While the federal government’s ramped up initiatives to tackle the housing affordability crisis is the first step in moving the needle, the flow of funding remains constrained as providers look to private capital and institutional investors to urgently pick up the slack.
The Housing Australia Future Fund’s (HAFF) first funding round announced in September promised the construction of 4220 social and 9522 affordable homes.
Organisations such as Community Housing Industry Association (CHIA) have long pushed for affordable housing funding to be at the top of the national agenda – a priority successive governments put on the backburner from the early 1990s until recently.
To help community housing providers (CHPs), the previous government set up bond aggregators for them to access cheaper finance. CHIA chief executive Wendy Hayhurst says those were not ideal.
“Social and affordable housing need a subsidy to bridge the gap between what people can afford to pay in rent, and what it costs to build and manage. In principle, the HAFF is exactly what we have been asking for in this federal government coming back in – a fund which has a target in terms of the number of homes it can deliver with an underlying investment of $10 billion,” she says.
“We’re very, very happy that the HAFF is in position. What we feel [the] government could do is increase that underlying investment so that we can provide more homes than the current total, but also give out different types of subsidy arrangements.”
CHPs typically pay upfront to build the homes and then receive a payment every year. Investment in affordable housing was a mainstay at the state level, until 2022 when the Albanese government elevated the housing crisis to the federal level, pledging $10 billion to build 20,000 new social homes and 10,000 new affordable homes over the next five years.
Daweena Motwany, a senior policy and advocacy adviser at PowerHousing Australia, a network of 38 CHPs, says HAFF has the potential to become a long-term funding mechanism to enable secure development pipelines.
“This could actually be a game changer for the CHP sector because it would enable us to significantly scale up and it attracts institutional invest-
ment, as we haven’t seen housing being tackled at this scale for quite some time,” Motwany says.
About a third (35%) of leaders in the affordable housing sector surveyed by Herbert Smith Freehills in June said the government will only achieve its goals with the help of private capital but warned potentially low returns are a significant barrier.
In February, IFM Investors, CareSuper, Hostplus, and Rest professed their eagerness to partner with CHPs via the HAFF, which will not only increase the number of homes at scale but “deliver appropriate long-term risk adjusted returns to their members”.
The four organisations have been mum since the first round was announced, declining to comment on Financial Standard ’s request for an update. IFM confirmed that it is has not backed out but couldn’t comment on any progress.
Impact investors such as Conscious Investment Management are spearheading private capital flow into social housing programs. Still, wealth managers can do more as a new report from Everybody’s Home finds that Australians on the lowest incomes are being priced out of rentals all over the country, leading to a current shortfall of 640,000 homes that will rocket to one million within 20 years.
The influx of migrants post-Covid also added to the housing shortage, which peaked at 559,900 in September 2023, the Australian Bureau of Statistics shows.
UTS Business School social economics professor Jock Collins calls out the “political failings of governments from all persuasions” for their lack of foresight and action in curbing the housing shortage.
“That has been the issue here in particular – that there hasn’t been infrastructure investment – whether it’s hospitals, or transport or other things. Too many governments have been happy to take the benefits of migration but have not met their financial obligations of coming to the table to enable the infrastructure to manage that growing population,” he says.
Hayhurst says there is “real happiness” in what the government is trying to achieve.
“We hope and advocate for them to increase that underlying investment so that in addition to getting out these payments once the homes are built, we can actually provide subsidy upfront to make it a bit easier to provide a home in the first place,” she says. fs
Jock Collins UTS Business School
Calculators ‘can’t be counted on’
Andrew McKean
While most superannuation funds opine that retirement calculators are key to helping members, research from Super Consumers Australia (SCA) has found they often fail to produce reasonable results. The consumer advocate reviewed the country’s largest super funds to check whether they had a retirement calculator and assess their usefulness, finding large differences in results despite using a consistent scenario – a 50-year-old woman earning an income of $55,000 with a super balance of $95,000, who is single, owns her home, and plans to retire at 67.
For this scenario, the default retirement income projected by calculators varied by 74%, ranging from $29,928 to $52,000 a year – which could be the difference between someone struggling to get by or living in relative comfort, the report said. Much of the variation was due to differences in how funds calculate retirement income, often using “arbitrary assumptions” about what a person needs in retirement.
Continued on page 4
Regulators to jump on greenwashing
Regulators are zeroing in on anti-greenwashing measures in the asset management sector, according to a KPMG report.
The report said that stopping companies from making false or misleading claims about the sustainability of their products, whether intentional or not, remains a top priority. Some are creating new policies; others are fine-tuning existing rules to be more effective.
The report showed that the UK has the strictest rules on anti-greenwashing and entity-level sustainability reporting, with the Financial Conduct Authority (FCA) introducing a rule requiring firms’ sustainability claims to be fair, clear, and not misleading.
The FCA’s anti-greenwashing guidance expands on four principles: correct and capable of being substantiated, meaning claims must be factually accurate; clear, ensuring claims are transparent and straightforward, and easily understood by the intended audience; complete,
Continued on page 4
By Jamie Williamson
Nearing the home straight
It’s hard to believe it’s October already.
Businesses are already advising their yearend shutdown periods, plans are being made for Christmas catch ups, and the news cycle is beginning to slow.
As a certifiable Christmas obsessive, the yulephile in me (yes, it’s a thing) couldn’t be happier. However, the other way we’ve come to tell the wind down period has commenced is that, when all other businesses are showing signs of pulling back on their marketing and PR for the year, ASIC starts to ramp things up.
We’ve seen it time and again, the regulator scrambling to finish each year on a high note, peppering us with report after media release after court decision when all we want to do is sit back and relax. And this year will be no different. In fact, it’s already begun.
In recent weeks we’ve seen it secure a record near $13 million penalty against Vanguard for the greenwashing conduct it was found guilty of earlier this year. It also scored a win with Macquarie being fined $5 million – another record – for failing to prevent suspicious order
Director of Media & Publishing
Michelle Baltazar
Editorial
Jamie Williamson
Karren Vergara
Eliza Bavin
Andrew McKean
Matthew Wai
Research
Aman Ramrakha
John Dyall
Pooja Antil
Sanjesh Pinnapola
Advertising
Michael Grenenger
Client Services & Subscriptions
Matthew Martusewicz
Design & Production
Shauna Milani
Mary-Clare Perez
CPD program
James Yin
Managing Director
Alison Mintzer
transactions on electricity futures.
It hasn’t been all good news though, with ASIC copping a major blow when its case against Rest was dismissed on September 18. A nuanced case, it focused on how the fund treated rollover requests from ‘Determination Members’, being those whose employers were required to contribute to the fund under workplace agreements or enterprise bargaining arrangements. ASIC claimed that Rest deliberately sought to mislead these members about their ability to transfer to another super fund.
The case stretched on for two and a half years before being thrown out. At the end of it, ASIC was ordered to pay 80% of the fund’s legal costs, which are likely significant and will put a real dent in its apparently limited enforcement budget. But of course, it won’t be ASIC footing the bill as such – that’s what the industry funding levy is for; the absurdly inflated adviser levy will put Rest right again.
It’s a frustrating reality, made all the more frustrating by the fact that, as pointed out by the Federal Court in its judgment, all that Rest
was accused of had already been deemed to be totally fine by APRA some three years before ASIC brought its case.
There will no doubt be more court decisions to come before the year is out, and ASIC has also flagged it has 16 different initiatives it is looking to finalise before 2025. Among other things, this includes releasing findings from its review of the use of artificial intelligence in financial services, its review of licensees’ compliance with the reportable situations regime, its work on super funds’ handling of death benefit claims, and its review of scam prevention in superannuation. So watch this space, because ASIC is showing no signs of slowing down.
On a separate note, fresh from our recent win at the Impact Awards, the Financial Standard team is delighted to be nominated for an award from industry body, the Institute of Financial Professionals of Australia.
While we won’t find out if we’ve been successful for another six weeks or so, we want to thank all those who have voted for us; it means a lot to have the support of the industry. fs
james.yin@financialstandard.com.au
alison.mintzer@issgovernance.com
Charlie Viola launches firm
Karren Vergara
Three Pitcher Partners executives have set off to launch Viola Private Wealth, an ultra-highnet-worth financial advice firm spearheaded by Charlie Viola.
Viola, together with founding partners Sean Ward and Andrew Levi, bought out operational aspects of Pitcher Partners’ wealth management for an undisclosed figure. Viola serves as executive chair and adviser.
Ward serves as chief executive, having joined Pitcher Partners in 2018 as head of risk, compliance, and operations, as well as serving as general manager. Levi is now chief operating officer, spending the last five years as Pitcher Partners’ head of operations.
Pitcher Partners managing partner Adam Irwin said the separation was “amicable”, adding that the “transition will be smooth, with no disruptions for the clients of Pitcher Partners”.
“Charlie is an amazing operator and he has wanted to shape his own destiny for some time,” Irwin said.
“This is an opportunity for him to build on his client book, but it is also an opportunity for our wealth management team to refocus our services on the needs of a broader group of individuals and families, including the affluence of clients across our PBFA practice.”
Viola spent nearly 19 years at Pitcher Partners where he focused on HNWIs and small businesses with $10 million or more to invest.
He built a portfolio of 180 clients and oversaw $2.2 billion in funds under advice. Pitcher Partners has about $4 billion in FUA. fs
QIC reports $9bn record earnings
Queensland Investment Corporation’s (QIC) earnings topped a record $8.9 billion in the last financial year, buoyed by most investments outperforming their targets.
QIC’s assets under management also increased to $111.7 billion with the help of 70% of investments exceeding performance objectives.
It earned operating pre-tax profit of $125 million in FY24. An additional $252.5 million will be returned to the Queensland government as a shareholder.
“Delivering record returns to Queensland government clients is a significant achievement against a backdrop of ongoing inflationary pressures and macroeconomic challenges,” QIC chief executive Kylie Rampa said.
Rampa highlighted infrastructure, private equity, and private debt as some of the key drivers of performance.
“We have also worked to better position our real estate portfolio for future success amidst evolving economic conditions, including the recent increased transaction activity being driven by returning interest from institutional domestic and foreign investors for large-scale retail assets,” she said.
Despite challenging conditions for capital raising and valuations persisted, Rampa said these did not deter QIC from growing its investor base, broadening existing client partnerships, and generating liquidity. fs
01: Paul Barrett chief executive AZ NGA
Fund manager splashes $240m on AZ NGA
Karren Vergara
Aglobal investment manager has injected $240 million in AZ Next Generation Advisory (AZ NGA) and will become its largest shareholder.
Oaktree Capital Management will help AZ NGA further expand its reach as its growth and succession partner, taking over the reins from Azimut as the major shareholder.
We will work together to achieve our shared vision of AZ NGA as Australia’s leading consumer financial services advisory firm.
AZ NGA chief executive Paul Barrett 01 said: “With strong momentum to-date and an attractive pipeline of M&A opportunities, AZ NGA is strongly positioned for accelerated growth alongside Azimut and Oaktree.”
Barrett established Next Generation Advisory (NGA) in 2014 with the backing of Milan-based Azimut, which took a 93% stake in the firm.
Azimut at the time said it will provide finance of $8 million per year as NGA sought to reach $7.8 billion of assets under management over 12 years.
Current management and SME business owners of AZ NGA will retain about a 33-39% interest in the firm. Azimut’s stake will be at least 25%.
AZ NGA now has 34 partner firms, several of which are financial advice and accounting businesses. The group collectively has $15.1 billion in assets under advice.
AMP is currently divesting its advice licen-
sees and support services businesses to Entireti and AZ NGA for $10.2 million.
AZ NGA is acquiring AMP’s minority stakes in 16 practices for $82.2 million while several AMP staff will move over.
“Azimut is committed to AZ NGA and the Australian market for the long-term. This transaction brings AZ NGA a step closer to achieving its vision of being Australia’s leading professional advisory firm, and we look forward to working with Oaktree to continue supporting AZ NGA in its next chapter of growth,” Azimut Holding chief executive and AZ NGA chair Massimo Guiati said.
Los Angeles-based Oaktree has US$193 billion in funds under management, focusing on credit, private equity, real estate, and listed equity strategies. Brookfield Asset Management has a 64% stake in Oaktree.
Oaktree managing director Byron Beath: “Oaktree has invested in financial services platforms globally, such as Ascot Lloyd and Atomos, and we look forward to enhancing AZ NGA’s strong market position and sharing Oaktree’s seasoned investment philosophies to deliver even greater value to AZ NGA’s retail and wholesale clients. We will work together to achieve our shared vision of AZ NGA as Australia’s leading consumer financial services advisory firm.”
The transaction is due to finalise before the end of the year, subject to regulatory approvals. fs
ASIC sees case against Rest thrown out
Andrew McKean
ASIC’s case against Rest, in which it alleged the super fund misled members about their ability to transfer superannuation out of the fund, has been thrown out by the Federal Court.
The case focused on Rest’s past practices around rollover requests from ‘Determination Members’ – those whose employers were required to contribute to the fund under workplace agreements or enterprise bargaining deals.
The corporate regulator initiated civil penalty proceedings against Rest in March 2021, claiming that from March 2015 to May 2018 the super fund made representations that discouraged, delayed, and or prevented more than 31,000 members when they sought to transfer their funds to another superannuation fund.
There were several categories of alleged misrepresentation, including that members employed by a Rest-affiliated employer who continued to make contributions to the fund could only transfer part of their balance, and that they were required to maintain a minimum balance of $5000 in their account.
The Court found that Rest’s representations about rollover requests for Determination Members were neither false nor misleading. It ruled that these were factual statements reflecting Rest’s practices, which were considered reasonable and backed by external advice over a long period.
The Court also pointed out that APRA had reviewed these practices and raised no objections until 2018.
It dismissed ASIC’s claims and ordered it to pay 80% of Rest’s legal costs.
ASIC has 28 days to appeal the judgment but hasn’t indicated that it will, only that it will consider the judgement carefully.
ASIC deputy chair Sarah Court said that superannuation portability and choice of super fund are important member rights.
“ASIC brought this action to clarify the law around those rights and to emphasise the critical responsibility of trustees to provide accurate information to their members. Members rely on and trust information they receive from their superannuation fund,” Court said.
A Rest spokesperson, meanwhile, commented that the fund welcomes the decision handed down by Federal Court to dismiss the proceedings.
“As a profit-to-member super fund, Rest has at all times sought to act in good faith and in the best interests of members. We are pleased the Court has found in Rest’s favour,” the spokesperson said.
Mills Oakley Lawyers partner Mark Bland told Financial Standard the interesting part of the case comes down to what constitutes a member’s interest in the fund. While this particular case involved determined members (those with workplace agreements), there are questions about how the judgment could apply to default or MySuper members, depending on the nature of the fund’s trust deed, he said. fs
The quote
Calculators ‘can’t be counted on’
Continued from page 1
“A typical person would only use one of these calculators but could be provided with completely different results if they entered their information into another calculator,” the research said.
“It’s unreasonable that a person would need to understand the inner workings of the calculator’s assumptions to interpret whether the results were relevant to their personal circumstances.”
Most calculators (77%) also provided a default retirement income that was too low or too high for the predicted balance at retirement.
According to ASIC’s Regulatory Guide 276, a superannuation balance should be drawn down by age 92. However, calculators that project default income in a draw down period longer or shorter than this could push a person towards unsustainable short-term spending or underspending, causing unnecessary financial struggles.
The calculators projected that the scenario’s superannuation balance would last anywhere from 10 to over 35 years, meaning it could run out by age 77 or last beyond age 100. Only a fraction of calculators suggested a retirement income that would deplete the balance between the ages 85 and 95.
Most calculators offered no guidance to help people work out a personal income target that is appropriate for their circumstances. AMP’s calculator was the only one that guided users through typical spending categories, such as telecommunications, energy, and groceries.
“Ideally, all calculators would help consumers to assess their spending needs in retirement. This could be done by prompting people to use their own data to compile a budget of what their spending may be, with guidance and examples to give a sense of how much other retirees spend,” the report said.
Some calculators had out of date information or inaccurate fee estimates. For example, AMP’s calculator, last updated in 2022, presented the ASFA ‘Comfortable Standard’ as $47,217 per year, when the correct figure at the time of the review was $51,630, the research said.
Several funds also used fees that didn’t match their PDS. Diversa offered a generic calculator for all the funds for which they are the trustee, while BT and Colonial First State used the generic fee assumptions sourced from MoneySmart rather than tailoring them to their product. fs
Regulators to jump on greenwashing
Continued from page 1
meaning claims should provide a representative picture of the product or service; and comparable, requiring that comparisons with other products or previous versions of the same product are fair and meaningful.
KPMG superannuation advisory lead Lisa ButlerBeatty said Australia is likely to follow the UK’s lead in tightening ESG-related rules, after the climaterelated disclosure regulation was brought in.
“The prevention and mitigation of greenwashing remains a regulatory priority globally, as governments look to increase transparency to investors. Asset managers should be prepared for the ongoing expansion of economy wide ESG reporting going forward,” she said. fs
01: Sarah Court deputy chair ASIC
The quote Vanguard’s contraventions should be regarded as serious… Further, Vanguard benefited from its misleading conduct.
THREE LINE HEAD
Vanguard to pay $13m in greenwashing case
Jamie Williamson
Vanguard will pay a $12.9 million fine after being found guilty of greenwashing earlier this year. It marks the largest penalty ever imposed by the Federal Court for such conduct.
In March, the Federal Court found Vanguard misled investors via claims it made about ESG screens applied to its $1.1 billion Ethically Conscious Global Aggregate Bond Index Fund between August 2018 and February 2021.
The claims were made via a variety of mediums, including in product disclosure statements, on Vanguard’s website, in a press release, in a YouTube video, and in a Finance News Network presentation.
Despite being an ‘ethical’ fund, more than 70% of the fund’s holdings by market value were not screened against the applicable ESG criteria.
Vanguard self-reported the issues that led to this case and admitted to the bulk of contraventions.
Following the outcome in March, a penalty hearing was held in August at which ASIC pushed for Vanguard to be penalised $21.6 million - $18 million for the PDS issues, $2 million each for the press release and website claims, and $1 million each for the YouTube video and Finance News Network presentations.
Vanguard believed its penalty should be in the realm of $9 million to $11.25 million, allowing for a 25% discount in recognition of its cooperation.
In determining the penalty, Justice O’Bryan considered the fact that the annual income earned by Vanguard on the fund was less than $1 million in FY21 and about $1.3 million in
FY22 – less than 0.5% of Vanguard’s total income in each of those periods.
He said he believed a $12.9 million fine was “proportionate and strikes an appropriate balance between deterrence and oppressive severity.”
“In aggregate, it is an amount that is many multiples of the total revenue earned by Vanguard from managing the fund during the relevant period, and many multiples of the annual revenue earned by Vanguard from managing the fund after the end of the relevant period,” Justice O’Bryan said.
Commenting further on his decision, he said: “Vanguard’s contraventions should be regarded as serious… Further, Vanguard benefited from its misleading conduct. The misrepresentations enhanced Vanguard’s ability to attract investors to the fund, and enhanced Vanguard’s reputation as a provider of investment funds with ESG characteristics, as compared to what would have been the case if Vanguard had accurately disclosed the ESG screening limitations and the fund’s exposure to issuers engaged in the excluded industries.”
“Although it cannot be demonstrated that any investor suffered financial loss by Vanguard’s misleading conduct, investors lost the opportunity to invest in accordance with their investment values.”
“ASIC brought this action to clarify the law around those rights and to emphasise the critical responsibility of trustees to provide accurate information to their members. Members rely on and trust information they receive from their superannuation fund,” ASIC deputy chair Sarah Court 01 said. fs
Trust in advisers reaches new high: Survey
Karren Vergara
Trust in financial advisers is at an all-time high, according to a new survey from the Financial Advice Association Australia (FAAA), which found their value-add has been particularly critical in the cost-of-living crisis.
The Value of Advice Index found almost all (94%) of advised clients trust their adviser to act in their best interest, a new record set in this year’s survey.
The same number lauded their adviser for helping them manage financial risks, particularly as cost-of-living pressures and the threat of a recession weigh heavily on Australians.
The survey pitted clients using a CFP-qualified adviser against those who did not use an adviser who does not have the designation.
It found that a CFP “professional delta” exists across four key metrics – quality of life, financial confidence, financial satisfaction, and adviser experience.
Clients who use a CFP reported a 14-point improvement in financial confidence over the last year, while non-CFP clients’ confidence rose 10 points. In terms of financial satisfaction, the
year-on-year increase rose 15 points and 11 points respectively.
Overall, clients said their advisers add value in three core areas: helping build a realistic plan for a comfortable retirement, getting the most out of a financial situation, and reducing financial stress.
Russell Investments estimates that financial advisers added 5.7% in value to client portfolios in 2024, split across guidance provided on asset allocation (1.1%), behavioural coaching (3.3%), and tax planning (1.3%).
FAAA’s study also debunks the myth that financial advice is solely for the rich.
At his own practice, Globe Financial Planning, FAAA chair David Sharpe sees a variety of mum and dad clients who earn a median salary of $100,000.
“Those who aren’t on super high incomes or don’t have super high wealth are still getting benefit. We don’t want people out there thinking that [advice] is the luxury of the multimillionaires. We sit in front of clients – dual income Australians all day, every day. We don’t want those people getting scared of seeking advice purely because of this myth,” he told a media briefing. fs
Edwina Maloney group executive, platforms AMP
Let’s ensure the performance test works for everyone
Why changes to the annual performance test are needed for a small subset of investment options on platforms misleadingly deemed to be trustee directed
The annual performance test is doing a great job for most Australians in helping ensure the superannuation industry is held to account for investment returns and fees. However, the extension of the Your Future, Your Super annual performance test to a small subset of what the government inaccurately classifies as trustee directed products (TDPs) available on platforms has proven confusing, costly, and detrimental for consumers and their advisers – the opposite of the policy’s intent.
Inaccurately defined as ‘trustee directed’
This small subset of investment options available through superannuation wrap platforms are not ‘trustee directed’. They are registered managed investment schemes where the trustee has no control over the asset allocation, the investment strategy, or the investment fees. There is always an interposed responsible entity, closely regulated by ASIC, who by law must not alter its investment strategy on the direction of one unitholder, such as a trustee. Rather than being classified as TDPs, these products should be correctly referred to as externally directed products (EDPs), which are not intended to be captured by the current test.
The only Choice investment options that should be included in the current test are diversified options where the trustee is directly responsible for managing and controlling the investments of the option.
These mis-classified investment options available on platforms, on the other hand, are typically recommended to a consumer by an adviser (who is subject to stringent best interest duty requirements) to align with a very specific set of criteria and individual goals and circumstances.
Consumer risk profiles differ, as do their performance objectives, often including ‘goals based’ or ‘objective based’ products invested in such a way to, for example, reduce volatility, provide steady income, or provide greater weighting towards specific investment objectives such as ESG.
Applying a similar ‘one size fits all’ test methodology – like that used for MySuper funds – simply doesn’t work for Choice investment options because they are designed to achieve very different things.
Consumer confusion and financial detriment
The problematic inclusion of these investment options for testing – which represent only 2% of the entire Choice platform investment market – creates other issues for consumers.
Many investment options are available through different wrap platforms, meaning these options can be tested on one platform, but not another. The exact same option, with the same fees and returns, could therefore fail a test on one platform, but not be tested on another platform.
In fact, many of the platforms with the highest administration fees are currently not part of the test because the options are not classified as ‘trustee directed’. It is therefore impossible for consumers and advisers to use the test to help make informed investment decisions across the market. Further, with high-cost platforms not included in the test, the benchmark administration fee (BRAFE) for the test is skewed. This means that many investment options, which on a ‘like-for-like fee comparison’ basis perform better than those excluded, fail because those high-cost platforms are excluded from the benchmark.
Misrepresentative of actual fees incurred
The test also doesn’t accurately reflect consumer fees for these misleadingly labelled TDPs. Currently, it assesses administration fees for all platforms based on an account balance of $50,000 in its methodology and assesses the full dollar-based account fee for each underlying option, assuming all consumers have a single investment option. While this may be appropriate for many super funds, for most platforms, administration fees reduce as balances increase. Balances average close to $250,000 on North, for example. Furthermore, many consumers invested through wrap platforms hold multiple investment options, which also reduces their per product administration fee.
Unnecessary complexity for financial advisers
At a time when industry, government and regulators are trying to simplify the advice process to give more Australians access – the test adds an -
The quote
The most telling statistic is that most of these consumers incurred costs for acting on the misleading test outcomes.
other layer of complexity and confusion. Our survey of advisers following last year’s TDP test outcomes showed that 44% of consumers required an appointment with an adviser to understand the test outcome, 25% were unresolved due to the customer being unwilling to pay for advice, and 33% of consumers cancelled their annual agreement after receiving a failure notice. The most telling statistic is that most of these consumers incurred costs for acting on the misleading test outcomes.
Change is needed
The consequence from what, at its core, is a basic misclassification of investment options, is that consumers are being forced to act on misleading test results when it may not be in their financial interests to do so, particularly as they could be subject to consequences such as incurring capital gains tax or loss of guarantees on exiting certain investment options. As it considers improvements to the annual performance test, the government itself has acknowledged the evidence that the test may be influencing investment decisions to the detriment of consumers. The sooner common sense prevails, and meaningful change is made, the better for consumers and hence their retirement outcomes. fs
Praemium unveils HNW offering
Matthew Wai
Financial advisers now have access to a suite of solutions specifically tailored to high-net-worth (HNW) clients, known as Praemium Spectrum.
Users can access a range of comprehensive assets, tools, and capabilities to better facilitate holistic wealth management services. It provides seamless onboarding, trading, and execution processes, along with the digitisation of advice, Praemium said.
Praemium chief executive Anthony Wamsteker believes the new solution will better equip advisers to cater to the “increasingly unique requirements” of HNW clients.
According to Praemium and Investment Trends’ HNW Investor report, the number of HNW investors now sits at 690,000 in Australia, controlling $3.3 trillion in investable assets.
As a result, the group is hunting for sophisticated investment solutions across various asset classes and Wamsteker said the launch of Spectrum delivers on that.
“With Spectrum’s ability to report on total wealth across custody and non-custody and deliver a comprehensive digital onboarding and service experience, our advisers are better equipped to cater to the increasingly unique requirements of their high-net-worth investor client base,” Wamsteker said.
“This platform advancement embodies our commitment to empowering advisers with cuttingedge tools, seamless onboarding, and digitised investment management capabilities, enabling them to provide unparalleled services and achieve exceptional outcomes for their clients.” fs
OTPP, Hines back local BTR scheme
Andrew McKean
The Ontario Teachers’ Pension Plan and global real estate investment manager Hines have acquired two build-to-rent (BTR) properties in Brisbane, comprising 354 units, from ADCO Group.
The first property, located at 28 Robertson Street in Fortitude Valley, is an 89-unit building completed in October 2021. The second, at 13-17 Cordelia Street in South Brisbane, is a 265-unit building that’s expected to be completed next year.
Hines will provide asset management services for both properties. Arklife, a specialised BTR platform co-owned by ADCO, has been managing the properties and will continue in its role.
Ontario Teachers’ head of Asia-Pacific real estate Jun Ando said with Australia’s population expected to keep growing and more people choosing to rent, there’s strong long-term potential in the country’s multi-family housing market.
“These assets provide us with a strategic entry point into Brisbane and, working alongside Hines and Arklife, we will look to offer a compelling value proposition for tenants and create value for our stakeholders through active asset management,” he said.
Hines country head of Australia and New Zealand David Warneford said the acquisitions reflect its continued focus on actively pursuing BTR opportunities in Brisbane, and other key Australian cities with strong fundamentals. fs
01: Andrew Moore chief executive Spaceship
eToro acquires Spaceship, sets sights on super sector
Jamie Williamson
The global trading and investment platform is tapping into the superannuation sector with the acquisition of Spaceship, in a deal worth as much as $80 million.
eToro has agreed to acquire Spaceship, expanding its local business and suite of offerings. The Spaceship name and brand will remain in place.
The numbers
$80m
The anticipated final cost of the transaction.
Under the deal, eToro will take over ownership of Spaceship Super, which merged to become a sub-plan of OneSuper earlier this year.
It will provide Spaceship users with access to eToro’s multi-asset investment platform, covering equities, managed funds, ETFs, commodities, and crypto assets. eToro users will also be able to sign up to Spaceship via the eToro app.
In all, Spaceship is home to about $1.5 billion in funds under management. According to APRA data from March end, about $860 million of this is in superannuation across 21,000 member accounts.
“Joining forces with eToro is a pivotal moment for Spaceship, accelerating our momentum in Australia and unlocking new opportunities for growth,” Spaceship chief executive Andrew Moore 01 said.
“We’re deeply aligned with eToro’s goal of making investing accessible for everyone, and this partnership will enable us to reach new heights as we expand our product offering to customers, while continuing to provide toptier value. Moreover, it offers our customers a promising opportunity to be part of a forward-looking company that aligns with our future ambitions.”
eToro managing director, Australia Robert Francis said the acquisition marks a significant milestone for the business in Australia.
“We want to give Australians everything they need to meet their investing goals,” he said.
“By combining Spaceship’s superannuation proposition with eToro’s multi-asset investment offering, we can better support our users throughout their investment journeys. I look forward to working with the Spaceship team.” fs
Family office, KKR buy up Queensland airports
The Infrastructure Fund, Australian Retirement Trust (ART) and State Super have offloaded Queensland Airports to private equity giant KKR and Atlassian co-founder Scott Farquhar’s family office, Skip Capital.
Queensland Airports comprises Gold Coast, Townsville, Mount Isa, and Longreach airports. It is currently majority owned by The Infrastructure Fund, which is managed by Macquarie Asset Management, ART, and State Super, with a combined 74.25% holding.
The group has agreed to sell its stake to KKR and Skip Essential Infrastructure Fund, a fund set up by Skip Capital and overseen by Farquhar’s wife, Skip Capital chief executive Kim Jackson. The remaining 24.62% of the entity will continue to be owned by Perron Investments.
Combined, the airports see nearly 66,700 annual aircraft movements across more than 40 domestic and international routes. This year, they’re expected to service more than 8.5 million travellers.
KKR, which made the investment through its Asia Pacific Infrastructure Investors II Fund, said it sees transportation as core to its infrastructure strategy in Australia, alongside energy, utilities, and telecommunications.
“Our investment in Queensland Airports is a unique opportunity to acquire a high-quality asset that provides critical services in a resilient market with strong macro tailwinds. Queensland Airports plays an important role in connecting Queensland communities to the rest of Australia and beyond,” KKR head of Australia and New Zealand infrastructure Andrew Jennings said.
“We look forward to collaborating with the Skip Essential Infrastructure Fund, Perron Group and the management team to drive growth initiatives to better serve passengers from Australia and abroad.”
Meanwhile, Jackson said: “The Skip Essential Infrastructure
Fund is proud to back the Gold Coast, Townsville, Longreach and Mt Isa airports. Alongside delivering critical transport into one of Australia’s highest growth corridors of the Gold Coast, we are excited about our plans to lift the airport’s offering for residents and tourists, and drive energy innovation across the group.”
The transaction, the financial terms of which were not disclosed, it expected to close later this year.
“We are proud to have worked closely with QAL management, on behalf of TIF’s investors, to invest in new facilities and expanded services at the airports, which has benefitted travellers, staff and the communities they serve in Queensland and northern New South Wales,” Macquarie Asset Management (MAM) senior managing director Amanda McMillan said.
“As the world’s largest infrastructure manager, MAM has been investing in airports since 2001 and has leveraged the expertise of its global teams to help drive QAL’s growth while generating strong returns for TIF investors.
“This is an excellent example of private capital supporting airports to meet growing capacity needs and traveller expectations by investing in upgraded and expanded infrastructure that will serve these growing regions of Australia for years to come.”
ART head of global real assets Michael Weaver said the timing of the sale supports the fund’s goal of delivering the best possible outcomes for members.
“This process has formed part of our broader strategy to manage our portfolio, and we’re pleased with the outcome. Our capital helped support this investment to grow over many years, but we now look forward to new investors coming in, and managing these assets as they enter a new phase,” he said.
Meantime, State Super chief executive John Livanas said the fund is proud to have been a part of the airports’ growth. fs
01: Simon Aboud chief product and marketing officer Allianz Retire+
Recipe for retirement readiness
Guaranteed income is a key ingredient in retirement confidence
Retirement is far from what it used to be.
In days gone by, retirement marked a line in the sand; a hard deadline at which a person would hang up their boots and transition to a life of hobbies, vacations, and helping with the grandkids – a dream.
But longer life expectancies, stubbornly high inflation, and increased interest rates are placing pressure on pre-retiree and retiree households, with many reassessing their plans for retirement in fear of running out of money. Some are delaying retirement, others are taking up casual work, and many are keeping a trained eye on their hip pocket.
Recent research by Allianz Retire+ shows one third of retirees want to transition to retirement, 15% will reduce their workforce participation over a period of two years, and 13% plan to technically retire to access their superannuation before returning to the workforce in some capacity.
The same research shows 59% of couples have some concerns about their ability to fund their entire retirement; 68% of singles said the same. Overall, 20% were either uncertain or didn’t believe they would have enough money to live a comfortable retirement. More insights from Allianz Retire+ highlighted that 82% of retirees and pre-retirees believe the Age Pension will be insufficient in meeting their needs.
“As we all know, we’ve seen volatility across key economic indicators like inflation, interest rates, and equity markets in recent times. There are several contributing factors, including global conflicts, geopolitical tensions, and political uncertainties – overall its ever changing and evolving and creating news headlines that make us feel uncertain about the future and what we should be doing to prepare,” Allianz Retire+ chief product and marketing officer Simon Aboud said.
Demographic changes are also difficult to ignore, Aboud says.
“The number of Australians aged over 80 is expected to triple in the next 40 years, and the old-age dependency ratio will rise from 26% to 38%. This means fewer workers supporting more retirees, increasing strain on public resources,” he explains.
Allianz Retire+’s research found retirees have a tendency to frontload their expenditure, with 67% of respondents expecting to have higher spending in early retirement, 44% of which think will be higher than their basic needs.
Less than 1% of respondents said they expect to spend more later in retirement, which suggests many have not considered the impact of costs associated with health and aged care. If recently proposed changes to the Aged Care
Act are passed, these costs could be significant, as the wealthier a person is, the more they’ll pay for aged care from 1 July 2025.
On the plus side, having now had more than three decades of compulsory superannuation is beginning to pay off for Australia.
Individuals are retiring with higher balances than ever before and, as Allianz Retire+’s research shows, the demand for education and clarification around new, innovative lifetime income solutions is growing as they look for solutions that help manage longevity, market volatility, and inflation.
The research by Allianz Retire+ indicates that 71% of retirees prioritise lifetime income, 50% seek investment growth, and 49% want protection against market volatility. Further, 36% said they want income certainty and another 36% said protection against inflation is a priority.
“The opportunity to effectively utilise their savings to fund a comfortable retirement is in the spotlight. As an industry we need to provide new solutions that give retirees a greater level of confidence to spend without fearing they will run out of income,” Aboud says.
“Pleasingly, we are now seeing innovation in retirement income solutions with several products in the market that meet these requirements.”
One such product is Allianz Guaranteed Income for Life, also known as AGILE, which was designed to deliver a retirement income stream that can continue to grow over time while also providing downside investment protection to guard against market volatility.
“AGILE combats market volatility, inflation, and longer lifespans through several features. It allows investing from as early as age 50, giving clients confidence in a long-term plan. It supports continued growth through exposure to growth markets while offering downside protection against market corrections,” Aboud explains.
“Flexibility is key, as AGILE allows financial advisers to adjust investments, access capital, and provide a full death benefit.
“This unique blend of innovative features ensures you don’t put the brakes on the potential for continued investment growth, but the protection features help mitigate market risk.”
By incorporating downside protection you can maintain some exposure to market gains whilst limiting the potential for capital losses. Significant capital losses require even more significant capital gains for a portfolio to truly recover –something that is more difficult in retirement.
“Downside protection, while not new, is crucial for maintaining confidence through volatile times and we know from our research that retir-
The quote
... we know from our research that retirees are looking for ways to protect their hard-earned retirement savings but to also maintain the opportunity for some growth.
ees are looking for ways to protect their hardearned retirement savings but to also maintain the opportunity for some growth,” Aboud says.
However, the Global Financial Crisis and other historic market corrections proved that a lack of diversification or over exposure to growth assets can significantly impact pre-retirees and retirees.
“Downside protection gives clients confidence to stick with their long-term plans, retaining market exposure while mitigating the emotional and practical consequences of market losses,” he adds.
“AGILE provides increased certainty by reducing or eliminating market losses while allowing benefits from market increases.”
Finally, through using products like AGILE, your clients’ Age Pension eligibility can be optimised. The Age Pension+ Option may help clients become eligible or help them to receive a larger Age Pension entitlement, providing another source of income in retirement.
And AGILE is easy to include in a client’s portfolio, Aboud says, as it can be integrated into a superannuation fund or account-based pension.
“For pre-retirement clients, it allows the continued accumulation of retirement savings while locking in a guaranteed lifetime income rate,” he explains.
“For retirees, AGILE provides a guaranteed monthly income, offering confidence and certainty. This certainty allows advisers to explore other portfolio opportunities, knowing a level of income is known and secure.” fs
PROMOTED CONTENT
Brought to you by
Both equities and bonds have struggled to perform as interest rates soared around the world. Is this the end of the 60/40 portfolio, or is fixed income entering a new golden age? Eliza Bavin explores.
Traditionally speaking, when equities are going through a tough period, an investment in fixed income can help balance out a portfolio, but in the period post-Global Financial Crisis and through to the pandemic, bonds lost their luster.
In fact, GSFM investment specialist Stephen Miller01 says bond yields got so low that not only were potential returns minimal, but the assumed negative correlation of bond returns and equity returns broke down.
“Moreover, with long dormant inflation emerging in the post pandemic era, central banks around the globe were forced to lift policy rates and engage in some quantitative tightening,” Miller says.
“This saw bond yields rise, leading to negative returns for bond investors. In periods of sustained inflation, bond returns and equity returns are often positively correlated and in the worst possible way; both deliver negative returns. That was the case for 2022.
“In that period investors sought alternative ‘safe harbour’ assets such as gold, other selected commodities, absolute return fixed income, income focussed equities and so on.”
Payden & Rygel director, strategist and portfolio manager Eric Souders 02 says the years post-COVID were perhaps the worst ever experienced by fixed income investors.
“In 2022, both equity and bond prices went down at the same time. That’s not supposed to happen. That’s not consistent with what many investors have experienced throughout their careers,” Souders says.
“For 20 years, the 60/40 portfolio worked. Your stock portfolio goes down, and your bond exposure is there to cushion your collective portfolio. That didn’t happen in 2022, and I think investors were left scratching their heads trying to understand what happened and the implications going forward.
“In the end, I think 2022 was the worst year, for a number of decades, if not ever, for the broad public fixed income market.”
And the problem of high inflation coupled with high interest rates is not something that is likely to ease in Australia any time soon – despite other major global economies beginning their easing cycles.
In September, the US Federal Reserve made its first interest rate cut in four years – slashing rates by 50 basis points, but the Reserve Bank of Australia (RBA) is still expected to be some way off.
“We believe the RBA will be one of the last major developed market central banks to cut rates during this cycle,” American Century Investments co-chief investment officer for global fixed income Charles Tan 03 says.
“Inflation has remained sticky in Australia despite some downward progress. The RBA
10 Feature | Fixed income
investment specialist GSFM
hiked rates less than the US did during 202223 so they have some more room to wait for inflation to fall towards the target.
“However, we anticipate the RBA will make at least one cut during Q4 this year as FX pressure may increase as the US begins cuts. We have added a slightly long duration position in Australian government bonds as a result.”
Entering a new era
Schroders head of fixed income Kellie Wood 04 says fixed income has performed strongly over the last 12 months and is now positioned well for a revival.
“It’s definitely a much better environment with valuations being restored in fixed income, but also offering more diversification to equity risk in a broader multi-asset portfolio,” Wood says.
“Especially now as we have seen the start of a global easing cycle and the potential that central banks pull forward the pace at which they cut interest rates to get back to more neutral policy rates quicker.
“We’ve started to see this play out from June to September this year. We’ve seen inflation peak and moderate in most of the developed world, and central banks have pivoted towards easing. So, we now have confirmation of the end of the hiking cycle.”
Wood says there has already been evidence of a slowdown in growth in Europe, the UK, and the US, which she says should lead to an exciting new future for fixed income.
“That sets up the best environment for fixed income to outperform every other asset class, like cash and equities, predominantly because inflation is moderating,” she says.
“Growth is slowing, and central banks are cutting interest rates. It does not get better than that in terms of fixed income as an asset class outperforming cash, because cash rates are coming down, but it’s also an environment where growth is starting to slow more substantially.
“This will put pressure on equities and credit markets, just given how hard they’ve run over the last 12 to 18 months.”
Miller agrees and adds that the central banks appear to be on top of the “inflation scrouge” which may mean bond yields are at their cyclical peak.
“In the circumstance, the negative return correlation between bonds and equities can reassert itself as central banks now have the capacity in response to downdrafts in growth through cutting interest rates and causing bond yields to rally,” Miller said.
However, Miller warns, despite inflation developments there are still challenges in the sector.
“The ‘neutral’ interest rate appears to have risen from the abnormally low levels that applied post-Financial Crisis through to the end of the pandemic,” he says.
director, strategist and portfolio manager Payden & Rygel
03:
Charles Tan co-chief investment officer for global fixed income American Century Investments
… the private credit market has not had to withstand or experience a real default cycle. The obvious question then, is, what would a default cycle look like in private credit, given the growth, the lower degree of transparency, and the lower degree of liquidity? It’s not overly clear.
Eric Souders
“Certainly, the resilience of activity and the labour market during the recent Fed tightening cycle is suggestive of the notion that the ‘natural’ real growth rate has increased from that in the preceding 15 years or so, and that, accordingly, the ‘neutral’ real interest rate should also have increased.”
Robeco portfolio manager of quant fixed income Olaf Penninga 05 says all signs are pointing to the troubled times being over.
“Now that we have moved out of this environment of rising inflation, the growth outlook is becoming more important as a driver of monetary policy and markets. Global bond yields have also risen to levels from which substantial bond rallies are possible again,” Penninga says.
He adds that this is the environment where the classic diversification benefits of bonds appear.
“Good examples of these benefits – albeit only for brief periods - have already been evident in last year’s US regional banking crisis and in late July/early August. In both periods, growth scares and the expected policy response drove equity markets down and bonds up,” he says.
“This is a good environment for bonds to play their diversifying role in portfolio.”
Local opportunities scarce
In the current environment, the best opportunities for solid returns are actually based outside of Australia, Miller says – but there may be exceptions to this.
“The Bank of Japan are in tightening mode and Chinese bond yields are at record lows. That might mean global allocations excluding Japan and China are worth considering as a diversifier for Australian bonds,” he explains.
Similarly, Fidelity International global cross asset specialist Lukasz de Pourbaix 06 says the situation will be tough in Australia, but there will be some interesting dynamics set to play out.
“The bond market will be an interesting one, particularly for Australian investors. If we do start to see interest rates coming down
– which eventually we will – you will see term deposit rates start falling,” de Pourbaix says.
“We’ve already seen some banks drop their term deposit rates, and that has been a great place to park your money when term deposits are giving 5% or more, but once you start seeing that number drop to four, that will be interesting.
“Then it’s a matter of, ‘Ok, well where do you park your money?’ and so things like bonds may become more attractive and relevant from that perspective. So, that will be an interesting dynamic to watch.”
Larger macro factors at play
The fixed income market is also susceptible to geopolitical issues. The fixed income market, along with equities, suffered when Russia invaded Ukraine and as discussed, the GFC and pandemic hit bonds.
So, with a controversial election campaign in the US heating up – between two candidates with very different views on how to run a country – how much is the outcome expected to impact markets?
“That neither Presidential candidate in the US can outline a coherent plan to address the gargantuan US budget deficit is a concern. That budget deficit at around 6% of GDP is unprecedented outside pandemic and war and takes place against a backdrop of close to full employment,” Miller says.
“That implies substantial bond issuance from the US Treasury which may see bouts of indigestion as bond supply overwhelms investors. This may augur a sustained period of only modest returns from bonds.”
de Pourbaix says that while it’s not wise to try and make a prediction over how the election might go, it is important to think about the implications regardless of the result.
02: Eric Souders
01: Stephen Miller
Fixed income | Feature
“What we try to understand is, what are the policy implications if ‘Team A’ or ‘Team B’ wins? For example, we’d be looking at the direction of tariffs and the direction of onshoring companies,” he says.
“If we see an acceleration of onshoring that tends to be inflationary because it’s definitely more expensive to produce something in the states versus another country.”
Despite concerns surrounding the US election, de Pourbaix says historically markets recalibrate quite quickly, even in the most major of scenarios.
“When Russia invaded Ukraine, Europe’s reliance on gas was pretty significant, but the market recalibrated very quickly,” de Pourbaix says.
“So, while these events can cause volatility from an investment perspective, we’re looking more at the broader, longer-term implication of those events.”
Private market boom
While there are a broad range of possibilities for the public fixed income market, private credit has boomed. So much so, regulators in Australia have flagged concerns over its size and opacity.
Miller says private credit could provide an opportunity and potentially a good diversifier within a fixed income portfolio.
“It complements well conventional highquality government / credit fixed income portfolios. In the Australian context it provides a sometimes significant amount of extra yield but not the duration risk,” he says.
“An appropriately weighted fixed income portfolio of government bonds and private credit can potentially provide diversified sources of return - government bonds provide capital gains during times of economic stress while the private credit component can provide an attractive yield during ‘normal’ or even inflationary periods.”
However, Miller warns private credit is still a relatively new asset class and investors have overall not endured a period of pronounced risk-aversion associated with an economic downdraft or financial “accidents”.
“In those circumstances investors are yet to feel the marked-to-market pain that may accompany a period of illiquidity and/or a higher incidence of defaults,” Miller says.
“In this sense, investors need to be cognisant that these assets do not have great liquidity attributes and nor is there a great deal of experience of the asset class performance in times of intense risk aversion.”
Souders agrees that while we have seen huge inflows of cash into private credit, the market has yet to be tested through a credit cycle and believes investors should tread carefully.
“The private credit market started expanding in the years following the GFC and has grown tremendously in the last five-10 years.
The implications for investors are a much bigger asset class, but also an asset class that hasn’t really gone through a credit cycle,” he says.
“We haven’t had a default cycle, a true default cycle in credit markets since 2008. There have been pockets of turbulence, but by and large that turbulence has not been broadbased nor long-lived.
“So, the private credit market has not had to withstand or experience a real default cycle. The obvious question then, is, what would a default cycle look like in private credit, given the growth, the lower degree of transparency, and the lower degree of liquidity? It’s not overly clear.”
Souders says it’s important to think more about the compensation relative to the risks that exist in the sector, pointing out that public markets are still providing yields of 6-7%.
“In the private credit market, yields are higher when compared to public debt, but what is the volatility profile through a credit
It may be that rather than a 60/40 equity/bond portfolio being the ‘benchmark’, it is better to have something like a 50/30/20 equity/bonds/ alternatives as a benchmark.
Stephen Miller
downturn? What is the lack of liquidity worth? Those questions are tough to answer, and we won’t know until we experience it,” he notes.
“There are a lot of very capable and smart private credit managers, so I think it can play a role in client’s aggregate portfolios. But I think it’s important to consider the trade-offs versus public market debt.”
What does the future hold?
Souders says despite all the headwinds, fixed income is looking at a brighter future than what has been playing out over the past few years.
“Things are starting to stabilise, and it looks as though a soft landing remains the modal outcome in the US while recession probability remains low,” he says.
“Fixed income is in a pretty good position today, certainly a better position when compared to pre-2022 when yields were historically depressed and prices were historically elevated.”
However, Souders says investors need to throw out the old playbook and focus on what we know now as opposed to what has been the case for the past 20 plus years.
“Globalisation was blossoming in the 20 years leading up to COVID. Fiscal deficits were much narrower in developed markets. That’s just not the case today. Therefore, the set-up is quite important to consider,” Souders says.
“We’re focused on the environment today relative to what we believe investors had been conditioned to in the past 20-25 years –which was any time growth falters, rates must decline.”
The setup today is different given inflation will likely play a more prominent role in macro trajectory and central bank policy.
“This should lead to higher volatility and a wider distribution of outcomes. Investors need consider this structural shift compared to the pre-Covid world,” Souders adds.
“With all that said, the bond market is on a good footing, especially credit markets. Fundamentals are sound, starting yields are healthy, and the opportunity set is quite wide, allowing for a nice source of diversification in a broad portfolio context.”
With inflation getting closer to targets globally and slowing growth giving central banks room to lower rates, we’re currently experiencing a generally good environment for bonds – but that doesn’t mean there aren’t still issues at hand.
“While unemployment is still low, economic growth has weakened and we could see further lagged impacts of the recent tight monetary policy. A further or stronger slowdown in growth cannot be excluded,” Penninga warns.
“Together with the risk of upcoming events like the US elections and the ‘unknown unknowns’, this argues for caution in the choice of fixed income strategies. Riskier parts of fixed income and strategies that generate their performance from allocations to these riskier parts can be more vulnerable in case of a stronger growth slowdown or renewed risk-off – whatever the trigger of that risk-off.
“This would diminish the diversification benefits of such strategies. Investors looking for diversification versus equities can thus better select strategies that are able to perform also in risk-off periods.”
The biggest lesson investors have taken from this tough period is that negative return correlation between bonds and equities is not immutable.
“That underscores perhaps the most important and over-arching principle of investing: diversification. That means diversification away from both bond and equity beta within multi-asset portfolios - for example, long/short liquid alternatives, macro/quant hedge funds, gold, or maybe even, for the adventurous, very small crypto exposures,” Miller says.
“It may be that rather than a 60/40 equity/ bond portfolio being the ‘benchmark’, it is better to have something like a 50/30/20 equity/bonds/alternatives as a benchmark.” fs
05: Olaf Penninga portfolio manager of quant fixed income Robeco
04: Kellie Wood head of fixed income Schroders
06: Lukasz de Pourbaix global cross asset specialist
Fidelity International
New boutique hits the market
Andrew McKean
TWC Investment Management has launched in Australia.
The firm, led by chief executive Owen Hereford and chief investment officer John Birkhold, formerly a portfolio manager at Origin Asset Management, launched in September, targeting partnerships with family offices, wealth management firms, and institutional investors.
Hereford and Birkhold, who also served as managing director at Credit Suisse HOLT in London, are joined by founding partners Neil Carter, Cameron Sinclair, Amy Reed, and Angelique Tan; they bring an average of 29 years’ experience each in institutional asset management and investment banking.
TWC offers three funds to wholesale and institutional clients; the Global Opportunistic Income Fund, which targets an annual return of 7% net of fees; the Global Select Wealth Creators equity strategy, which has returned 37.9% since its launch in May 2023, outperforming its benchmark by 11.68%; and the Emerging Australian Wealth Creators Fund, a small and mid-cap strategy which has gained 8.94% since its launch in February, beating the market by 5.27%.
These funds are anchored by a proprietary investment framework which the firm describes as a “departure from conventional accountingbased norms.”
TWC developed its proprietary investment framework, which normalises conventional accounting data to provide a precise economic measure of corporate performance through an industrial lifecycle lens. fs
Sydney Uni taps new custodian
The University of Sydney Endowment Fund has appointed a new provider to manage its custody and fund administration services.
The University of Sydney, Australia’s oldest university, has operated its endowment fund since 1997. The Endowment Fund, which has $4.4 billion in assets under management, operates a long-term fund, medium term fund, and a short-term fund, investing across a range of domestic and global asset classes, listed and unlisted, and, public and private.
It’s sought a new provider following the withdrawal of NAB Asset Servicing from the Australian market, ultimately selecting BNP Paribas.
The University of Sydney Endowment Fund chief investment officer – investment and capital management – Miles Collins said BNP Paribas Securities Services was selected due to its positive cultural fit, the ability to form a long-term partnership, and the expertise of its teams.
“When selecting a new custodian, our top priority was to choose a provide which enables us to create a long-term partnership, built on collaboration and trust. We look forward to growing our relationship over time to help deliver our sustainability and growth agenda,” Collins said.
BNP Paribas head of sales and relationship management for securities services David Pember said:“We look forward to working together to deliver on their strategic goals.” fs
01: Sarah Abood chief executive Financial Advice Association Australia
ATO revises advice fee tax deductibility rules
Jamie Williamson
The Australian Taxation Office (ATO) has confirmed financial advice fees for tax-related guidance are deductible where the advice is provided by a Qualified Tax Relevant Provider (QTRP).
The quote
An individual must be able to identify that the payment was for advice to assist them in managing their tax affairs.
Releasing a final guidance, the ATO said: “Fees for financial advice an individual incurs may be deductible under section 25-5 to the extent that the advice related to managing their ‘tax affairs’.”
It added that it takes the view that ‘tax (financial) advice’ is included within the meaning of ‘tax affairs’.
“An individual must be able to identify that the payment was for advice to assist them in managing their tax affairs. For example, fees for advice in relation to salary sacrifice arrangements will be advice that assists an individual in managing their tax affairs. If all the other requirements set out in section 25-5 are satisfied, the fees for the advice provided by the financial adviser will be deductible,” the guidance reads.
“Not all advice provided by a financial adviser will be considered to be tax (financial) advice. Where an adviser merely provides factual information about a financial product that does not involve the application or interpretation of the
taxation laws to the client’s personal circumstances, the advice will not be for managing the individual’s tax affairs.”
The new guidance does not change the ATO’s stance on other fees, being that those related to initial advice are capital in nature and cannot be deducted, and that ongoing advice fees are deductible.
Responding to the decision, Financial Advice Association Australia chief executive Sarah Abood 01 said: “We want to thank the ATO for bringing this matter to a conclusion.”
“The confirmation that initial advice related to tax is deductible, when provided by a QTRP, is a big improvement over the original TD, which did not support deductions for upfront advice to any extent.
“In our most recent consultations, we asked the ATO to reconsider the deductibility of upfront fees under section 8-1 for other types of advice as well, particularly for clients with preexisting investments. The ATO has not agreed to this. However, we are very happy after five years to now have clarity with the final TD 2024/7.”
She added that the FAAA believes a significant portion of a typical advice fee will now be deductible for the clients of many advisers and practices, making advice more affordable for many. fs
E&P Financial Group seeks to delist
Karren Vergara
The board of E&P Financial Group (EP1) is moving to delist from the ASX, claiming the company is materially undervalued thanks to the barrage of regulatory proceedings and class action litigation it faced in recent years.
These issues have sustained a negative impact on the share price, the board said, noting it is “consistently and materially” undervalued relative to its fundamental value and peers.
E&P shares traded at 50 cents at the time of writing, dropping a whopping 80% from $2.50 in 2018 when it was better known as Evans Dixon.
Trading volume is also stagnant, averaging 33,000 shares per day in the year to September. The board argued this makes it challenging for new investors to join the register and existing shareholders to realise value for their shares.
A formal request to delist has been submitted to the ASX. However, the board needs shareholder approval at an Extraordinary General Meeting (EGM) on October 24. If it goes ahead, the delisting is effective on or around December 12.
Shareholders will also vote at the EGM to approve an equal access buy-back of up to $25 million, calculated at 52 cents per EP1 shares, which is an 18% premium to the three-month volume weighted average price of $0.442.
“The board considers that the company will have greater flexibility to pursue and execute value enhancing strategic opportunities and corporate transactions following the proposed delisting,” the board said.
Delisting is set to save the company $2.5 million annually, it said.
Regarding the public inquiry into the failures of Dixon Advisory, the board said it has “no further detail on the proposed inquiry and is unaware of the extent to which it may or may not be involved in the inquiry.”
The senate referred the inquiry to the Wealth Management Companies to the Senate Economics References Committee, which will provide a report by the last sitting day of March 2025.
The committee is taking submissions until November 1.
Senator Pauline Hanson secured the motion to investigate how Dixon Advisory escaped unscathed from providing conflicted advice relating to its in-house product, the US Masters Residential Property Fund (URF).
“The motion is relevant to E&P as it references E&P subsidiary Dixon Advisory & Superannuation Services Pty Limited (subject to deed of company arrangement) as an example,” the board said. fs
Executive appointments
Warakirri private wealth head exits
After three years at the agricultural fund
manager
Ben Williams has decided to move on from his role as head of private wealth.
Williams joined from UBS Asset Management for the newly created role of private wealth lead. He also took on a distribution role for Warakirri’s agricultural business in Asia, particularly Japan.
In another move, Joe Marassa, who ran marketing and product, has been appointed head of managed funds platform - a role that also covers distribution.
Marassa has been with the Warakirri for four years, arriving from Franklin Templeton, where he was head of marketing.
AustralianSuper adds liquidity chief
AustralianSuper has appointed Chandu Bhindi as the fund’s first chief liquidity officer, effective January 2025.
Bhindi joins AustralianSuper from Commonwealth Bank, where he was responsible for the group’s funding and liquidity and most recently as general manager capital management and stress testing for the group.
Bhindi brings more than 25 years’ experience in financial services at leadership levels across treasury, retail, investment banking and wealth management.
AustralianSuper chief investment officer Mark Delaney said the appointment is a significant step forward in the fund’s evolution as a major global investor.
ASX hunts new chief risk officer
The ASX is looking for a new chief risk officer following Hamish Treleaven announcing his intention to retire.
Treleaven was appointed chief risk officer at the securities exchange in March 2017. Throughout his tenure, he was responsible for designing and implementing all aspects of the current risk management frameworks ASX relies on.
Prior to the ASX, the risk management executive held senior roles in risk management at Commonwealth Bank for 12 years.
ASX managing director and chief executive Helen Lofthouse said: “Hamish has played a critical role in building out ASX’s risk management capability and driving the maturity of our frameworks, systems, and processes.”
Coolabah names PM director
Coolabah Capital Investments’ John Phokos has taken on an additional role at Christoper Joye’s $10 billion asset manager.
Having been promoted to chief strategy officer in December 2023 - eight months after he joined Coolabah - Phokos has been appointed portfolio management director.
He is now one of three investment professionals out of about nine with this title.
The former Australian Catholic Superannuation investment manager landed at Coolabah as a portfolio manager in July 2023. fs
Mercer names investment solutions lead
Rebecca Jacques takes on the new role of head of wealth management investment solutions after six years with the firm.
Mercer’s chief investment officer for the Pacific Kylie Willment said the firm has seen growing demand for its investment management offering from its wealth management client base.
“We are delighted to appoint Rebecca in this newly created role, bringing together our investment solutions, funds management and managed portfolio services for wealth managers,” she said.
While joining as a senior investment consultant within the consulting group’s institutional wealth business, Jacques had a dual role at the asset consultant, also running portfolio solutions for the managed account division.
Global X hires new chief executive
Alex Zaika joins Global X on November 4 after finishing up at GAM Investments where he was managing director, Australia.
Zaika spent more than six years at GAM and before that was the head of wealth at BlackRock’s iShares Australia.
He also worked in investor solutions at Barclays Capital and was head of adviser sales for equity derivatives at Macquarie Bank.
Zaika replaces Evan Metcalf, who stepped down after a decade-long tenure at the fund manager.
Mirae global strategy officer Hyeon-Joo Park said Zaika’s extensive experience and strategic vision position him as an ideal leader to drive Global X’s next phase of growth.
HESTA snags AMP head of compliance
Tim Pietsch has taken on the role of general manager, compliance at HESTA and brings extensive experience across the financial services sector to the fold.
He joins in a role the organisation believes will be critical in enhancing its compliance framework and practices and reinforces its commitment to robust governance and member trust.
He was most recently the head of risk and compliance across the superannuation, retirement, and platforms businesses at AMP, a position he has held for nearly three years.
Prior to AMP, he spent 15 years at NAB, including as its head of strategy and operations, acting general manager and head of capability financial reporting and management information, and latest, head of risk governance, appetite and reporting before leaving the bank to join AMP in 2020.
Colonial First State hires PE lead
Colonial First State has appointed Chloé Brayne from the local arm of Caisse de dépôt et placement du Québec to run private equity and unlisted assets.
Brayne reports to the firm’s chief investment officer Jonathan Armitage.
She worked with the Canadian pension fund’s Australian infrastructure team for three years ago as a senior investment director. Brayne oversaw CDPQ’s infrastructure investment and asset management activities across Australia and New Zealand, including as director for Plenary, Port of Brisbane, Sydney Metro and WestConnex.
She has over 13 years of combined experience in infrastructure investing, mergers and acquisitions and asset governance, including at AustralianSuper, where she led its investment into WestConnex 2 and managed its holdings in Transurban Queensland and WestConnex.
With diversification key to portfolios, you often hear the case against home bias. But Australia has produced many a world leader over the years – so, is a home bias really so bad? Oksana Patron reports.
Despite slower economic growth, persistently high inflation and elevated interest rates, certain pockets of the Australian share market offer good investment opportunities. Additionally, some domestic firms are well-positioned to become leaders in their respective sectors, both locally and internationally.
There is mountains of evidence to suggest Australian investors prefer to invest in home grown stocks, with their portfolios typically showing a strong bias towards the ASX.
The ASX Australian Investor Study 2023 found that 58% of the Australian investors surveyed held ASX-listed shares directly, while only 16% held international shares. Further, some 73% of self-managed super funds held Australian shares directly, but only 23% had an allocation to global equities.
“I think one of the big reasons why Australian portfolios favour Aussie equities is because it is the domestic market, and we don’t have to worry about currency risks and we can have a little bit more control over underlying assets,” Wealtheon principal adviser Kris Meuwissen 01 says.
“We see clients who want a little more stability in their income, and in those cases, we focus more on Aussie equities. However, when they are seeking growth within the portfolio, we typically have preference towards international equities.
“We find that many pre-retirees and retiree type of clients prefer stability because they are not really chasing the big growth over the long term and they need a little bit more stability from their equity investments.”
Although concerns about slow economic data and persistent and sticky inflation were prevalent before the reporting season, the trading updates from retailers, particularly consumer-facing companies, so far this financial year have been more encouraging.
Tribeca’s Alpha Plus Fund portfolio manager Jun Bei Liu 02 says the market entered the reporting season somewhat worried due to the economic data coming through.
“But the [trading] updates [in the new financial year] were far better than what we were expecting, particularly what we were all thinking about consumer slowdown and consumer recession, so the trading updates from retailers are quite encouraging for us heading into December, because we were not really sure where the consumers would go given rates remain elevated,” she says.
Although some attribute the positivity to tax cuts, Liu says it might be too early to see their effects, which could take weeks or even months to materialise. And, while the latest Consumer Price Index (CPI) figures show a cooling in inflation, the monthly CPI decline to 2.7% was largely because of Commonwealth Energy Bill Relief Fund rebates.
01: Kris Meuwissen principal adviser Wealtheon
David Wilson 03 , the deputy head of Australian Equities Growth at First Sentier Investors, says the recent reporting season was mixed, but echoed the sentiment that Aussie consumers are quite resilient, as reflected in the volume earnings outcomes of companies like JB Hi-Fi and Wesfarmers.
However, he notes, on the other side of equation, the resources sector faced cost and capex pressures, with higher quality businesses tending to perform better in this sector.
“That plays to our strength,” he says.
“The likes of BHP and Rio Tinto had better earnings outcomes than smaller or mid-sized mining companies, and that was because of the strength of their underlying resource assets.” A similar dynamic played out across other sectors, too.
“Similarly, companies like REA Group and Carsales did better than Domain and Seek because they also have stronger underlying businesses in our view,” Wilson says.
As far as valuations were concerned, most managers remained neutral and said that across the board the domestic sharemarket was neither cheap nor expensive.
“It is hard to say in aggregate whether it is expensive or cheap,” ECP Asset Management portfolio manager Jared Pohl 04 says.
According to him, there is a structural difference in the Australian sharemarket relative to its peers. For example, the domestic tech sector was very expensive relative to the US, but this was only because the Aussie tech sector has less breadth.
“We have got a reasonably good breadth for the developed economy, but we also have got the superannuation system domestically and their investment strategies are often predicated on low volatility and tracking error,” Pohl notes.
That means that investors continue to allocate to the same names, primarily because they are the largest names in the market. Due to the regulatory requirements, this group of investors is more focused on the benchmark relative returns rather than making true allocations of capital toward companies expanding their economic footprint.
“There is an enormous amount of money that is allocating capital in that way so there will be some disconnect in the Australian market relative to other deeply liquid markets globally because there is just more money chasing the same number of names effectively. It does show up in certain sectors, with companies like WiseTech which are very expensive,” Pohl says.
Home grown heroes
Its price aside, WiseTech is also one of Australia’s success stories.
“A lot of people say it is an expensive company but what it was able to do was to grow its earnings and revenues at 25-30% and this
Feature | Australian equities
year their revenue went above $1 billion,” Wilson notes.
“This was a company that was tiny around 10 years ago and it has gone to $1 billion in revenues. This is a company that has grown very quickly, they have great product, they have 14 of the top 25 freight forwarders as its clients, and they are generating real savings for these companies. Also, they have managed to grow their business in Europe, Asia, and America.
“So, WiseTech has been a great success story for Australia…”
Another example of a company with a demonstrated ability to generate earnings growth, though in a completely different sector, is Brambles.
“This company has been around for a long period of time and it really struggled to improve its returns for the last 20 years, but what we have been seeing over the last five to six years – is a change in the management which is now very much focused on understanding its business, its assets and reworking its contracts,” Wilson notes.
“Also, they are focused on understanding where its pallets are going and where they are lost. This is a company that has consistently generated a 20% return on invested capital. It is a global pallet leader; despite having originated in Australia, they are a pallet leader in North America, Europe and in Australia.”
According to him, Australia is good at generating leaders in their respective sectors, pointing to healthcare as another example.
“I think Australia has a pretty good track record of generating companies that have got not only their governance and expertise in place, but also management and balance sheets, to generate long-term international growth,” Wilson says.
“Australia is a relatively small country so if these companies had not expanded offshore, they would have been way smaller than they are today.”
On the other end of the spectrum, there are companies which were slightly less successful during the last reporting season. One such company, Wilson says, is QBE.
“QBE is a business that produced 6-9% return on equity over the past decade. To its credit, it has managed to lift this to around
I think Australia has a pretty good track record of generating companies that have got not only their governance and expertise in place, but also management and balance sheets, to generate long-term international growth.
David Wilson
15% over the past two years, however in this reporting season the earnings didn’t meet the market’s expectations. I still think it is on track to further improve its returns, but their North American operations disappointed the market in the past six months,” he explains.
“It is worth noting that QBE has great businesses in Europe and in Australia, but it has always struggled in North America. While we still think the business is on track to improve, it is taking a little longer than expected.”
According to managers, some of the stock movements felt larger than usual recently, with positive news leading to big rallies and negative news causing significant drops in share prices. Every reporting season also tends to see more bifurcation and stronger share price reactions either way.
“In the old days it was very rare, but nowadays it is becoming increasing common,”
Liu says.
She points to two companies, A2 Milk and Megaport, as examples of such scenarios.
Although A2 Milk achieved a good result, it disappointed in terms of guidance, causing a drop in the share price.
“This is a good company; it performed well, given the very tough market in China and tough competitions. They continued to gain market share there, but the challenge is that the market continues to be very demanding for at least the next six-12 months,” Liu says.
The share price of A2 Milk was down 20%.
“I think [the company] is unfairly punished
but if the company doesn’t meet expectations, there will be a significant downside to the share price,” she says.
Megaport – a provider of network connectivity solutions – was another company that also had disappointing results and fell quite a bit.
“The company, which has been a part of the AI hype, has gone through a period in which it was trying to re-establish itself because the competition has heated up,” Liu explains.
Ultimately, the way a company is perceived by investors depends to a large degree on how well it has managed to perform relative to their guidance, and analysts’ expectations.
True blue (chip)
Commenting on the Australian banking sector, Suhas Nayak 05 , a portfolio manager at contrarian investor Allan Gray, says: “Banks in Australia have done very well, and valuations are somewhat stretched relative to their history, and relative to banks overseas, and to other options on the ASX itself.”
“I think that has been a feature of the Australian market and it is particularly impactful on the Australian sharemarket because of the weight of banks in our index relative to what you see elsewhere in the world.”
Earlier this year, VanEck commentary stated: “Valuations have now come to the fore, Australian banks, on a global basis are the most expensive in the developed world on
Australian equities | Feature
a 12-month forward price-to-earnings and price-to-book basis.”
At the same time, sectors that have been left behind are those that have proven to be more cyclical.
“The energy sector has definitely been the one that has been left behind, and more recently, probably in the last three to four months, it’s been the resources sector. It is probably a different story for each one,” Nayak says.
On the energy side, he says, one of the largest components is Woodside, a company which has made a couple of acquisitions overseas which the market has discounted heavily.
Nayak also notes that more defensive stocks have also been somewhat left behind.
“Defensive for us means stocks that are not driven by the economic cycles as much as others and, for example, most of Telstra’s earnings streams come from people’s mobile phones and I think those earnings streams seem to be quite defensive,” he says.
“What’s happened over the last year or so some of those defensive earning streams have not been valued as highly by the market as they have been in the past.”
On the flip side, Katie Hudson 06 , executive director and portfolio manager at Yarra Capital, says that one of the areas that looked interesting was the small cap financials, which unlike their large-cap peers, have opportunity to grow their market share.
“We have a really positive view on a number of small cap financials, because of their characteristics,” she says.
Companies such as Netwealth and Pinnacle were among those who had this key ability, she cites.
“They are really driving with their innovation and competitive advantage the market share gains in their respective categories and we really still see a long run for growth for both of these companies to generate earnings growth over the very long term,” she adds.
“If you are in an environment of lower economic growth and it does feel like we are in the environment of lower economic growth, and we will be for some time, and while the interest rates will come down – we don’t think they will be coming back down to levels before the pandemic.
“That would imply that companies’ ability to take market share and deliver quality earning growth should be an important feature, and what drives share price going forward.”
Shifting into gear
For individual investors, many are typically familiar with the concept of gearing in so far as it relates to property investment. When it comes to equities, gearing involves combining an investor’s capital with borrowed funds to enable a larger investment which, hopefully, would lead to a larger return.
Due to favourable tax treatment, the dividends paid from the shares can sometimes
outweigh the income payments for the loaned funds, which has made gearing strategies popular among local investors. To some degree, it’s also reinforced the home bias because, because of the dividends, Australian equities tend to pay higher income than their global counterparts.
COVID-19 and the post-pandemic stimulus coupled with the accompanying economic activity allowed many companies to pay down their corporate debts, resulting in gearing levels currently sitting below the historical norm.
“Corporates are [currently] sitting on very high cash balances and that is why at the moment so many companies are doing a lot of buybacks and cash returns because their balance sheets are very strong; companies are trying to gear up a little bit to drive efficiency
Woodhouse 07 agrees, believing gearing makes most sense for high-income earners who are not reliant on their portfolios today and are looking to make the most of tax benefits.
However, Woodhouse warns any gearing strategy should be approached with caution.
“Most Australians are not prepared for the volatility that comes from events like the GFC or the pandemic. So, adding the fuel of gearing to the volatility fire is not a decision to be taken lightly,” he says.
“Gearing is like adding steroids to a portfolio except you don’t know if it’s going to add muscle or take it away in the short term.”
While such gearing can deliver a lot of reward, it’s important to consider when a client can stomach the downside risk, he notes.
“Gearing can make sense for those that understand both the up and downsides… I’m not a massive fan of using equities themselves as security for a loan; it’s too much in the lender’s favour,” Woodhouse says.
“I prefer to use a property for security of the loan for any equity investment. I see this as getting the best of both worlds.”
Most people we speak to who want to use gearing strategies often aren’t aware of the risks, so the first step we go through is an education piece alongside a risk assessment.
Kris Meuwissen
through the business and give back to the investors,” Liu says.
“I think that thematic will continue for the next 12 months and investors should expect a period of elevated dividend payouts, special dividend, and capital return.
“More mature businesses are not investing as much in terms of innovation, and even if they do the cashflow outweighs the investments because the biggest [players] tend to be the leaders in their space. These businesses have usually lower growth prospects and are not really using the cash flow for anything so the best way [according to them] is to reward the shareholders and give it back [to them].”
Wilson says that gearing strategies tend to be popular with more affluent investors, as they have greater risk tolerance. This is supported by Investment Trends data, which shows 83% of financial advisers believe gearing is most appropriate for clients with more than $1 million of investable assets, have a household income of over $200,000, and are aged between 35 and 49.
However, Wilson, who has been running one of Australia’s largest and longest-running geared strategies for many years, says such a strategy can be incredibly successful, provided you invest in quality companies.
“Yes, gearing works both ways, but in the long run equities have done well, and if you have got gearing behind that, then you have the potential to magnify those returns, if you are accepting of the magnified risk you take on when you apply leverage,” he says.
“We tend to avoid highly levered companies and we invest in the companies that are relatively liquid. This means that when markets are falling or experiencing a rapid drawdown, we are in the position to sell those shares and pay down debts.”
Acknowledging gearing strategies aren’t appropriate for all clients, Meuwissen says education is always the most important consideration.
“We consider gearing for clients in accumulation phase who have the right risk capacity and appetite, which isn’t everyone. Most people we speak to who want to use gearing strategies often aren’t aware of the risks, so the first step we go through is an education piece alongside a risk assessment,” he explains.
Once it’s determined that gearing is a potential option for the client, Meuwissen then looks at the kind of gearing that may be appropriate. The three types of gearing his team usually considers are home equity gearing, debt recycling, and in-fund gearing.
“The types of risk and returns that the client is comfortable with or desires achieving then helps guide us on which type of gearing to pursue,” he says.
“For all our clients who we recommend gearing for, we ensure that there are adequate cash buffers, diversification strategies and insurance recommended to support the extra risk.” fs
Super scammer sent to prison
Karren Vergara
A Western Australian woman who illegally obtained $202,000 for herself and others via an early release of superannuation scam has been sentenced to three years’ imprisonment.
The unnamed High Wycombe woman was sentenced at the Perth District Court on September 19 with a non-parole period of 18 months.
She plead guilty in November 2023 to 30 charges after the Australian Federal Police (AFP) launched an investigation in 2020 into her activities on the back of the Australian Taxation Office’s Serious Financial Crime Taskforce (SFCT), which identified multiple Western Australians allegedly orchestrating a similar scam.
The woman charged a fee for every application she submitted. She earned nearly $11,000 in fees from 24 applicants.
The AFP said the woman illegally used the details of professionals such as teachers, nurses, doctors, and pharmacists to falsely certify documents and statutory declarations.
AFP detective superintendent Peter Chwal said the AFP worked closely with Commonwealth and state law enforcement partners to stamp out fraud and identify anyone who tried to exploit government support.
“It is important to protect the integrity of financial support programs to ensure funds are only dispersed when people genuinely need them or can legitimately access them,” he said.
In May, three Queenslanders were sent to prison after pleading guilty to defrauding the COVID-19 early release of superannuation scheme for $103,500. fs
Growthpoint sells assets to TPG
NASDAQ-listed alternatives fund manager TPG will acquire a major stake in six Growthpoint industrial assets.
Terms of the agreement will see the US fund manager’s subsidiary TPG Angelo Gordon own 80% of six Growthpoint industrial assets for a net sale proceed of $181 million. Three assets are located in Victoria, two in New South Wales, and one in Queensland.
Growthpoint will retain the remaining 20% interest and continue to be the investment and property manager.
The ASX-listed REIT has $6 billion in total assets under management. It owns and manages 57 office and industrial properties.
The industrial portfolio was valued at $1.6 billion at the end of June, representing 37% of the directly held asset base at the time.
Last month, Growthpoint acquired office building 2 Constitution Avenue, Canberra from ISPT for $90.1 million. Some 88% of the income comes from government tenants.
It launched the Growthpoint Canberra Office Trust on the back of this investment.
Newly minted Growthpoint chief executive Ross Lees said the partnership supports the firm’s “strategy to grow its funds management business and capital partnerships and is a testament to the strength of our industrial portfolio.” fs
01:
Amanda Chisholm director of legal, risk and compliance Kaizen Recruitment
Lack of talent challenging DDO compliance
Jamie Williamson
The regulator’s recent crackdown on risk and compliance in the sector has product issuers stuck between a rock and a hard place, with an extreme dearth of talent making it difficult for fund managers and super funds to meet ASIC’s expectations.
The quote
They want doers, but the reality is a lot of these product and risk and compliance skills do not exist in combination, particularly in superannuation...
In September, ASIC released the findings of its review of product issuers’ compliance with the design and distribution obligations (DDO), calling for them to improve their distribution practices after identifying numerous shortcomings.
Among other things, ASIC found many issuers have limited due diligence arrangements to assess and monitor third-party distributors, poor quality suitability questionnaires, and do very little monitoring of consumer outcomes and product performance after a product has been distributed.
In turn, it identified a tendency to inadvertently place the onus on the consumer to determine whether a product continues to be suitable for them, whether they continue to fall within the target market.
More recently, ASIC chair Joe Longo, while on stage at the Australian Compliance Institute Annual Conference, conceded that the workload for compliance teams has “dramatically multiplied in the last five to 10 years.”
For many businesses, including some of the nation’s largest institutions, this has led to the “appearance of compliance”, where frameworks and policies exist but it’s mere lip service and not true regulatory compliance in practice, he said.
Kaizen Recruitment director of legal, risk, and compliance Amanda Chisholm 01 fears this may well be the case for some time to come, with the rate of regulation far outpacing the financial services sector’s ability to build effectively resourced product risk and compliance functions.
Further, the broad nature of some of the newer regulatory obligations, like DDO, has seen product issuers increasingly finding that to have a risk and compliance team is not enough; to be truly effective, they really require a product specialist on almost every team in their business.
“What all these new regulations mean is that nearly every team has to have at least one person that understands the product that they’re trying to market; it’s everything from product governance, it’s communicating with stakeholders and understanding any updates in the regulation on the back end,” she said.
To fill such a role, employers are looking for more senior candidates, but Chisholm said the reality is that many people in product roles are still quite junior and may not have had exposure to risk and compliance yet.
Compounding the issue is the fact that salaries for risk roles have risen substantially since the Royal Commission. For example, Chisholm said, remuneration for a risk analyst has increased close to 70%; someone with between one- and two-years’ post-graduate experience commands a package of $95,000 today, whereas six years ago it would have been closer to $65,000.
The kinds of roles employers are looking to fill command a salary package of $150,000$180,000.
“At $150,000, if someone has stayed in the same vertical, they’re probably a senior associate or senior analyst, they’re perhaps not a manager yet but that is what a business will expect at this level of pay. And then at $180,000 you’re probably getting around the senior manager level, but because these skill sets are in demand, they’re not filling these roles,” Chisholm said.
And the more senior a person is, the less likely they’ll want to do many of the administrative tasks a Line 2 (enterprise risk) role requires, like updating documents and so on. There’s also often a disconnect between what businesses need, what risk leaders want on their teams, and what they can get for their money.
“They want doers, but the reality is a lot of these product and risk and compliance skills do not exist in combination, particularly in superannuation… Super product in risk and compliance positions has, historically, not been a large pool to draw talent from,” Chisholm said, adding that funds management typically offers better remuneration.
“And, from experience, the superannuation industry seems to have this idea that funds management product specialists can’t possibly understand super products, whereas if we were in the EU market, product professionals would move more easily among the different sectors because the regulations are largely similar, it’s just the application that differs.”
While she says there’s a general dearth of talent across financial services, the super industry is facing the biggest shortfall. However, Chisholm believes super funds offer the most in terms of career development.
“In super, people have investment risk, investment compliance, operational due diligence skills, product skills, IT risk skills, GRC implementation experience or operational risk consolidations of business operations within funds… a super fund will have insurance, wealth products, financial advice, investment operations, active investment management; it is a complex beast but, in my experience, it’s probably one of the biggest spaces for role growth going forward,” she said. fs
Go premium with
Gain full access to comprehensive industry news and analysis on the issues affecting today’s financial services professionals by subscribing to Financial Standard.
• Access every issue of Financial Standard as an e-newspaper
• Unlock all website content including thought leadership, news and analysis
• Home page news customisation
• Access TechZone, your technical resource library
Industry funds dominate ASX
The “big eight” industry funds – AustralianSuper, Australian Retirement Trust (ART), Aware Super, UniSuper, Hostplus, Cbus, Rest, and HESTA, which command over half of all APRA-regulated superannuation assets, account for about 12% of the $2.7 trillion market capitalisation of the ASX.
While these super funds benefit from economies of scale – larger mandates give rise to lower investment management fees, more cost-effective insourced investment functions, and more efficient access to private markets –their scale is a double-edged sword, causing investment process challenges, according to a Morningstar report.
“A mega fund making an active tilt between stocks will find it difficult to transact at scale and in a timely manner without influencing the share price. This can impact asset allocation and style,” the report said.
Consequently, mega funds may be forced to focus on passive, enhanced index, or systematic strategies within certain listed asset classes. They may also have to cap their allocations, even if their assumptions recommend otherwise.
By contrast, smaller funds, despite having less scope to compete on fees, can be nimbler and invest in higher active return-generating strategies without the capacity constraints of larger funds.
High positive net flows and looming capacity constraints in some listed classes have, however, provided a tailwind for large fund allocations across unlisted classes, with funds exploring costeffective opportunities through co-investment and building out private asset investment teams, the report said. fs
Actuary of the Year named
Matthew Wai
The Actuaries Institute has named Jan Swinhoe the Actuary of the Year for 2024.
She is currently a non-executive director of Swiss Re (Life & Health and Property & Casualty) and Australian Philanthropic Services (APS). Swinhoe recently stepped down as chair of Mercer Super, a role she’d held for a decade. She’s also a former non-executive director of Suncorp Superannuation.
She’s also active in promoting the actuarial profession across Australia and internationally, contributing by serving on the Actuaries Institute Superannuation Practice Committee, as well as volunteering in the Institute’s Mentor Program.
Receiving the award, Swinhoe said she believes being an actuary is about a greater good, one of the reasons she loves what she does.
“I am honoured to receive this prestigious Actuary of the Year award. Actuaries have the capacity to make incredible contributions to solving societal challenges across the world,” Swinhoe said.
“Many people think actuaries limit themselves to analytical work, but the very nature of our training leads to strong judgment, development of human skills, and, usually, endeavouring to improve the lives of other people and their circumstances.” fs
ASIC, RBA handed new market infra powers
Andrew McKean
ASIC and the Reserve Bank of Australia (RBA) have been given new powers under new financial market infrastructure laws to enhance their licensing, supervisory, and enforcement abilities.
Collectively, these new powers help ASIC ensure the Australian financial system is supported by resilient, efficient, and stable financial market infrastructures.
The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 , which received Royal Assent earlier this week, aims to strengthen the existing regulatory regime, giving the regulators the authority to monitor, manage, and respond to risks related to financial market infrastructures – the key entities that enable, facilitate, and support trading in capital markets.
ASIC commissioner Simone Constant 01 said the new laws create a “fit-for-purpose regulatory regime” for critical financial market infrastructure.
“The reforms significantly enhance ASIC’s regulatory toolkit for financial market infrastructures, clarify the scope of the Australian licensing regime for overseas markets and clearing and settlement facilities, and empower us to make rules to promote the fair and effective provision of services…” she said.
“Collectively, these new powers help ASIC ensure the Australian financial system is supported by resilient, efficient, and stable financial market infrastructures.”
ASIC is reviewing its approach to the regulation of financial market infrastructures to ensure that its expanded powers are used effectively and efficiently.
“We will work closely with the RBA and industry to develop and provide information and guidance on the use of our new powers across this multi-year program of change,” Constant said.
Separately, the corporate regulator is conducting a global search and request for tender process for its investment scam website takedown service – its current contract expires in 2025.
The request for tender seeks a service which will identify, take down and provide intelligence on investment scam and phishing websites for up to five years.
The service the regulator seeks will target and remove investment scam and phishing websites, including those falsely claiming to be authorised or regulated by ASIC, fake investment trading platforms, and crypto-asset related scams. fs
Inquiry urges government to consider paid reproductive leave
Jamie Williamson
The Senate committee tasked with investigating issues related to menopause wants the government to research the efficacy of existing reproductive leave policies in Australia and overseas with consideration to introducing it in the National Employment Standards.
In November 2023, the Senate referred an inquiry into issues related to menopause and perimenopause to the Senate Community Affairs References Committee. Following 258 submissions and seven public hearings, the committee handed down its report this week, making 25 recommendations in total.
Chief among the recommendations, the committee wants to see the Department of Employment and Workplace Relations tasked with researching the impact and effectiveness of sexual and reproductive health leave policies already introduced in Australia and overseas.
While it stopped short of outright recommending leave entitlements be legislated, this research would be done with consideration to introducing paid gender-inclusive reproductive leave in the National Employment Standards and modern awards, the committee said.
The committee has also recommended the government consider amending the Fair
Work Act to provide access to flexible working arrangements for women when going through menopause.
The government should also commission a comprehensive study to assess the economic impacts of menopause “which clearly delineates the impact of symptoms of menopause on women’s workforce participation, income, superannuation, and age of retirement.”
“Menopause and menstruation are workplace issues, and this report makes clear that we need to see a step change in community attitudes and the leadership of government to see them treated like other forms of leave that the finance sector has led the way on - like paid parental leave and domestic violence leave,” Finance Sector Union national secretary Julia Angrisano said.
“It’s clear from our members that too many women are struggling to balance the often-hidden symptoms of menopause and menstruation with their paid work.”
The union surveyed its members ahead of making its submission to the inquiry. It found that close to 60% of workers experiencing menopausal symptoms were struggling to manage their workload and their symptoms. Further, 60% said they do not feel comfortable discussing it with their direct manager. fs
The quote
01: Simone Constant commissioner ASIC
RETIREMENT INCOME
It’s no secret that Australia has an ageing population. Thousands of Aussies are retiring each week, and the conversation surrounding how to best support them is frequently making headlines.
The opportunity this presents for financial advisers is unmatched and, with the average retirement looking quite different these days, contemporary retirement advice is quickly becoming an art form.
Financial Standard’s Best Practice Forum on Retirement Income will paint a clear picture of Australia’s retirement landscape, exploring regulatory considerations, innovative product solutions, income strategies and leading insights from specialists in the space.
The Retirement Income Forum is a part of Financial Standard’s annual Best Practice series for the financial advice community.
Thursday, 24 October 2024 | 9am – 3pm
Sydney | Art Gallery of NSW & live-streamed
BlackRock rejigs private credit arm
Jamie Williamson
BlackRock is creating a Global Direct Lending business within its existing private debt function as it looks to capitalise on the space’s rapid growth. By doing so, BlackRock said it will “better capture the significant opportunities for greater investment collaboration and to respond to the breadth of cross-regional investment demand that feature prominently in [our] client discussion.”
“We believe that now is the right time in terms of business maturity, market environment, and client needs to bring the regional direct lending businesses together into a unified global platform while maintaining the integrity of the existing investment committee processes,” a memo reads.
Jim Keenan, global head of BlackRock Fundamental Credit, will step down and Stephan Caron, who currently leads the European private debt business, will take over leadership of the new business as head of Global Direct Lending. He will also retain his responsibilities leading the EMEA Private Debt business..
“This new, tighter alignment will help accelerate our ambition to be a leader in direct lending and growth debt globally,” the memo reads.
“Private credit is one of the firm’s top priorities.” fs
Macquarie cops US$80m from SEC
The Securities and Exchange Commission (SEC) fined Macquarie Asset Management (MAM) US$80 million after a subsidiary, Macquarie Investment Management Business Trust (MIMBT), overvalued about 4900 largely illiquid collateralised mortgage obligations (CMOs), held in the Absolute Return Mortgage-Backed Securities (ARMBS) strategy over four years.
MIMBT is MAM’s registered investment adviser based in Philadelphia. The now-defunct ARMBS fund invested in products such as mortgagebacked securities, CMOs, and treasury futures. It sought to achieve LIBOR +3% over a market cycle, while minimising negative performance periods via active management.
The regulator’s investigation found thousands of “odd lot” CMO positions traded at a discount to institutional, larger-sized positions. Odd lots were valued using a third-party pricing service that was specifically intended for institutional lots only.
“The order finds that MIMBT had no reasonable basis to believe it could sell the odd lot CMOs at the pricing vendor’s valuations, and thousands of odd lot CMO positions were marked at inflated prices. This resulted in MIMBT overstating the performance of client accounts holding the overvalued CMOs,” the SEC said.
Furthermore, MIMBT tried to minimise losses to redeeming investors by arranging cross trades with affiliated accounts, rather than selling the overvalued CMOs to the market.
In one example, MIMBT executed 465 internal cross trades between a selling account and 11 retail mutual funds above independent current market prices. This resulted in the retail mutual funds absorbing losses that otherwise would have been borne by the selling account in a market sale. fs
01: Corey Schuster co-chief, division of enforcement asset management unit Securities and Exchange Commission
GQG breaches SEC whistleblower protection laws
Karren Vergara
GQG Partners was hit with a US$500,000 fine by the US Securities and Exchange Commission (SEC) for violating whistleblower protection laws via the use of non-disclosure agreements (NDAs).
The quote
Even agreements that contain carve-out language allowing people to voluntarily report to the SEC can be violative...
The watchdog found NDAs the fund manager entered with 12 potential employees and a former one prohibited them from disclosing confidential information about GQG, particularly to government agencies.
Such arrangements, the regulator said, made it more difficult for them to report potential securities law violations to the SEC.
The NDAs in question were drawn up between November 2020 through September 2023 for the 12 candidates.
While the agreements allowed candidates to respond to requests for information from the regulator, GQG mandated it be notified of such requests. GQG also prohibited candidates responding to requests arising from voluntary disclosure.
The former employee, who had the NDA with GQG, hired a lawyer that told the firm the client intended to report alleged securities law violations to the SEC.
“Specifically, the settlement agreement said that it permitted reporting possible securities
law violations to government agencies, including the Commission; however, it also required the former employee to affirm that he or she had not done so; was not aware of facts that would support an investigation; and would withdraw any statements already made that might support an investigation,” the SEC said.
These provisions violated the whistleblower protection rule Rule 21F-17(a) of the Securities Exchange Act of 1934.
Florida-based GQG said in a statement: “GQG takes its regulatory compliance obligations very seriously. We appreciate the professionalism displayed by the SEC staff throughout this inquiry. We believe that we are well positioned to serve our team and clients going forward.”
SEC co-chief of the division of enforcement’s asset management unit Corey Schuster01 said whether through agreements or otherwise, firms cannot impose barriers to persons providing evidence about possible securities law violations to the SEC as GQG did.
“Even agreements that contain carve-out language allowing people to voluntarily report to the SEC can be violative if restrictive language in a separate provision impedes voluntary reporting to the Commission staff,” he said.
ASX-listed GQG had $160.8 billion in funds under management at the end of August. fs
Nudging pre-retirees has ‘little effect’
Eliza Bavin
The Australian government has recommended super funds use ‘nudging’ to help encourage members to engage more with their retirement savings, however new research from Yale University in the US has found the practice doesn’t work as well as initially thought.
Yale University professor James Choi’s first set of research into nudging was around two decades ago and found automatic enrollment and auto-escalation of savings into a 401(k) led to overwhelmingly positive results in boosting levels of retirement savings.
However, Choi’s most recent research suggests that automatic enrollment and escalation, while cheap to implement and still helpful, did not have the big impact that policymakers hoped for.
Factoring in Americans’ job-switching and savings behaviours, automatic enrollment and automatic escalation increase net savings by just 0.6% and 0.3% of income per year, the research found.
It comes as the concept of nudging continues to be brought up in the Australian retirement landscape, with the federal government last year announcing measures to make it easier for
Australians to access financial advice – including the use of nudges by super funds.
The Association of Superannuation Funds of Australia (ASFA) said the legislative changes would allow super funds to nudge their members to seek advice or engage more with their super.
“The legislative change that allows superannuation funds to nudge their members is primarily linked to reforms under the Retirement Income Covenant (RIC) and related regulations that govern how superannuation funds can interact with, and provide advice to, their members,” ASFA said.
“Superannuation trustees are required to develop and implement a strategy that aims to maximise the retirement income of their members while managing risks and providing flexibility.
“Legislation supports the use of nudges by encouraging funds to engage with members to help them make better retirement decisions.”
However, while the concept of nudging is being encouraged in Australia, Choi’s research found those who love to save – or engage with their savings – will do so without prompting and nudging does little to encourage those with weaker motivations. fs
Powerhouse to acquire Aliwa
Karren
Vergara
Powerhouse Ventures (PVL) is set to take over Aliwa Funds Management in a bid to expand into micro-cap investing.
The ASX-listed firm entered a binding agreement with Aliwa for a consideration of $500,000 made upfront in an all-scrip deal at $0.04 per share.
Another $224,000 in scrip is payable based as an earnout on the proviso that Aliwa has $20 million+ in funds under management (FUM) over 18 months. These two tranches equate to just under 15% of shares on issue.
Brisbane-based David McNamee is the founder of Aliwa and the portfolio manager of the Aliwa Alpha Fund, which focuses on microcaps.
The fund has about $23.9 million in FUM and requires a minimum investment of $50,000. Aliwa was previously known as Altor Capital.
Should Powerhouse shareholders approve the acquisition, McNamee will become chief investment officer and portfolio manager at Powerhouse.
Powerhouse targets businesses with emerging intellectual property, mainly those in the science and engineering fields. Its focus sectors are electrification and decarbonisation, next generation computing, space technologies, and healthcare and wellness.
Powerhouse executive chair James Kruger said: “To expand horizons and to progress shareholder value (on a better-risk-adjusted and duration basis) the PVL board considers that it needs to access fund vehicles and a broader investment capability...” fs
01: Jason Entwistle director of strategic development HUB24
HUB24 takes stake in Reach Alternatives
Jamie Williamson
HUB24 is entering a strategic alliance with Reach Alternatives, taking a minority holding in the private equity platform.
The quote
Together,
we are focused on delivering solutions that remove the barriers to private markets...
Reach Alternatives provides access to institutional-grade private equity funds, curating and structuring them so non-institutional investors can access them.
Through the partnership, HUB24 and Reach Alternatives will develop innovative products and solutions to make alternative investments more widely available to financial advisers and their clients.
HUB24 director of strategic development Jason Entwistle 01 said the investment is aligned to the platform provider’s strategy to collaborate with industry providers to bring products to market that cater to emerging client needs.
“We’re delighted to be partnering with the team at Reach Alternatives who facilitate access to high-quality private market investments in Australia. Accessing institutional
grade alternative investments has traditionally been difficult for advisers and their clients,” he said.
“Our investment demonstrates our ongoing commitment to delivering innovative products and solutions that enable advisers to empower better financial futures for more Australians.”
Reach Alternatives chief executive Sam Phillips said he is thrilled with the partnership.
“This strategic investment validates our business and enhances our ability to scale and bring high-quality private market investments to a broader audience. Together, we are focused on delivering solutions that remove the barriers to private markets while offering HNW investors access to some of the most proven asset managers globally,” he said.
Reach Alternatives has existing partnerships with EQT, PGIM, Apollo, TPG, BlackRock and Bain Capital. fs
Managed Funds
OPINION
Super funds need to get better as they get bigger
Greg Joffe, principal, Nous Group
While rapid growth sounds like a good problem to have, many superannuation funds are wrestling with it. Funds under management have grown dramatically from ~$400 billion in 2000 to ~$3.9 trillion today. Organic growth together with M&A activity across the industry is seeing super funds under pressure to successfully manage the inflow of new members, funds and employees alongside the globalisation and internalisation of investing and other functions.
Corporate history and academic business literature abound with examples of organisations becoming stifled by their own success. When assets and employee numbers grow quickly, organisations too often become more bureaucratic. Decisions take longer and more time is spent in meetings rather than acquiring and serving customers and finding new ways to meet their needs. While these challenges are not new, they are persistent. And they can have lasting effects on customer satisfaction, employee engagement and financial performance if not managed properly. We’ve identified four common hurdles super funds must overcome to take full advantage of their growth.
1. Accept growth necessitates increased specialisation and hierarchy. Where previously a handful of generalists may have worn many hats, larger organisations need dedicated experts focused on specific functions. And although almost all organisations are trying to become flatter and more agile, it also becomes nec-
essary to add one or more layers of management to the organisational structure to coordinate work within and between teams. A more formal organisation structure enables clearer accountabilities and more targeted development of capabilities.
2. Consciously redesign processes for work and information flow. As the number and size of teams expand, coordination of work becomes more complex. Informal ways of working are suitable in a small, tight-knit group, but often fail at scale and need to be replaced with agreed high level and then detailed processes for ‘how we work’. Organisations also need to agree how decisions are made and how to coordinate work between different teams. The trick is to consciously design mechanisms to accommodate the specific work and decision making required by the changing organisation. Too many organisations let committees proliferate. It is important to consciously determine what needs to be coordinated and then to tailor fit for purpose process flow diagrams, accountability statements, committees and other decision-making bodies, time limited project teams, and in some cases ‘integrating individuals and departments’ (such as a procurement team) to improve decision making and work coordination.
3. Decentralise decision making. As organisations grow, decisions can easily become bottlenecked at the top, slowing responsiveness and demotivating the
front line. Pushing decisions closer to those with the most intimate understanding of members or customers and operations not only reduces bottlenecks, but also empowers employees to solve problems more creatively. Of course, this requires robust governance and risk management frameworks to ensure consistency. As we see in our projects with large growing financial institutions, once established, decentralised decisionmaking supported by well-designed information provision and clear governance (including delegations, KPIs and reporting) boosts customer satisfaction and reduces internal bureaucracy.
4. Embrace ‘formalisation’. The ad hoc, relationshipbased ways of working that fuel early growth become unsustainable as headcount grows. Organisations need to introduce clear policies and agreed processes and use enterprise systems (rather than Excel sheets) to enable the organisation to work efficiently with increased standardisation and consistency. This can feel like a loss of autonomy for longtime employees, but it is essential to working at scale.
While these four key changes can feel like they constrain growth and innovation, they are crucial for longterm success and continued growth. The key is to design the organisation to fit its new needs, and then proactively manage the transition with clear leadership, communication, training, and support that gets employees on board and advocating for the change. fs
Source: Rainmaker Information
Workplace Super Products
Household wealth rises in June
Eliza Bavin
Household wealth rose for the seventh consecutive quarter - rising 1.5% or $250 billion – in June 2024, according to data from the Australian Bureau of Statistics (ABS).
Total household wealth was $16.5 trillion in the June quarter, which was 9.3% ($1.4 trillion) higher than a year ago, the ABS said. This was largely driven by residential land and dwellings, contributing 1.3 percentage points to quarterly growth.
“House prices have continued to rise across most states and territories, despite high interest rates,” ABS head of finance statistics Mish Tan said.
“This largely reflects ongoing housing supply constraints and an uptick in investor activity over the quarter.”
The growth in household wealth was also supported by superannuation assets, which rose moderately by 0.3%, or $13.7 billion.
The ABS said the final allowance under the Term Funding Facility (TFF) from the COVID-19 pandemic matured on 30 June 2024, which it said impacted bank funding across financial markets.
“The TFF gave banks access to low-cost funding during the pandemic. With the final maturation of the TFF in June, banks have continued a return to more traditional sources of funding,” Tan said.
Total demand for credit was $97.9 billion, driven by households ($57.5 billion) and private nonfinancial businesses ($36.9 billion). fs
The quote
In considering additional adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks.
01: Nigel Green chief executive DeVere Group
Federal Reserve cuts rates
Jamie Williamson
The US central bank decided to lower the target range for the federal funds rate by half a percentage point to 4.75-5%, surprising many who believed it would opt for a cut of just 0.25%.
“The committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance,” a statement from the Fed read.
“In considering additional adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
It is now expected that the Fed will continue to reduce rates throughout the remainder of the year, trimming another 50 basis points by December end.
GSFM’s Stephen Miller said the decision to take the more aggressive approach “reflects a view that the inflation risks have diminished while labour market conditions are at some risk of deterioration.”
“The increasing focus on the labour market side of the Fed’s dual mandate comes now that inflation, to all intents and purposes, looks to have returned to the Fed’s 2% target. Indeed, on some measures the Fed has arguably “overachieved” on its inflation target: the threemonth annualised rate of inflation in the Fed’s favoured inflation measure, the core private consumption expenditures price index, is currently running at 1.7%,” Miller said.
Nigel Green01, chief executive of deVere Group, said the Fed “must not now lose its nerve” and continue the rate cutting well into 2025.
“A failure to follow through on further cuts would likely undermine confidence and signal that the Fed lacks the commitment needed to fully stabilise the economy,” he said.
“The time lag between policy changes and their real-world impact is crucial. We might not see the effects of today’s decision immediately, but if the Fed hesitates next time, it risks sending mixed signals to the markets and stalling the efforts.” fs
Financial Standard economics and investment table
Alts market to hit US$30tn by 2030
Matthew Wai
The global alternatives industry is on track to reach US$29.2 trillion in assets under management (AUM) by 2029, with private equities set to more than double throughout the period, Preqin said.
The growth signifies an annualised increase of 9.7% for the entire sector in the forecast period (2023-end - 2029). The growth rate represents a 0.8% drop from the previous period.
Preqin said this is due to softer expectations for the private equity and venture capital markets. Despite this, it’s predicted private equity will remain the largest asset class.
According to its Future of Alternatives 2029 report, it revealed that private equity will double in AUM from $5.8 trillion to $12 trillion by 2029, representing an annualised growth rate of 12.8%.
Preqin predicts it will occupy about 6% of the public and private equity markets by the end of the year.
“Global alternatives markets continue to evolve rapidly, especially as individual investors’ access opens up, as the private wealth channel’s growth continues to gather pace,” Cameron Joyce, global head of research insights, said.
This comes at a time when the asset class is gaining momentum among retail investors.
It also comes as private companies opt to stay private for longer, underwhelming IPO markets, and the decline in listed company numbers. fs
Misery index worst in 13 years
Andrew McKean
Australians are enduring the longest stretch of economic hardship since 2011, according to analysis by the Committee for Economic Development of Australia (CEDA).
CEDA’s analysis of the “misery index” – which combines inflation, unemployment, and interest rates to gauge economic despair – shows that Australia’s economic misery remains elevated postCOVID-19 and is beginning to edge up again.
Unlike previous periods whereby high interest rates or unemployment drove economic misery, this time inflation was the main contributor from the June quarter of 2021 to September quarter of 2023.
CEDA economist Liam Dillon said this clearly highlights the difficult trade-off facing Reserve Bank of Australia (RBA) governor Michele Bullock.
“Inflation remains stubbornly high, despite having moderated since its peaks. It continues to hurt households by forcing them to spend more of their income on the essentials of daily life,” Dillon said.
“Unfortunately, Bullock’s only tool to address this challenge – raising interest rates – also inflicts pain.”
Dillon said that while the index saw a recent bump due to creeping unemployment amid slowing economic activity, most forecasts suggest that inflation, the “worst-behaved element” of the index should ease over the next year.
He added, however, that the index has its limitations, as inflation, interest rates, and unemployment affect different people in different ways.
“Those fortunate enough to own their homes outright or have large savings in the bank will benefit from higher interest rates...” fs
01:
Michelle Marquardt head of prices statistics Australian Bureau of Statistics
Inflation cools but RBA unlikely to budge
Eliza Bavin
The monthly Consumer Price Index (CPI) indicator rose 2.7% in the 12 months to August 2024 – down from 3.5% in July, according to the latest data from the Australian Bureau of Statistics (ABS).
The quote
... unless there is an upside surprise in the unemployment rate on October 17, there is little chance for an RBA pivot.
Falls in fuel (-7.6%) and electricity (-17.9%) were significant moderators of annual inflation for the month as a result of Commonwealth Energy Bill Relief Fund rebates.
“The falls in electricity and fuel had a significant impact on the annual CPI measure this month,” ABS head of price statistics Michelle Marquardt 01 said.
“When prices for some items move by large amounts, measures of underlying inflation like the CPI excluding automotive fuel, fruit and vegetables and holiday travel, and the trimmed mean can provide additional insights into how inflation is trending.”
The latest inflation data comes after the Reserve Bank of Australia (RBA) kept the cash rate on hold at 4.35% at the September meeting.
Despite cooling inflation, the market is not anticipating the data to move the needle for the RBA just yet.
“Monthly CPI declined to 2.7% in line with expectations. The RBA has already downplayed it and all but ruled out any nearterm rate cuts,” State Street Global Advisors APAC economist Krishna Bhimavarapu said.
“The focus from here will remain on the labour market, so unless there is an upside surprise in the unemployment rate on October 17, there is little chance for an RBA pivot.
“However, the RBA risks prolonged subpar
growth by lagging global central banks and that is our primary worry.”
RSM Australia economist Devika Shivadekar said the RBA was left with “little choice” than to maintain its current stance given the persistently tight labour market and core inflation remaining uncomfortably high.
“The RBA seems to favour making its moves late in the game,” Shivadekar said.
“It was one of the last central banks to start hiking rates post-pandemic, and now appears likely to be among the last to begin easing.
“While the RBA will continue to monitor global trends, particularly the actions of the US Federal Reserve, it’s clear Australia is not moving in lockstep.”
HSBC chief economist Paul Bloxham said while the decision to keep the official cash rate on hold came as no surprise, it is evident the RBA is in a different position than other G10 central banks which have already begun the easing phase.
“The RBA is still focused on its high inflation challenge. The statement intentionally pointed out that although headline inflation is set to come down in the coming period, the RBA will remain focused on the underlying measures of inflation,” Bloxham said.
“This emerging ‘gap’ between the headline and underlying inflation measures reflects the impacts of federal and state government cost-of-living relief in lowering headline inflation. As we have been noting, RBA observers should to ‘mind the gap’ between headline and core inflation and keep in mind the RBA will be focused on the core measures.” fs
Super sector poses risk to financial stability
Significant growth of the superannuation sector has set off alarm bells for the Reserve Bank of Australia (RBA).
In the RBA’s September Financial Stability Review, it said the super sector’s growth and connections to Australian banks has increased its importance to financial stability.
“The sector has historically posed little risk to the financial system owing to its smaller footprint in funding Australian banks and corporations, limited use of leverage, and steady inflows of defined contributions that simply pass-through (rather than guarantee) returns to members,” the RBA report said.
However, the RBA noted that “the sector’s rapid growth” – which it noted now makes up one-quarter of the financial system – and the rise in herding around common benchmarks and increased exposure to margin calls means the sector’s investment decisions and liquidity risk management practices have “a greater potential than before to amplify shocks in the financial system”.
The RBA said for these reasons, the Australian Prudential Regulation Authority is stepping up the intensity of its supervision of superannuation funds.
Australia’s super sector is worth $3.9 trillion, having doubled in the past decade, with the two biggest funds – Auatralian Retirement Trust and AustralianSuper – making up more than half of net inflows.
Despite the RBA’s concerns, the report said all-in-all Australia’s financial system continues to display a high level of resilience, but the global economic outlook continues to be uncertain.
“The finances of many households and businesses in advanced economies continue to be resilient, despite ongoing pressure from tight monetary policy and inflation,” the report said.
“This resilience has been supported by firm, albeit softening, conditions in labour markets, a stabilisation or pick-up in real household incomes, and solid corporate earnings.
“While there is a small but growing group of borrowers experiencing financial stress in these economies, a further easing in inflation − and with it, lower policy rates − is expected to support the balance sheets and cash flows of households and firms over the period ahead.” fs
Sector reviews
The final frontier
Sanjesh Pinnapola
The space economy, once limited to government-led exploration and military projects, is experiencing an explosive period of growth and diversification, driven by advances in launch technology, reduced costs, and increasing interest from private companies and investors.
The number of space launches per year has grown significantly over the past decade, spurred by technological innovations such as reusable rockets, which have drastically lowered launch costs. For instance, the average cost per kilogram to orbit has decreased by about 95% compared to the early days of space exploration. In 2022 alone, more than 2600 objects were launched into space, a substantial increase from the 47 launches in 2005. As a result, the total number of active satellites has risen from around 1000 in 2000 to over 7000 today.
Today, about 80% of satellites are owned by commercial entities, highlighting the shift from government to private sector dominance in space activities. The types of operators range from traditional government entities to civilian and military groups, but commercial players— such as SpaceX and OneWeb—are leading the
charge in the number of operational satellites. This shift is largely attributed to the rise in private capital and venture funding, which has enabled faster and more innovative deployments
The global space economy, valued at approximately $630 billion in 2023, is expected to grow to $1.8 trillion by 2035 based on research by the World Economic Forum (WEF). This equates to an average annual growth rate of 9%, outpacing global GDP growth projections. Much of this growth will be driven by services enabled by satellites, such as communications, positioning, and Earth observation. The expansion of space activities is not just limited to the production of hardware like rockets and satellites, but also encompasses commercial services and end-user equipment, which are expected to become the main contributors to economic value by 2035.
The WEF report also highlights the evident diversification of investment in space based on the growing interest in a variety of applications beyond telecommunications. For example, space tourism, microgravity manufacturing, and space-based solar power are emerging markets that are expected to contribute significantly in the decades ahead. fs
The Fed dot plot
Ramrakha
In what came as a surprise to many, the US Federal Reserve kicked off its easing cycle by cutting the target range for the fed fund rate by 50bps to 4.75%-5% in September. This was the first reduction in rates since March 2 020 (Figure 1). The Fed chair Jerome Powell said the 50bps interest rate cute was a ‘recalibration’ of rates aimed at maintaining strength in the labour market while inflation moves sustainably to the Fed’s 2% goal.
What happens next for US rates? Unlike Australia where the Reserve Bank doesn’t specifically provide forecasts on the cash rate target, the US Fed has a ‘dot plot’ system. The Fed’s dot plot is a chart published quarterly that shows where each member of the Fed’s policy making committee expects interest rates to be over the next few years.
The Fed dot plot or Federal Open Market Committee (FOMC) dot plot is made up of 19 Fed officials. They include the seven members of the board of governors of the Federal Reserve System and presidents of the 12 regional banks. The actual FOMC Committee that determines the target cash rate is made up
of the seven board of governors, the president of the Federal Reserve Bank of New York and four of the remaining eleven regional banks, who serve one year terms on a rotating basis.
It is well known that the market is sensitive to changes in the Fed’s fund rate.
However, until 1997 the rate announcements often came as a surprise. The Fed acknowledged in August 1997 that it used a target for the federal funds rate as its main policy tool.
In 2012 the Fed began publishing the dot plot which is used by market participants for hints and clues as to what the Fed might do next. This means that the market is rarely taken by surprise.
What is the dot plot saying right now?
Published in September 2024 (Figure 2), the 2024 dot plot range is between 4% and 5% suggesting that further rate cuts are likely later this year. For 2025 the range is between 4.25% and 2.75%. For 2026 and 2027 the range is between 4.0% and 2.25%. This suggests that whilst rates will trend down over the next few years, it will stay higher than the Fed’s target of 2%. fs
Figure 2. Space Economy size and projected growth (US$ Bn)
Figure 1. Payloads and Satellites in space
Aman
Figure 2. FOMC participants’ assessments of appropriate monetary policy
Figure 1. US Fed Funds
1.
2.
3.
ANCHOR POINT
UBS Asset Management’s Tim Van Klaveren learned early in his career the value of formulating his own opinions and not following the crowd, Andrew McKean writes.
Extra, extra! Read all about it! As a young newspaper boy from the Northern Beaches, Tim Van Klaveren was stashing away pocket money for new surfboards and beers.
When hanging around, on the lookout for someone to take the day’s paper off his hands, Van Klaveren would peruse the stocks at the back of the paper to see how they fared.
Sitting around, grimy from all the ink on the papers, and somewhat bored, Van Klaveren doesn’t know why he gravitated towards the financial markets section – especially as no one in his world was involved with finance – but there was something about it that pulled him in.
A trip to a career counselling centre proved to be the nudge Van Klaveren needed; knowing then and there stockbroking was his jam, he soon landed a role at a brokerage firm – but was “an oddity” in a firm dominated by family money.
Van Klaveren turned up as a blonde-haired guy with an earring and a keen interest in equities and trading – not that those are mutually exclusive – while his peers came from wealthy families who, in some cases, bought their kids a partnership in the firm.
Some people come into the industry because family members have told them to do so or because they think there’s money to be made. For him, “it’s always been about a passion for markets,” he says.
“I was given the opportunity with three Englishmen to go down to the old 20 Bond Street ASX floor to be the first people to start trading equity options. It was a great opportunity for me because I loved trading, I loved equities, and getting into something from the ground up was really exciting,” he says.
As a young trader in the pits making equity option markets, Van Klaveren says he did quite well.
However, during that period, he invested every paycheque into ‘penny dreadfuls’ – little mining stocks that you could buy for one or two cents and hopefully sell for four or five. That was just the game.
Van Klaveren did that because everyone was doing it and didn’t want to miss out, but he was essentially buying nothing – just mining leases with a long shot that something might come of them.
“After two years of pay, all I had to show for it was a pile of bits of paper that were worth next to nothing because behind those penny dreadfuls there were no cash flows, no assets – just a lease for a bit of dirt that something might come from, but it never did. That was my first lesson in life: if you’re going to buy something, make sure there’s something behind it and know what you’re actually buying…” he says.
While trading on the floor was a great experience, Van Klaveren felt like he was at the bottom of the food chain and wanted to be the person on the other end of the phone – bark-
ing orders, making the investment decisions, and playing the market, rather than executing trades for fundies.
And so Van Klaveren headed off to university to pursue an undergraduate degree in accounting and finance, where he crossed paths with a friend from what’s now UBS Asset Management, who handed him a golden ticket – an interview, and a successful one at that, with the firm’s head of human resources.
Van Klaveren ultimately joined the fixed income team, as it was one of the largest asset managers in the market for that asset class, “the premium group to come into back then.”
Right out of the gate, Van Klaveren walked into the storm of the 1994 bond market crisis, also dubbed the Great Bond Massacre, which he says became the reference point for the “worst market ever.”
“Anyone who entered after ‘94 didn’t know much about a real, proper bond market sell off, but for me, entering that period provided a reference point to go back to – I think that’s what experience brings,” Van Klaveren says.
He adds that during many of these crises, it’s often difficult to accurately value assets because each asset is only as good as the next best bid, and you can’t predict where that point of liquidity will come from when prices are in a relentless downward spiral.
In 2002, Van Klaveren was offered a position in London with the global fixed income team, where he remained until 2010, experi encing firsthand the violent turbulence of the Global Financial Crisis (GFC) – another crisis reference point.
“I remember some junior staff working with me asking me how to sell some securities. One of them said, ‘Tim, don’t these bonds look cheap? Should I be selling them at this level?’ I said, ‘What’s the next best bid after that? They replied, ‘Oh, there’s not one.’ I said, ‘Well, it’s probably a good price then. The way markets are trading, fundamentals and valuations aren’t coming into account…’” he said.
Throughout that period, Van Klaveren notes a pervasive fear of missing out drove everyone to chase yield and returns, even as structured products became more levered, their underlying construction became weaker, and ratings stayed the course. People, because they had money to invest, just accepted poorer and poorer terms until it exploded – he sees parallels of that happening today.
“I know there’s been press around private credit; I think it’s a good asset class that has a place out there, particularly as a diver sifier. As more money comes in, it all has to be invested, so it’s im portant to keep an eye on the quality of the terms being accepted,” he warns.
“We’re seeing some lower quality bor
I think I’ve always been regarded as a good investor, though that’s another thing when it comes to running a business: there’s sales, and then there’s the ability to manage and make money, while also managing risk.
Tim Van Klaveren
rowers moving into the private credit spaces because that’s where recently, a lot of money has been going, in an attempt to chase yield. That’s why it’s more prudent to stay in the quality end of the private credit spectrum, I’ve been through these cycles before; you don’t want to take any undue risk.”
Since returning to Australia, Van Klaveren has steadily climbed the ranks at the firm to ultimately become its head of Australian fixed income in January 2021 – a role held by only four individuals.
“I think I’ve always been regarded as a good investor, though that’s another thing when it comes to running a business: there’s sales, and then there’s the ability to manage and make money, while also managing risk. I suppose my experience meant I was pretty well qualified to take that role; I’d been a senior investor within the team for a very long period of time,” he says. Since taking over the business, Van Klaveren has made adjustments to the process without an overhaul, tweaking the way the team manages risk in terms of making more high conviction calls.
“Where I see my differentiation is I think I’m an independent thinker, so I’m not a person as far as other people’s recommendations or research. I read it, but I’ve always formulated my own views on the market,” he says.
“And I think that’s what you need to do, because often people just try to jump on the first
