondents are expecting their family members to provide them with financial support.
Adnan Glinac 04 , executive general manager of Life and Super at Australian Unity says the ‘Bank of Mum and Dad’ is entering a new generation.
“Our findings clearly show that millennials – once the beneficiaries of the Bank of Mum and Dad – feel they must now play this role for their kids or risk their kids missing out on their own,” he says.
“With housing affordability worsening, home ownership and helping kids buy a home is a prevailing investment driver for Australians who are increasingly willing to compromise with a lower cost education to give kids a larger first home deposit.”
Investment bonds also show promise in the current environment as we find ourselves facing a situation whereby superannuation may no longer promise the tax efficiency it currently does.
For about a year now the Albanese government has been trying to introduce the Division 296 tax – taxing all superannuation balances in excess of $3 million by 30%. While the legislation has lapsed, the proposal remains in limbo, pending the outcome of the election, the recent Federal Budget all but confirmed that, if successful at the election, Labor will forge ahead with the proposal.
As it stands, the tax will not be indexed, meaning that over time, as superannuation balances grow due to investment returns and contributions, more Australians will find themselves subject to the tax.
According to Generation Life modelling, a 55-year-old who had $1.4 million in superannuation as at July 2024 and makes $40,000 of non-concessional contributions each year will have amassed a balance of $3.63 million by the time they turn 65, assuming an average market return of 7.5% per year. Meantime, a 35-year-old with a $175,000 super balance who makes $15,000 in nonconcessional contributions each year would have more than $6.7 million at retirement.
While super will still have its tax advantages, they will be limited in the event of the Division 296 becoming a reality, and investment bonds
stand as a tax-effective vehicle for bypassing the extra tax on savings over $3 million while also offering access to funds whenever necessary. They can also be structured to be passed on or paid out tax-free regardless of who the beneficiary is, Generation Life explains, maximising the amount of wealth transferred and causing little to no stress in the process.
Re-designing super?
At Griffith University, the wealth transfer has been an area of research in the Department of Accounting, Finance and Economics.
Associate professor Kirsten MacDonald 05 and her colleagues first reported on this in 2017 and are planning to revisit their work and see how much has changed.
In the meantime, students – who are typically
04: Adnan Glinac executive general manager of life and super Australian Unity
05:
Kirsten MacDonald associate professor department of accounting, finance and economics
they can give better advice to individuals and families so they can make better decisions.”
Beyond this “education piece,” MacDonald says it is clear that Australia needs policies which can create “new distribution options” which could involve changes to the tax system.
Money tends to be locked up in superannuation and property where it is difficult and expensive to extract.
“This might mean the tax system misses out on some revenue, but it might also bring down the future cost of the Age Pension,” says MacDonald.
“Some of the research literature looks at this issue, on how these transfers can be taxed less so we can make the best use of that money for the beneficiaries.”
Just as the superannuation system is grappling with the issue of retirement as
Our goal is to create a generation of “investment bond kids” as the bonds become as popular as family trust structures. The current generation that has accumulated the wealth is looking at opportunities to ensure that the transfer can occur to future generations, particularly in a tax-effective manner and in control.
Felipe Araujo
also working full-time in the financial sector – have been conducting their own research, looking into areas such as re-designing superannuation to more easily enable people to transfer money to their children.
Also on her radar is US research into charitable financial planning and planned giving, while at the University of Georgia there is a graduate certificate in behavioural financial planning and financial therapy.
“There’s an area opening up which is a crossover between psychology and money which is about behavioural economics,” says MacDonald.
“It’s really about upskilling advisers so
the Baby Boomers and Generation X finish their working lives, MacDonald says that intergenerational wealth transfers need to be a part of this discussion.
“We’re about to see people from all walks of life who have contributed to their super all their working lives, so that’s a broad range of demographics who will be wanting to transfer their wealth to other generations,” she says.
“We have to design a system which focuses on the retirement future, not just for themselves but for their families, and that’s where the taxation or different policy design and means testing that we already have in our retirement system come in.” fs
Griffith University
The Advisers Big Day Out provides financial advisers with leading presentations, networking and professional development opportunities over a one-day event.
Taking place across multiple cities, advisers can connect with specialist fund managers and hear the latest strategies and trends across a variety of asset classes.
After attending the Advisers Big Day Out, advisers will be equipped with additional market projections, insights and product knowledge, while earning legislated CPD hours for a full-day’s attendance.
REGIONAL 2025
Hobart
Tuesday 15 July
Geelong Thursday 17 July
Mornington Friday 18 July
Cairns Tuesday 22 July
Sunshine Coast Thursday 24 July
Gold Coast Friday 25 July
Canberra Tuesday 29 July
Wollongong Wednesday 30 July
Newcastle Thursday 31 July
Central Coast Friday 1 August
01: John Livanas
chief executive State Super
State Super: In decline but doing fine
While it may be on the long, slow march to the end, State Super continues to do quite well - faring similarly to some other “healthy” super funds.
Andrew McKean
State Super closed its main defined benefit schemes in 1985 and 1992, meaning the fund is on a long slow march to completion. Its chief executive John Livanas 01 unpacks the challenges of managing a fund with no new members and an inevitable end.
State Super’s funds are decumulating at different rates. Its defined benefit members receive lifetime pensions, sometimes extending to a spouse or child, payments will continue until its last member dies – estimated to be in 2084. Defined contribution members, meanwhile, take a lump sum at retirement.
Overall, State Super’s funds are shrinking, but at different speeds. The defined benefit side, essentially a long pension fund, is bleeding out slowly. It’s not fully funded, which means the government contributions and investment returns are coming in, nevertheless there’s still a drift of negative cash flow from these funds.
The defined benefit side currently sits around $30 billion and has net outflows of $1 to $2 billion every five to seven years. The defined contribution side, however, is a different beast – worth around $7 billion and is forecast to halve over that same timeframe.
Livanas said it’s hard enough to manage a declining fund – but even harder to manage the part that’s decumulating rapidly. The challenges on the defined contribution side, include managing to a risk-return objective with liquidity and rebalancing requirements – with members able to switch between investment options. The last thing you want, he added, is for someone to leave on Thursday and end up with a very different result than if they’d left on Friday.
The second challenge is managing the fund collectively. It requires techniques not typically employed in a growing fund, he said.
“The reason we’re sharing this is, if you look at the market, there’s a whole lot of funds that are in negative cash flows right now. In fact, other than the very large funds, the system is mature enough and the Superannuation Guarantee contributions aren’t growing sufficiently fast, so that when people exit, they take out lump sums,” Livanas said.
“Some of the smaller funds are actually suffering negative cash flows, much like we are.”
Navigating decumulation
Livanas questioned the way investment performance is measured across the industry, pointing
to the use of a time-weighted returns methodology, which ignores cash flows.
He explained that in a decumulating fund, losses followed by gains can leave members worse off in dollar terms than if returns had been steady throughout. In a growing fund, however, the opposite effect occurs. As markets fall, large amounts of new money comes in, allowing funds to benefit from any subsequent recovery.
“We’ve understood that… what’s going to kill you is volatility, but you need to have high returns as well. So, we’ve had a very significant focus on trying to reduce volatility,” he said.
Livanas said one way to lessen volatility is to take risk off the table, which results in lower returns. Another approach is to use downside protection derivatives, which does pay off when markets fall. But since this involves paying for insurance, the upside is smaller too.
State Super employs several strategies to lessen volatility without compromising returns, one being a range of derivatives monitored for pricing, market volume, and costs.
Livanas likened derivatives to a seat belt, saying the fund pays for that protection by taking more risk. He said they ensure there’s a payoff on the upside by taking enough additional risk to cover the cost.
Another strategy, Livanas said relates to diversification – not just return diversification but factor diversification – looking outside the norm for assets that move differently.
While funds traditionally turn to infrastructure, property, or other illiquid assets, which State Super has done in the past, managing negative cash flow requires liquidity. Consequently, it has largely exited that space, retaining only a limited exposure through unlisted property trusts.
Livanas said the fund explored alternative risk premia, but found these “generally bomb,” prompting it to create an in-house program. The fund also looked to credit and other areas to construct a portfolio that’s “pretty well diverse.”
The fund has pared back its active manager program “quite significantly,” Livanas said, with half its equities no longer actively managed “because we can’t.”
“If you’ve got an active manager over a five-to-seven-year period, if you’ve chosen them correctly, they’ll give you a payoff. You don’t expect to hire an active manager and get a payoff between now and the end of next week,” he said.
The quote .... what’s going to kill you is volatility, but you need to have high returns as well. So, we’ve had a very significant focus on trying to reduce volatility.
“There’s a cycle issue – they’ve got to be ahead of the market, then they’ve got to be right, and then the market has got to recognise that they’re right, and then the price adjusts. Over a cycle, they can do pretty well. But there’s a time and place for active.”
Livanas then turns to the fund’s asset allocation program, noting that while many advocate investing through the cycle rather than trying to time the market, that logic falters when a fund won’t be in the market for long –“you’re going to have to try,” he said.
“We have put in a fairly strong set of disciplines to be really aware and wary of what’s going on in the market, particularly on the downside. [State Super chief investment officer] Charles [Wu] and his team have set up a great machine learning program which scans the market and does what a team of 100 analysts would do, which is look at this very complex problem and all the various correlations,” he said.
The system flags anomalies to Wu’s team to investigate. If they can build a narrative around what’s happening, State Super either pulls money off the table or doubles down.
“We do spend quite a lot of time thinking about defending the portfolio against anomalies. So, it’s not any one thing that we do, but it’s a lot of things – and when you get them right, what you end up doing is having really good returns and taking very little risk,” Livanas said.
Delivering results
Over the past decade, State Super’s members have netted more than $16,000 above the median return of Super Ratings’ 50 Balanced index while taking on significantly lower portfolio volatility compared to most funds. Its defined contribution growth fund has delivered top quartile returns over three- and five-year periods.
“We’re fortunate because we have a clear identification of what it is we do. The marketing team aren’t going to get us more members and more funds. We know what the path of the funds leaving is – that’s a benefit others don’t have… and by narrowing and focusing, we’ve succeeded,” Livanas said.
Livanas concluded that negative cash flow demands a different way of thinking, adding that as funds change over time, it’s important for the superannuation industry to understand how administration and operating models evolve. fs
Featurette | Federal budget 2025
Federal Budget 2025
The 2025-26 Federal Budget, held on March 26, revealed the Albanese government’s first deficit since taking power in 2022.
Forecasts for 2024-25 were revised to show a $27.6 billion deficit, and forecasts show the deficit is expected to grow to $42.1 billion in 2025-26 before a gradual decline.
Despite the deficit, the government said the bottom line was still in a better position than how it was handed over by the Coalition.
“The government’s responsible economic and fiscal management has delivered a stronger Budget, with the first back-to-back surpluses in nearly two decades and smaller deficits and lower debt compared to the 2022 Pre-election Economic and Fiscal Outlook (PEFO),” Budget documents said.
“The Budget position is cumulatively $207 billion better than PEFO over the seven years to 2028-29. The deficit in 2024-25 is almost half what was forecast at PEFO.”
Treasurer Jim Chalmers announced a raft of spending measures as it prepared to announce the federal election – which has now been set for May 3. These include cost-of-living relief, cutting student debt, tax cuts and more investment into infrastructure and healthcare.
In his speech to parliament Chalmers said the Australian economy was “turning a corner”.
“Inflation is down, incomes are rising, unemployment is low, interest rates are coming down, debt is down, and growth is picking up momentum. On all these fronts, our economy and our Budget are in better shape than they were three years ago,” Chalmers said.
“This progress has been exceptional, but not accidental. The credit belongs to Australians in every corner of our country. We’ve come a long way, but there’s more work to do.”
New tax cuts ‘a complete joke’
Chalmers declared that cost-of-living pressures were “front and centre,” unveiling two surprise tax cuts for all Australian taxpayers.
From 1 July 2026, the 16% tax rate, which applies to taxable income between $18,201 and $45,000 will be reduced to 15%, with a further reduction to 14% effective from 1 July 2027.
This means that every Australian taxpayer will receive an extra tax cut of up to $268 from 1 July 2026 and up to $536 every year from 1 July 2027, compared to 2024-25 tax settings.
Budget documents said: “These new tax cuts are modest, but they’ll make a difference.”
Last year, the government introduced tax relief measures by cutting two rates and lifting two thresholds - benefiting all taxpayers. The changes included lowering the rate on taxable income earned between $18,201 and $45,000 to 16%.
When combined with the tax cuts announced today, the average annual tax cut for Australians will increase to $2229 in 2026-27 and $2548 in 2027-28 - about $50 per week.
However, UNSW emeritus professor Peter Swan said the tax cuts are a “complete joke,” arguing that Australians have already suffered a historic collapse in living standards, worse than anything seen anywhere else in the world. He added that conditions are set to get a “lot worse.”
All it means is they’re going to have to pay more taxes in future, because the expenditure is going up another $180 billion in losses coming up.
Peter Swan
“I don’t think people will be fooled ... by so-called tax cuts. All it means is they’re going to have to pay more taxes in future, because the expenditure is going up another $180 billion in losses coming up. So, the national debt is going to well exceed a trillion dollars, and the interest cost on that bill is going from $28 billion to nearly $40 billion in a few years’ time,” he said.
Supplementing these tax measures, the government also announced it will retrospectively raise the Medicare levy low-income threshold by 4.7%, effective from 1 July 2024.
Budget documents said this should help over a million lower-income Australians either stay exempt or continue paying a reduced Medicare levy rate.
Few measures for super
A breakdown of government revenue revealed the superannuation sector will contribute $25.6 billion to the government’s bottom line in 2025-26 - an uplift of $9.7 billion since the MYEFO from taxes on the sector.
“The upgrade to superannuation fund taxes reflects higher-than-expected current year collections, higher contributions due to the strength in employment and an increase in tax from earnings on investments,” Federal Budget documents state.
In addition, the government confirmed payday super reforms are on track to start from 1 July 2026, with Budget papers reaffirming the timetable and a MYEFO investment of $404 million to meet it.
The Super Members Council (SMC) said the
government should use $500 million a year from the super tax windfall to strengthen retirement for low-income workers.
“The Low-Income Super Tax Offset (LISTO) has been frozen since it was introduced 13 years ago, effectively cutting the super tax benefit for some of the nation’s lowest-income workers,” SMC said.
“Almost two-thirds of LISTO recipients are women - making a push to lift the LISTO a targeted measure to help close the super gender gap.”
However, SMC chief executive Misha Schubert still heaped praise on the government for the payday super reforms, which she said would be a “game changer”.
“Fixing the scourge of unpaid super is urgent - the 2.8 million Australians who miss out on some or all of their super contributions each year cannot afford to wait a day longer for these reforms,” Schubert said.
“And for nine million Australians, having super paid on paydays - not four times a year - will mean they start earning compound investment returns sooner, delivering an extra $7700 on average by retirement.
“Strong bipartisan support for this reform will be crucial to its success and we urge the Opposition to also commit support for the legislation. We’ll continue to work closely with the Parliament, business leaders and other stakeholders to ensure these reforms are successfully implemented by 2026.”
Likewise, Association of Superannuation Funds of Australia chief executive Mary Delahunty praised the Budget for providing cost-of-living relief which she said would help workers and retirees.
“[The] Budget will help ensure retirement savers get the superannuation they are owed, as well as helping those who are already retired through energy bill relief, changes to bulk billing and adding new medicines to the PBS,” Delahunty said.
The Budget also confirmed it would proceed with tax on superannuation balances exceeding $3 million if Labor wins the upcoming federal election, in a move the SMSF Association (SMSFA) slammed as an “ill-conceived initiative”.
SMSFA chief executive Peter Burgess said the government has ignored valid industry concerns.
“As a revenue item, [the] Budget was the last opportunity for the government to either take this tax off the table or make changes to address the significant issues raised by industry and the Parliament,” Burgess said.
“Material changes to this tax, which impact the government’s previously budgeted revenue estimate for this proposed measure, would have needed to be reflected in the Budget.
“Considering there was no mention of changes, the government is now committed to taking this tax to the next election, warts and all.”
Tax rules clarified for MITs
The government will amend tax laws to clarify the treatment of managed investment trusts to ensure “legitimate investors” keep their concessional withholding tax rates in Australia. Federal Budget documents said that change complements the Australian Taxation Office’s strengthened guidelines to prevent misuse. This measure will apply to fund payments from 13 March 2025.
The government will also defer the start dates of two previously announced tax measures.
The extension of the clean building managed investment trust withholding tax concession, announced in the 2023-24 Budget, will now commence on the first January 1, April 1, July 1, or October 1, following Royal Assent. Similarly, the start date for strengthening the foreign
Federal Budget 2025 | Featurette
resident capital gains tax regime, outlined in the 2024-25 Budget, has been pushed to the later of 1 October 2025 of the first of those quarterly dates following Royal Assent.
Deferring the implantation of the amendments to the foreign resident capital gains tax regime is expected to reduce government receipts by $50 million and decrease payments by $300,000 over the five years from 2024-25.
Meanwhile, the fiscal impact of deferring the start date for the clean building managed investment trust withholding tax concession is described as unquantifiable over the same five-year period.
Budget documents also confirm that the government has already provisioned for the measure to clarify arrangements for managed investment trusts.
Non-competes outlawed
From 2027, employers will no longer be able to impose non-compete clauses on employees earning less than $175,000. They will also not be able to exploit loopholes that block staff from joining competitors.
It’s estimated about three million workers are impacted by such clauses, including across industries like childcare and construction.
It follows a Competition Review by Treasury that found minimum wage workers were being sued by former employers or threatened with legal action if they tried to switch jobs.
The government said eradicating such clauses could lift the wages of workers by up to 4% or $2500 a year, based on median wages. Meantime, the productivity boost could add $5 billion or 0.2% to the GDP annually.
It’s expected it will also spur new business entry and increased competition, enabling workers to establish their own businesses. Last year, the e61 Institute found firm entry and job mobility rates are lowest in industries where restraint clauses are most prevalent.
The government will also work to close loopholes in competition law that currently allow businesses to use ‘no-poach’ agreements to block staff from being hired by competitors, and fix wages by capping workers’ pay and conditions without their knowledge or consent.
Findings from the e61 Institute last year show about one in five firms planned to increase their use of non-competes. Of firms already using them and ‘no-poach’ clauses, 80% are applying them to about 75% of employees’ contracts.
Green tech prioritised
Aligned with the Future Made in Australia agenda, the government is continuing to invest billions into green technologies and the energy transition.
The federal government has also allocated funding for innovative technology and clean energy manufacturing in the Budget.
It announced priority sector funding allocations from the $1.7 billion Future Made in Australia Innovation Fund, which includes $750 million for green metals, $500 million for clean energy technology manufacturing capabilities including electrolysers, batteries and wind towers and $250 million for low carbon liquid fuels.
Subsequently, the $1 billion Green Iron Investment Fund will help establish an Australian green iron industry by providing upfront capital support to eligible facilities, while the $2 billion Green Aluminium Production Credit, available from 2028-29, will support Australian aluminium smelters to transition to renewable electricity and decarbonise.
Further, as previously announced, the federal government has also consulted with the South Australian government to spike steelmaking in Whyalla, which is part of a broader $2.4 billion package.
Moreover, an additional $2 billion is being given to the Clean Energy Finance Corporation (CEFC) to continue “mobilising critical private investment into renewable energy, energy efficiency and low emissions technologies.”
Chalmers said the decisions are built on the tax incentives for critical minerals and green hydrogen legislated this year.
“This will help develop new industries in clean energy manufacturing, green metals, and low carbon liquid fuels, and unlock private investment,” Chalmers said.
“This agenda is about recognising our future growth prospects lie at the intersection of our industrial, resources, skills and energy bases and our attractiveness as an investment destination.”
In response, Australian Sustainable Finance Institute (ASFI) said there is a “noticeable absence” of measures on sustainable finance and broader sustainability agenda in the Budget comparing to the previous two years.
“The government has bet on cost-of-living measures and budget restraint as an election winning strategy and will punt important decisions about Australia’s climate transition to the other side of what it hopes will be an election victory,” ASFI said.
Considering there was no mention of changes, the government is now committed to taking [the $3m] tax to the next election, warts and all.
Peter Burgess
“The relatively stable budgetary situation also provides some ability for the government to make further movements later, and it is possible that the forthcoming election campaign could yield greater commitments to advancing sustainable finance in Australia.”
Chalmers boosts Help to Buy
Chalmers is expanding the Help to Buy program to support Australians to buy homes with lower deposits and smaller mortgages with an additional $800 million, taking the total equity investments to $6.3 billion.
This is via increasing property price caps and increasing income caps from $90,000 to $100,000 for singles and from $120,000 to $160,000 for joint applications.
Chalmers has also promised $54 million to the housing construction sector.
This is part of the $33 billion already allocated to tackle housing and rent affordability by building 55,000 social and affordable homes over the next five years through initiatives like the Housing Australia Future Fund (HAFF) and the Social Housing Accelerator.
Rounds 1 and 2 of the HAFF and round 1 of the National Housing Accord are poised to deliver around 18,000 social and affordable homes.
Chalmers has also committed $120 million from the National Productivity Fund to incentivise states and territories to remove red tape that blocks “the uptake of modern methods of construction” to build homes faster.
“The government is continuing to work with states and territories on the National Planning Reform Blueprint to build homes faster,” he said. For renters, Chalmers will increase maximum rates of Commonwealth Rent Assistance (CRA) by 45%, saying this will be the first back-to-back increase in 30 years.
“Combined with indexation, the maximum rates of rent assistance are 45% higher since the government came to office, benefitting around one million households,” he said. fs
Pay, sustainability increasingly tied
Twenty-three of our top 25 listed companies link boardroom pay to sustainability, seeing Australia rank highly among non-EU countries for doing so.
A KPMG analysis of the 375 largest listed companies by market cap across 15 countries found 92% of the top 25 companies in Australia link the remuneration of their management boards to sustainability.
That said, they are more likely to adopt only short-term sustainability targets, with 18 companies demonstrating this while just five adopt both short- and long-term targets.
Meanwhile, three quarters of companies include sustainability-related performance in remuneration link between two and four material European Sustainability Reporting Standards topical standards to remuneration targets.
However, the actual level of alignment to material topics differs across the companies.
Four have full alignment to material topics, while 17 have some alignment to material topics. Just two have no alignment to material topics.
In Australia, climate change is the topic most likely to be a sustainability target linked to executive pay. This was followed by ‘own workforce’ and business conduct.
Typically, Australian companies have 80 or more sustainability targets, KPMG found.
Globally, only France saw 100% of its top companies linking sustainability targets to remuneration, followed by Germany at 96%.
Outside of the EU, Australia ranked just behind the UK.
The worst performers were China, Sweden and the US, where just 11 of its top 25 companies align pay with sustainability targets. fs
Trump Media to launch ETFs
Andrew McKean
Trump Media and Technology Group, the operator of social media platform Truth Social, has signed a non-binding agreement with Crypto.com to roll out a suite of branded ETFs through Truth.Fi, its financial services and fintech brand launched in January.
The ETFs will comprise digital and non-digital assets, including what Crypto.com described as a “first-of-its-kind” basket of cryptocurrencies incorporating Cronos, its native token, alongside other crypto assets like Bitcoin. The non-digital component is expected to include securities with a “Made in America focus,” spanning sectors such as energy.
The funds will be available to investors through Crypto.com’s broker dealer Foris Capital.
Subject to a final agreement and regulatory approval, they’re slated to launch later this year and be widely available across platforms and brokerages in the US, Europe, and Asia. Crypto.com will support the backend technology and provide all custody for the ETFs through its US trust company, the Crypto.Com Custody Trust Company.
The ETFs launch is set to coincide with a batch of separately managed accounts (SMAs), both of which Trump Media plans to invest in with its own cash reserves. fs
01: Larry Fink chief executive BlackRock
Fink takes private markets to next level
Karren Vergara
BlackRock chief executive Larry Fink 01 says the fund manager can upend the publicprivate market divide in the same way it has capitalised on active and passive investing.
Fink said assets in the form of data centres, ports, power grids, and fast-growing private companies are the assets that will define the future.
The quote ... we’ve been – first and foremost – a traditional asset manager. That’s who we were at the start of 2024. But it’s not who we are anymore.
“They’re in private markets, locked behind high walls, with gates that open only for the wealthiest or largest market participants. The reason for the exclusivity has always been risk. Illiquidity. Complexity. That’s why only certain investors are allowed in,” he said.
In the past 14 months, BlackRock has made a play in infrastructure and private credit and attempted to make private markets less risky and opaque.
“BlackRock has always had a foot in private markets. But we’ve been – first and foremost – a traditional asset manager. That’s who we were at the start of 2024. But it’s not who we are anymore,” he flagged.
Early in 2024, BlackRock struck a deal to acquire Global Infrastructure Partners (GIP), which owns London’s Gatwick Airport, energy pipelines, and about 40 global data centres, for US$12.5 billion. BlackRock took over Preqin last July for $4.8 billion.
“Our acquisition of Preqin, which closed earlier this year, will add private markets data capabilities to our offering, with an aim to enable more transparency, and ultimately greater investability, within private markets,” Fink said.
In late 2024, it acquired private credit manager HPS Investment Partners for US$12 billion. Fink flagged that these private assets are due for indexation.
“With clearer, more timely data, it becomes possible to index private markets just like we do now with the S&P 500. Once that happens, private markets will be accessible, simple markets,” he said.
“Easy to buy. Easy to track. And that means capital will flow more freely throughout the economy. The prosperity flywheel will spin faster, generating more growth – not just for the global economy or large institutional investors, but for investors of all sizes around the world.”
Fink reminded investors about BlackRock’s acquisition of Barclays Global Investors (BGI) in 2009, which owned iShares, and how naysayers said it “was just a bet on ETFs”.
“The industry acted as if you had to pick a side – as though these two approaches were mutually exclusive. Our BGI acquisition was rooted in a belief that they weren’t,” he said.
“When we combined active and index strategies under one roof, we gave investors something they’d never had before: the freedom to blend strategies seamlessly. ETFs stopped being purely passive. Instead, they became essential building blocks for creating any type of portfolio – active, index, or a combination of both. Diversification became easier. Fees got lower.”
Now, Fink added, “we see an opportunity to do for the public-private market divide what we did for index vs. active.” fs
5000 ESG funds investing in fossil fuels
Jamie Williamson
Close to 5000 funds being marketed as ESG in Europe hold interests in companies involved in fossil fuels, research shows.
Analysing more than 14,000 European ESG funds, non-government organisations Urgewald and Facing Finance found 4792 had collectively invested about $212 billion (€123bn) into companies that are either actively ramping up production of oil, gas and coal, or lack a Paris-aligned coal phase-out plan.
Of the total, about $40 billion (€23.5bn) is invested in oil and gas majors TotalEnergies, Shell, ExxonMobil, Chevron, Eni and BP alone, all of which have expansion plans. A further $7.45 billion (€4.5bn) is invested in coal companies with plans to expand, with Glencore and its subsidiaries taking the lion’s share.
The research also shows that looming regulatory guidelines aimed at curbing greenwashing fall short.
From May, investment managers will have to comply with new naming guidelines, instituted by the European Securities and Markets Authority (ESMA).
The guidelines introduce minimum thresholds on the proportion of sustainable investments based on the specific ESG terms used in a fund name; the terms being environment, sustainability, impact, transition, social, and governance. For example, funds
with the ‘ESG’ or ‘SRI’ in their name will be required to implement exclusion screens aligned to the European Union’s Paris-aligned Benchmark exclusions.
However, the research found that two-thirds of the almost 14,300 Article 8 and Article 9 funds on offer are not covered by the ESMA guidelines as none of the terms appear in their names.
It said, in relation to fossil fuel investments, just 43% of funds fall within the guidelines’ remit – from May 21 they will either need to sell their fossil fuel investments or change their names. BlackRock and Federated Hermes are among those reported to have changed fund names to remove relevant ESG terms.
Due to the regulations’ shortcomings, some two-thirds of the $40 billion invested in the likes of Chevron, Shell and BP via ESG funds is safe, the NGOs said.
“Companies that pursue fossil fuel expansion projects in the midst of a climate crisis are jeopardising our future. Their presence in ESG funds violates the very concept of sustainability,” Urgewald finance researcher Julia Dubslaff said.
“The presence of fossil fuel expansionists in over one-third of the funds that claim environmental or social traits misleads climate-conscious investors. The European legislator must set clear rules for all ESG funds and put an end to this travesty.” fs
Talaria taps Equity Trustees as RE
Andrew McKean
Talaria Asset Management has appointed Equity Trustees as the responsible entity of its three global equity funds.
The appointment covers the asset manager’s dual access Talaria Global Equity Fund Complex ETF (Cboe: TLRA), the Talaria Global Equity Fund Currency Hedged Complex ETF (Cboe: TLRH), and the unlisted Talaria Global Equity Fund –Foundation units.
These global equity funds provide international equity exposure though a strategy that incorporates options to manage volatility and enhance returns, with an emphasis on income generation and capital growth.
“… the funds aim to grow real wealth while managing risk,” Equity Trustees said.
Talaria chief executive Jamie Mead said the firm’s bottom-up research focus, in tandem with delivering multiple sources of return with less downside capture and low volatility has “never been more important” as investors try to navigate current market uncertainty.
He added, Equity Trustees can offer the firm “enhanced capability and user experience.”
Equity Trustees’ Andrew Godfrey said the firm’s role as responsible entity is to ensure strong governance and compliance, supporting Talaria in delivering their investment strategy with confidence.
“Ensuring that funds meet regulatory, and compliance obligations is paramount, and responsible entity services are a vital component in achieving this,” he said. fs
Rainmaker Mandate top 20
01:
Ben Dear chief executive Osmosis
University endowment mandates Osmosis
Jamie Williamson
The University of Adelaide Endowment Fund has invested with Osmosis via its ExFossil Fuels Strategy.
The quote
The University of Adelaide is increasingly recognised for its environmental leadership...
The University of Adelaide is now one of several endowment funds to place money in the Osmosis strategy, the Resource Efficient Core Equity ex-Fossil Fuels Fund.
Developed in 2020, the strategy is aimed at protecting investors from reflation in fossil fuel commodity prices and value destruction amid societal headwinds.
It prohibits investment in companies that derive more than 5% of revenues from fossil fuels or nuclear power. It also excludes controversial weapons, civilian firearms, and tobacco manufacturing.
The strategy addresses both the supply side of fossil fuel energy generation through divestment of fossil fuels and the demand side via fossil fuel energy consumption “by reallocating the active divestment rusk to the most highly correlated resource-efficient companies across the economy.”
“The University of Adelaide is increasingly recognised for its environmental leadership, and we are delighted they have chosen Osmosis’ ExFossil Fuels Strategy to further strengthen their climate ambitions,” Osmosis chief executive Ben Dear01 said.
“It is crucial when seeking to remove exposure to fossil fuels, that additional mitigation is undertaken to deal with demand as well as supply. Our Core Equity Ex-Fossil Fuels strategy achieves this while also reducing the portfolio’s exposure to water and waste.”
The University of New South Wales, and Oxford University Endowment Management are both already invested in the strategy. In total, the strategy has about $2.8 billion in funds under management. Last month, Osmosis received a $60 million mandate from Perpetual Private, with the money going into the Resource Efficient Core Equity Fund. It aims to reduce carbon, water and waste ownership by more than 60%. fs
Managed funds
OPINION
Is the TPD claims process creating additional harm?
hile most of us breathed a sigh of relief as the worst-case scenario for Tropical Cyclone Alfred didn’t materialise, insurance has been on the minds of many of us. If your home were significantly damaged or even burned down (tragically the case for our neighbours i n the storm), could you move on with your life and wait for over a year for your insurance claim to be paid out? What if you were in an accident that saw you land in hospital, unable to speak or move? How quickly would you expect your insurance claim to be paid out? Is waiting four months reasonable? One year? How about two years?
With lengthy delays becoming what seems to be the norm with insurance claims being paid to policy holders, some of the unspoken reality that I see from personal experience with my clients is the despair, frustration, and hopelessness they quite rightly feel because of going through the insurance claim process itself.
Of particular concern is the process for Total and Permanent Disablement (TPD) cover. Like life insurance, TPD cover provides a lump sum payment. With life insurance, the policy holder’s beneficiary receives the payment. However, TPD cover is instead paid to the policyholder themselves while they are still alive, helping them to plan for and fund their life with the disability.
While it may not represent the opinion of all
insurers, some providers have used as a selling point how good it is that their claims process is so challenging for someone to navigate. Their rationale? The lower the number of successful claims made, the lower the insurance cost can remain for the client base in general. So, the difficulty in making a claim is for the “greater good”.
I have seen the very real impact that lodging a TPD claim has on individuals who could not have a greater need for the claim they are eligible to receive yet must wait for the insurance provider to come to this conclusion in their own time.
Most financial advisers are expected to provide education around the importance of having specific types of cover and helping someone make an informed decision on keeping the right amount of cover in place until it is no longer required.
But our role now often extends to helping someone make a claim, and navigating the emotions involved in this process which can leave someone feeling interrogated, stripped bare, and emotionally raw. While this support is valued amongst our clients, should someone need to engage an adviser or a solicitor to make what is often a relatively straightforward insurance claim? Surely those needing to make a disability claim would be regarded by most as vulnerable members of our society, who I suggest should be afforded the courtesy and respect of having
a clear process that is simple to navigate, not fraught with complexity and delays and requiring the help of a qualified professional?
Keeping costs down for the greater good may sound like a noble pursuit, but what if instead the product is as described on the label?
What if someone pays for disability cover and this alone affords them the reassurance that, in the event of an illness or injury stopping them from ever returning to work in the future, they will have someone treat them with empathy and consideration, taking the time to make sure they are alright and to check they have a network of people around them to help them through what is likely to be one of the most challenging times in their life?
We as financial advisers can continue to do this too, but it would bring so much more trust to the insurance industry to share this privilege we have of respecting and helping those most vulnerable in our community.
As financial advisers, I suggest we continue to help our clients to understand when delays and processes followed are unacceptable.
If you are not already, please consider helping our clients to lodge complaints for the period the claim took that was longer than within reason. Often these complaints result in compensation that helps to mend some of the unnecessary turmoil. Living the principles we often encourage our clients to live, we can keep looking for the silver lining. fs
Inflation slows, but for how long?
Eliza Bavin
The monthly Consumer Price Index (CPI) indicator rose 2.4% in the 12 months to February 2025, according to the latest data from the Australian Bureau of Statistics (ABS).
“Annual CPI inflation was slightly lower in February, after holding steady at 2.5% for the previous two months,” ABS head of price statistics Michelle Marquardt said.
The largest contributors to the annual movement were food and non-alcoholic beverages (+3.1%), alcohol and tobacco (+6.7%), and housing (+1.8%).
Excluding volatile items, underlying inflation was also down in February.
“Annual trimmed mean inflation was 2.7% in February 2025. This was down slightly from the 2.8% inflation in January and has remained relatively stable for three months,” Marquardt said.
“The CPI excluding volatile items and holiday travel measure rose 2.7% in the 12 months to February, compared to a 2.9% rise in the 12 months to January.”
VanEck head of investments and capital markets Russel Chesler warned that the Labor government’s pre-election Budget could have the opposite effect.
“Despite today’s data, we do not believe that the inflation beast has been fully tamed. Yesterday’s budget measures indicate that fiscal and monetary policy continues to be at odds, with a number of measures, including the tax cuts, student debt cuts, and the spending on Medicare and PBS to a lesser extent, likely to be mildly inflationary” Chesler said. fs
01: Andrew Campion general manager of investment products ASX
BlackRock rebalance sparks record-high ETF trades
Karren Vergara
The quote
The record high in ETF trades wasn’t in terms of the percentage of the overall market but it was a record high in terms of dollar value.
The ASX recorded its biggest-ever ETF market turnover in a day last month, hitting a whopping $2 billion on March 6, largely thanks to BlackRock shifting away from equities to defensive assets within its model portfolios.
The fund manager’s annual strategic asset allocation (SAA) slashed its exposure to Australian equities and emerging market (EM) equities between 4.5% and 5%, and upped allocations to European, Japanese, and Chinese equities between 1% and 3%.
While Australian bonds lost out with close to a 5% lower allocation, BlackRock leaned favourably towards global bonds which gained 5% within its Enhanced Strategic model portfolio.
The rebalance sparked an outsized portion of the $2 billion change of hands in a single day. BlackRock did not confirm exactly how much of it stemmed from its products.
ASX general manager of investment products
Andrew Campion 01 told Financial Standard that the exchange averages between $500 million and $600 million in ETF transactions in a day.
“We’ve been upping our internal reporting data collection in this area since March 2023. Since then, we’ve had about 15 days of trades that were north of $1 billion,” he said.
“The whole equity market typically trades about $7 billion to $8 billion a day. Overall, equity market volumes are up at the moment because of the volatility. The record high in ETF trades wasn’t in terms of the percentage of the overall market but it was a record high in terms of dollar value.”
BlackRock told investors that policy “uncertainty has widened the range of plausible outcomes in the near-term, leading us to trim our equity overweight and re-introduce the World Minimum Volatility factor as a way to stay invested, while managing risk in the portfolio.” fs
RBA flags ongoing concerns
The Reserve Bank of Australia (RBA) left interest rates unchanged at 4.1% at the April meeting –coming as little surprise to markets and economists.
However, the central bank flagged ongoing uncertainty amid fears US tariffs could impact global growth.
“Uncertainty about the outlook abroad also remains significant. On the macroeconomic policy front, recent announcements from the United States on tariffs are having an impact on confidence globally and this would likely be amplified if the scope of tariffs widens, or other countries take retaliatory measures,” the RBA board noted.
“Geopolitical uncertainties are also pronounced. These developments are expected to have an adverse effect on global activity, particularly if households and firms delay expenditures pending greater clarity on the outlook.
“Inflation, however, could move in either direction. Many central banks have eased monetary policy since the start of the year, but they have become increasingly attentive to the evolving risks from recent global policy developments.”
State Street Global Advisors APAC economist Krishna Bhimavarapu said despite the oncoming US tariffs, Australia is well-positioned to deal with global uncertainty.
“Although a slowdown in global growth is plausible, Australia’s accelerating recovery is a barrier for more rate cuts this year,” Bhimavarapu said.
“The United States Trade Representative’s Trade Estimate report … mentioned ‘Australia’ 46 times and ‘China’ a whopping 867 times, indicating that the impact of US tariffs on Australia may be more indirect.” fs
QIC ready for retail resurgence
The most recent data from the Australian Bureau of Statistics (ABS) found spending growth in department stores was up 1.5% in February which helped to boost overall consumer spending for the month.
The data comes as QIC says 2025 is shaping up to be an “important year” for Australian retail.
“Recent years have not been without challenges, marked by economic headwinds weighing heavily on consumer confidence. But the tide is turning,” QIC said.
“Income tax cuts, other fiscal support measures, slowing inflation and likely interest rate cuts in the first half of 2025 are expected to lead to an improvement in real disposable incomes, which will help promote a consumption-led economic recovery in Australia during 2025.”
QIC is forecasting that retail sales growth will improve to hit 3% in FY25 and 3.6% in FY26, saying population growth will help to add to demand.
“With population growth forecast to remain solid over the longer term and limited supply of new retail space in the pipeline - low vacancy rates are expected and improving rental growth should outstrip productivity growth,” QIC said.
“Signals of these stronger fundamentals are evident across our portfolio of shopping centres, with vacancy rates and occupancy costs at alltime lows, and total sales at historic highs.” fs
01: Alex Robson deputy chair Productivity Commission
Productivity problem a long-term trend: PC
Eliza Bavin
Australia’s productivity continued to stagnate in the December quarter, suggesting that the productivity problem may be part of a long-term trend.
The Productivity Commission’s (PC) latest quarterly productivity bulletin found labour productivity declined by 0.1% in the December quarter and by 1.2% over the year.
The quote
The pandemic and the policy response to it drove a sharp rise –and then a crash – in measured productivity.
“The data makes it clear that our productivity problem is not a flash in the pan – this is a long-term, structural challenge that requires dedicated attention from government and industry,” PC deputy chair Alex Robson 01 said.
“The COVID pandemic was a massive global economic shock. The pandemic and the policy response to it drove a sharp rise –and then a crash – in measured productivity. Now that the dust has settled, we’re back to the stagnant productivity we saw in the period between 2015 to 2019 leading up to the pandemic.”
Robson said this showed that the productivity increase during the pandemic was a “bubble”.
“We saw a sharp rise in productivity driven by the lockdowns which was then wiped out as lockdowns ended and hours worked reached record highs,” he said.
“There are lessons to be learned from these fluctuations, but they aren’t likely to have a meaningful long-term effect on productivity.”
Robson said labour productivity in Australia has not seen a significant improvement in more than a decade.
“With global policy uncertainty again on the rise, addressing productivity directly via targeted reforms will be the best way to sustainably boost Australians’ living standards,” Robson said.
“To that end, the PC is undertaking a program of five inquiries, each focusing on a different pillar related to productivity. We will identify the highest priority reforms under each of the five pillars which will improve Australia’s long-run productivity growth.” fs
Splintered globalisation a boon for AI, metals, EVs: PGIM
Karren Vergara
As geopolitical tensions and trade wars derail globalisation, artificial intelligence (AI), metals and minerals, and electric vehicles (EV) are some of the sectors poised to be winners for investors, new research from PGIM shows.
This new era of globalisation has been splintered by recent tariffs, trade restrictions, and super power rivalries that has resulted in a dual-track world, PGIM said, noting that chief investment officers must consider how the tensions could ripple across their investment portfolios and potentially create new risks and opportunities. Central to the tension is ongoing tussle between globalisation and nationalism.
The report, A new era of globalisation, shows that countries that already have some manufacturing capabilities in place today are “often more attractive as friend- or near-shoring candidates in the future.”
Investors should consider industrial real estate, and transport and power providers in these countries, as well as focus on those with “privileged access to free-trade zones such as Poland and Mexico, or countries with comparative advantages in business environment or labour cost like India or Vietnam.”
In the Asia Pacific, Australia is a “national winner” for its broad metals and minerals.
PGIM predicts that artificial intelligence and advanced semiconductors offer ample opportunity for investors despite tariffs and restrictions.
“Advanced computer chips are essential for
cutting edge AI models and applications and have therefore become a centrepiece of the great power rivalry. But two aspects of advanced chipmaking differ significantly from most other manufacturing processes and should guide investors’ portfolio decision,” the report read.
While electric vehicles face steep tariffs in Europe and the US, BYD has growth opportunities in Southeast Asia, Latin America, and the Middle East, and is stepping into the luxury market. Tesla on the other hand is leaning into self-driving taxis with mass-market potential.
The two companies leading the EV market are likely to capture different segments of the market across regions, PGIM said, adding they each have comparative advantages over peers and offer stable opportunities for growth that will prevail in this new era.
Overall, the first track of globalisation “currently represents just 25% of global GDP but captures nearly all the media and political focus.”
Sectors in this so-called “small yard, high fence” approach include AI and high-end semiconductors, 5G networks, critical minerals, fossil fuels, EVs and batteries, and military technology.
The second globalisation track represents roughly 75% of global GDP.
“On this track, a vast array of goods and services are still traded across borders based on comparative economic advantage – regardless of geopolitical rivalries and growing protectionist instincts,” PGIM said. fs
Alternatives
The case for A-REITs
John Dyall
Australian investors don’t tend to think of property as an alternative asset class. Like driving on the left hand side of the road, this doesn’t make it wrong, but it does put them in an absolute minority among the world’s investors.
The rest of the world sees it as an alternative investment, which puts it into a bucket that is as ill-defined as anything else in investments.
Take Australian Real Estate Investment Trusts (A-REITs). These are trusts that invest in real property. These trusts are traded on the stock exchange like the shares of any publicly-listed company. But while public companies pay out dividends as a proportion of net profits, REITs are trusts and have no profits.
Instead, they receive income from the rental agreements they have with the tenants of their properties. This is then distributed to the owners of the units in the trust.
One of the main differences between trusts and companies is that trusts distribute all rental income to investors, while for-profit companies can withhold a proportion of profits to build equity on their balance sheet and finance future operations.
Fixed interest
John Dyall
Looking at the yield curve, it wouldn’t surprise anyone that neither the calling of the election or the Federal Budget had much impact on the yield, which means they had very little impact on future inflation and future economic growth.
Following the budget, the government 10year bond yield rose by 0.024% pa, which was half the volatility of the daily changes of the previous month.
To put this in perspective, on March 6 the yield on the 10-year government bond rose five times as much, by 0.03% pa to 4.5% pa. This was when Cyclone Alfred was stalled off the east coast of Australia while millions braced for its landfall. When the eventual landfall didn’t have the destruction many people expected, yields fell the next day by 0.08 percentage points to 4.4% pa.
In other words, yield curves reacted to a potential natural disaster more than five times as much compared with a fairly benign Federal Budget and the uncertainty that comes with the possibility of a change of government.
Given that there is an election in May, it is worth-
Prepared by: Rainmaker Information Source: Rainmaker
Source: Rainmaker/CoreLogic RP Data
In many ways property is like a bond, in that both rely on cashflows: property from rental and bonds from coupons.
One of the things about property that many investors don’t take into account is that property depreciates over time. This happens whether a property goes up or down in value. That is a question of supply and demand as well as the condition of the property.
Depreciation is the result of normal wear and tear. That doesn’t happen with equities and it doesn’t happen with bonds.
So in many ways property sits between equities and bonds. This is borne out by looking at returns from A-REITs, from equities and from bonds.
In the three years to February 2025 A-REITs returned 5.8% pa, putting it firmly between the 9.2% pa from Australian equities (the S&P/ASX 200 Index) and the -0.4% pa earned by bonds (the Bloomberg Global Aggregate Index hedged into Australian dollars).
From a volatility perspective, A-REITs were more volatile than both of them, with an annualised standard deviation of 23% pa versus 13.5% pa from equities and 9.2% pa from bonds. fs
Cyclone more important than the election
while comparing the yield curve at the date Labor was elected to government with what it is today.
In May 2022 Australia’s yield curve was relatively steep, mainly because the cash rate was being kept artificially low at 0.4% pa to stimulate growth coming out of Covid and the Reserve Bank was slow to act in the face of evidence that inflation was becoming a problem. The 10-year yield was 3.4% pa and the annual inflation rate was 4.9%. What this meant was that real yields were extremely negative at the time. In other words, not sustainable.
The current situation is entirely different. The yield curve is relatively flat. The RBA target cash rate is 4.1%, which is comfortably above the current annual inflation rate of 3.2%. The 10year government bond yield is just marginally higher than the cash rate, being 4.2% pa.
The current yield curve tells us that the cash rate is far too high and has been kept that way to not repeat the errors made when inflation was rising, leaving rates too low. Instead, it runs the risk of leaving rates too high for too long, making the opposite mistake it made three years ago. fs
Prepared by: Rainmaker Information
Source: Rainmaker
1.
4.
2.
3.
5. Inflation
a)
6. In May 2022 the:
a)
b) 10-year bond yield was 3.4% pa and the inflation rate was 4.9% pa c) 10-year bond yield was 4.9% pa and the inflation rate was 3.4% pa
GOOD CREDIT
QIC head of private debt Australia Phil Miall’s nearly 30 years’ experience covers every corner of the credit market. He shares why active management is critical in the asset class and what he’s learned during periods of tumult. Karren Vergara writes.
If there are two things that Phil Miall is passionate about and can fuse together it is family and skiing.
You’ll find the family regularly swishing through ski fields and enjoying an activity that has not only become a shared interest but a family tradition.
Earlier this year, Miall and his son went on a ski trip to Canada that he describes as “fantastic for our bond.”
“My kids are both now much better than I am; they’re 19 and 16 years old and just want to go fast on the trickiest runs. While I prefer to cruise nowadays and avoid busting a knee, I find skiing is a great way to combine two things that I love. We go at least once a year,” he says.
Miall is an all-round active person. Cycling and triathlons are additional hobbies that if he doesn’t do on a regular basis, he starts to get a twitch.
Being active, in terms of how he approaches investing and managing a portfolio and broadly from an investment point of view, also carries through nicely in the professional field.
“I have somewhat of a rare breadth of experience in credit markets, compared to someone who came from a more traditional route of investment banking and leverage finance and then entered private debt investing,” he says.
Miall’s DNA is in bottom-up credit research that has stayed with him in his nearly 30-year career.
Miall started in commercial and institutional lending with Sanwa Bank (which is now part of MUFG), Commonwealth Bank, and BNP Paribas, then cut his teeth early in what is still the private debt market, albeit on the bank side.
He then moved to Fitch Ratings where he became a director of corporate ratings, and gained valuable experience understanding rating agency methodologies, conducting detailed credit due diligence and assigning credit ratings.
“Then at Westpac institutional bank, I was on the sell-side as director, capital markets research, writing credit research publications based in Sydney. This was part of Bill Evans’ team (Westpac’s then chief economist) and was a great role for gauging the pulse of the market and investor sentiment,” he says.
Miall eventually wanted to move to the buy side and have ‘skin in the game’. He found an opportunity with UBS Asset Management in 2007 and, three years later, he finished there as head of credit research for APAC.
“Then I joined QIC and moved back to Brisbane. In QIC’s liquid markets group for more than a decade, I led the credit team for most of that time investing in the corporate bond market both domestically and internationally, as well as synthetic credit and securitisation,” he says.
At the peak, it had about $17 billion worth of credit assets under management (AUM).
Back in 2020, QIC could see the momentum building in the private debt space and decided
to establish a dedicated business unit that would become a key part of its growth strategy.
The following year, QIC launched the unit, comprising two teams: private debt, Australia, which Miall leads, and private debt infrastructure. The private debt unit has a total of 18 team members.
Miall’s breadth of experience across credit markets and financial markets has given him a distinct blend of top-down and bottom-up credit expertise.
“The foundation in investment selection and agility in identifying opportunities across sectors, industries and investments, as well as investments to pass on, are great assets for my current role as head of QIC’s private debt Australia team,” he notes.
QIC is both a sovereign investor, as QIC State Investments, and an institutional fund manager.
QIC State Investments is the investor and manager for various pools of Queensland government capital and QIC’s foundation client.
“While our sovereign ownership provides us with stability, QIC is independent and operates both as a limited partner (LP) and general partner (GP) with a commercial mindset,” he says.
Meanwhile, QIC Private Debt is one of the institutional funds management businesses. It originates private debt investments for both government and non-government clients, such as superannuation funds, insurance companies, and other institutional investors.
QIC made a record $8.9 billion in earnings to Queensland government clients in the 2024 financial year and had $111.7 billion in AUM.
Miall says one of his key learnings during his career is how “vital” active management is in this business.
“Active management is vital to good long term investment outcomes,” he says.
“That aligns with our DNA and philosophy for our clients. While active management is important in public markets, it is even more critical in private debt. You’re investing to hold to maturity, not to trade the position, and so in the long term you will live or die by your investment selection.”
Another key is learning how to protect from the downside and to take more active risk in the dislocation periods.
When liquidity is scarce, Miall says that’s often the time to ‘fill your boots’ but always with a discerning approach to selecting the right deals.
“Looking at dislocations and downturns as an opportunity can create significant value, rather than looking at it the other way,” he says.
The popularity of the private debt asset class has boomed in recent years. Much of this stems from bank disintermediation.
Miall explains that on the supply side, banks are generally pulling back from certain sectors in the market because they’re not earn ing the return on capital they need to. Regulation has also forced them to hold more capital and with banks pulling back in some sectors it’s leaving a funding gap.
Looking at dislocations and downturns as an opportunity can create significant value, rather than looking at it the other way.
Phil Miall
“In Australia, there’s no high-yield bond market to fill that. Essentially, private lenders are filling that funding gap. Australia’s private debt AUM has grown at more than 20% per annum compound annual growth rate since 2015 when bank capital regulation started to bite,” he says.
“We think that there’s likely to be further strong growth in Australia’s private debt market over the coming years, perhaps not at over 20% p.a., but still significant growth.”
The reasons, Miall points out, are continued bank disintermediation and the fact that Australian banks still hold a significant market share of corporate and real estate loans.
“Looking at this market share of Australian banks versus those in US and Europe, in Australia it’s over 70%, whereas in Europe and the US, it’s less than 60% and 40% respectively,” Miall says.
“If Australia’s bank market share follows that path, then there’s going to be a growing funding gap that private debt investors can help fill, supporting the market’s growth.”
After attending high school in Brisbane and studying a Bachelor of Commerce at the University of Queensland, Miall dipped his toe in accounting at the dawn of his career with Deloitte.
While he also studied to be a Certified Public Accountant (CPA), he found early on that accounting just wasn’t for him.
“My kids are at the age where they’re often thinking about their future career-wise. The landscape and options for them are very different to when I started out and I say to them, ‘find something you’re passionate about, be prepared to work
