Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirkby. Welcome aboard everybody now today for your Easter
Speaker 1: break listening pleasure, I have a very special guest who
Speaker 1: is Chris Cuff, a legendary fund manager de facto legendary
Speaker 1: fund manager martiad who initially came to fame almost became
Speaker 1: a household name at one stage through his success as
Speaker 1: an investor and manager at what is still the Colonial Group,
Speaker 1: and since then he's had a portfolio of interest. You'll
Speaker 1: see him on a variety of boards. Some boards you
Speaker 1: won't see him on because they're family offices, but you
Speaker 1: would be familiar of course with UNI Super, which is
Speaker 1: I think the fourth biggest industry fund in the country,
Speaker 1: so that is a very big gig as you can imagine.
Speaker 1: He's also on the board of Argyll, the listed investment company,
Speaker 1: the original of the species. You have to mention Don
Speaker 1: Bradman when you mentioned al Go, because he was once
Speaker 1: involved with that. Do you know that his passion Chris's
Speaker 1: passion is philanthropy. I have talked to him before regularly.
Speaker 1: He's got involved in some terribly interesting projects of late
Speaker 1: we're going to talk about that too, and the extent
Speaker 1: to which you may be able to access some of
Speaker 1: this if you wish to. But first I want to
Speaker 1: hear what he has to say. Needless to say, I
Speaker 1: want to hear what he says. You want to hear
Speaker 1: what he says about the markets and the conditions of
Speaker 1: the markets that were currently investing in. How are you, Chris?
Speaker 2: Very well? Thank you, James, straight.
Speaker 1: Up question, Okay, there's always periods of great uncertainty. I'm
Speaker 1: always entertained when people talk about uncertainty and how there's
Speaker 1: never as if there was never uncertainty before. I mean,
Speaker 1: COVID was pretty uncertain, GFC was pretty uncertain. But this
Speaker 1: particular period, instinctively to you, is there reasons for the
Speaker 1: every day investor to change their approach to invest in
Speaker 1: looking at the global trade crisis that we have in
Speaker 1: front of us.
Speaker 2: I don't think there's great reasons to change. I mean,
Speaker 2: I hope for every investor, if they're a true investor,
Speaker 2: they should have a plan and they should have a
Speaker 2: diversified portfolio. People ask me all the time, what do
Speaker 2: you react? How are you reacting in this time? And
Speaker 2: I think I just check down the securities I have
Speaker 2: in my portfolio and make sure it's well diversified, because
Speaker 2: I can't pick day to day or months a month
Speaker 2: what's going to do well and what's not. And we're
Speaker 2: in a period now, you know, sometimes there's no one
Speaker 2: unknowns and now we've got unknown's unknowns, So we sort
Speaker 2: of wake up each day and just sort of work
Speaker 2: off the seat of your pants. But look, it also
Speaker 2: very much depends on whether you're running your portfolio with
Speaker 2: new money coming in, whether you're in draw down phase.
Speaker 2: There'll always be issues around that. But look, right now,
Speaker 2: I think it's a pretty good time to draw breath.
Speaker 2: Probably don't get too anxious about anything, particularly if you've
Speaker 2: got a well diversified portfolio, and really just you know,
Speaker 2: it's a strange time we're in, James. What else can
Speaker 2: we say.
Speaker 1: Would you have a hunch that the worst is over?
Speaker 2: I think the worst is over, as in the initial
Speaker 2: shock of what has happened in America at the leadership
Speaker 2: position and the fact that there are p and O
Speaker 2: guardrails on making those decisions. You know, I would have
Speaker 2: thought it's not legally possible when I first heard it
Speaker 2: that the American President can just you know, issue tariff's
Speaker 2: left right at the center without some type of emergency
Speaker 2: going on. But anyhow, they've done it, so we just
Speaker 2: have to live with that. So I think the shock
Speaker 2: of seeing the magnitude is the big thing. And now
Speaker 2: I think we'll grind for a probably a long period
Speaker 2: of time as we see the effects of maybe the
Speaker 2: base twer for ten percent. You know, it's probably going
Speaker 2: to cause inflation at least in the short term. That's
Speaker 2: probably going to put interest rates on hold at least
Speaker 2: for the short term. And then I think behind the
Speaker 2: scenes in Washington will be concession, slow concessions over time
Speaker 2: as the American people get very hurt by what's happening,
Speaker 2: and I think that will reverberate back to their members,
Speaker 2: their elected officials, and hopefully, you know, get to the
Speaker 2: President and his men. I don't think they anticipated anything
Speaker 2: like what's going on, and I don't think there was
Speaker 2: a grand plan. I think it was a complete mess.
Speaker 1: Can I ask you, when you say stable interest rates,
Speaker 1: you mean global rates right, correct? Australian rates could fall
Speaker 1: in the short term.
Speaker 2: You could definitely mount a case that if we get
Speaker 2: a global recession, growth really going downhill, people losing jobs,
Speaker 2: interest rates will drop, that's definitely on the cards. But
Speaker 2: I think none of this is going to happen immediately.
Speaker 2: There's a lot of time to play up yet to
Speaker 2: see where these things land. I think you'd be a
Speaker 2: brave person to think that the tariffs that America's put
Speaker 2: on China and China put on America again to sit
Speaker 2: as they are, it's just impractical. You just trade between
Speaker 2: the nations will stop, and that just doesn't seem likely
Speaker 2: to me at all. So this posturing going on, we've
Speaker 2: got to wait for that to stop. But we might
Speaker 2: get what they call imported inflation. If it costs Chinese
Speaker 2: the Chinese a lot more to make the goodies that
Speaker 2: we bring into Australia, it's going to cause some inflation.
Speaker 2: But I think these are short term things. To go
Speaker 2: back to your first question, I just wouldn't be in
Speaker 2: a hurry to do anything radical right now and just
Speaker 2: let the dust settle.
Speaker 1: You're on the board of family offices and investment vehicles
Speaker 1: of some very wealthy people and families in Australia, so
Speaker 1: anything that they are doing that would give our everyday
Speaker 1: listeners an insight to sort of the tactical response to this.
Speaker 1: Are they putting more money into gold? Are they lifting
Speaker 1: their cash? Are their bargain hunting? Is there anything you
Speaker 1: can insight you could give us as to how they're behaving.
Speaker 2: Well, certainly the groups I'm involved with, I think it's
Speaker 2: as a generalization, it's fair to say they're just letting
Speaker 2: cash build up right now. And unless you know, there's
Speaker 2: something peculiar about their liabilities or there some external factor,
Speaker 2: but it's really let it build up. Don't have a
Speaker 2: fear of missing out if anything, right now, the fear
Speaker 2: might be the other way around. The people. We are
Speaker 2: all talking about the Australian dollar. I mean it was
Speaker 2: a week ago it was at fifty nine cents. Today
Speaker 2: it's at sixty four cents. So I did see some
Speaker 2: groups put on hedges very quickly, which not everybody can do,
Speaker 2: although there are easily accessible instruments in the market that
Speaker 2: any investor can do for that. And we've seen the
Speaker 2: currency already firm from the US Australian dollar a firm
Speaker 2: from fifty nine to sixty four, and that's a very big,
Speaker 2: very big change. You know, the urgency to do perhaps
Speaker 2: do something about the currencies calm down a little, though.
Speaker 2: Sixty four cents in a long term sense is still
Speaker 2: well below the long term average, which is around seventy cents,
Speaker 2: which it always seems to head back to at some
Speaker 2: stage or another.
Speaker 1: We had people on the show saying, you're better off
Speaker 1: being unheaged because the US is the heart of the machine,
Speaker 1: heart of the markets. When the US markets fall, if
Speaker 1: we all have more exposure to the US than we
Speaker 1: ever had before, which is probably the case for both
Speaker 1: our listeners and a lot of the big super funds,
Speaker 1: that when the US markets fall, the US dollar, the
Speaker 1: currency works your way. It's in your favor because you're
Speaker 1: basically when the Australian dollar is falling as it has
Speaker 1: so far, you're cushioned. You think that might not be
Speaker 1: the case going forward.
Speaker 2: Well, look, I would say my position and those that
Speaker 2: I work with, it's generally when you're buying overseas securities
Speaker 2: that be they manage funds or direct shares or whatever
Speaker 2: is to have it unheitched. So that's default position. But
Speaker 2: we have seen in history where you get very large
Speaker 2: aberrations and look, I remember it's got I remember once
Speaker 2: when the Australian dollar got to forty five cents to
Speaker 2: the US dollar, and I remember, yeah, and I remember
Speaker 2: traveling when the Australian dollar got to one hundred and twenty.
Speaker 2: So you know what the out of bounds, you know,
Speaker 2: if it's got a five in front of it for sure,
Speaker 2: or a nine in front on the other end, they're
Speaker 2: probably times where you could opportunistically probably take advantage of
Speaker 2: that with great likelihood of success, as long as you
Speaker 2: don't pick your time frame.
Speaker 1: Okay, right, And just on the building up the cash,
Speaker 1: can you give people any idea? You know a lot
Speaker 1: of people have serf managed super funds. They're always been
Speaker 1: criticized for having too much cash. And then the big
Speaker 1: super funds have, compared to the smsfs, much lower cash levels.
Speaker 1: With these family companies you have, it's the extent you
Speaker 1: can answer this, what percentage would they generally have in cash?
Speaker 1: What would be a neutral level? And then what might
Speaker 1: they be building up to at the moment.
Speaker 2: Well, first all, to make it clear to the big
Speaker 2: super funds, they always have it. I serve with one
Speaker 2: of them for many years, as I still do. They
Speaker 2: always have let's use the term liquidity rather when they
Speaker 2: must have it. Of course they must have liquidity because
Speaker 2: they've got people coming and going all the time, but
Speaker 2: they have sort of modest cash levels actual cash probably
Speaker 2: compared to many individuals with their own self managed super fund. Look,
Speaker 2: I don't know if there's a common level, James. I
Speaker 2: like to think, in any event, if you had sort
Speaker 2: of ten to twenty percent of cash at most times,
Speaker 2: you know, maybe that's useful to jump on things. Other
Speaker 2: people like to be invested all the time. As long
Speaker 2: as it's liquid, you can get money out and rotate
Speaker 2: to something else. But I don't know if there's one
Speaker 2: one better way than not, but there's Look, there's an
Speaker 2: increasing number of securities that give you, i think, both
Speaker 2: great diversification and some liquidity, so you can take advantage
Speaker 2: of things. But it also, as I said before, it
Speaker 2: depends very much on what stage you're at. If you've
Speaker 2: got your own self managed super fund and you're a
Speaker 2: retiree and you're drawing money off it each year, now,
Speaker 2: so you know it's got to keep shrinking over time,
Speaker 2: you'll probably have a higher amount of cash so you
Speaker 2: don't have to sell down securities in volatile stressed times.
Speaker 1: And these listed securities that give you liquidity and versification.
Speaker 1: Are you thinking of ETFs.
Speaker 2: It could be an ETF so, but it could be
Speaker 2: there's plenty of ETFs. People often mix up a little
Speaker 2: bit many ETFs. Most ETFs are what they call pass
Speaker 2: as you've said many times on your show, they invest
Speaker 2: in the index of whatever they're exposed to. But there's
Speaker 2: also an increasing number of active ETFs. They're just happen
Speaker 2: to be managed funds, managed by an active manager who's
Speaker 2: trying to do better than the index, and they happen
Speaker 2: to be listed on the stock market. You can get
Speaker 2: in and out at nta net asset value, just like
Speaker 2: you can for normal shares. And I have a preference myself.
Speaker 2: Where a market is what I call thin, like Australia,
Speaker 2: I have a preference to be in actively managed funds
Speaker 2: because but in overseas, I'm very satisfied with ETFs as
Speaker 2: well as active funds, simply because those markets offshore are
Speaker 2: much wider, they're much bigger, they're well diversified. Whereas Australia,
Speaker 2: as most people know, you the heavyweights. You're exposed a
Speaker 2: handful of banks, a few miners, and a couple odds
Speaker 2: and ends on the outside. So I find Australian ETFs
Speaker 2: are a little bit risky for.
Speaker 1: Me, okay, because half the market is banks and miners. Yeah, okay,
Speaker 1: So we can't have you on without asking you the
Speaker 1: conventional thinking. And that may not be what you're thinking,
Speaker 1: of course, but convention I'm thinking is, you know, there's
Speaker 1: a swing, there's a lot of fear in the market.
Speaker 1: You know that's proven, and the vix is elevated, so
Speaker 1: people are going back into like supermarket stocks went up
Speaker 1: during those scary days a few days ago. The bank's
Speaker 1: coming with bank I mean, is just basically unmoved. In
Speaker 1: the middle of all this, gold is going steadily higher
Speaker 1: and people are looking at those conventional, traditional defensive stocks.
Speaker 1: Just now, what do you think of that approach?
Speaker 2: Well, it's an interesting conundrum again listening, I'm a regular
Speaker 2: listener to your show. There's always the issue that if
Speaker 2: you look at the Commonwealth Bank, everybody says it's very
Speaker 2: highly priced, has been for a long time. It's come
Speaker 2: down a bit, but it's still at a healthy price.
Speaker 2: And does that mean you should sell the thing and
Speaker 2: rotate into something else. That's the difficult thing because you've
Speaker 2: already been in the thing as opposed to if you've
Speaker 2: got fresh money. So as you've made the point I
Speaker 2: think last week or the week before, if you've been
Speaker 2: in the Commonwealth Bank since it was say twenty dollars,
Speaker 2: the dividend yield you're getting off that cost base is
Speaker 2: magnificent and you might find it very hard to see
Speaker 2: a reason why you'd want to sell it. And of
Speaker 2: course there's always tax when you sell things. But if
Speaker 2: you said if I was starting myself managed super fun
Speaker 2: today with a fresh pile of cash, what would I do.
Speaker 2: I certainly would be looking at the value of stocks.
Speaker 2: I probably would not be investing big time in the banks,
Speaker 2: just because they've gone up so much. But in my
Speaker 2: starting point, as I've said a few times, I'd be
Speaker 2: thinking of a diversified portfilo across local shares, international shares.
Speaker 2: I always like a bit of private equity. I always
Speaker 2: have plenty of private credit. I really do believe in
Speaker 2: that sector. And there are other weird and wonderful investments
Speaker 2: out there that I like to give me a great
Speaker 2: way to sleep at night.
Speaker 1: Okay, actually I have in front of me a pigraph
Speaker 1: of the accid allocation of your main of your flagship operation.
Speaker 1: Really the aps Foundation. We'll take a break, we'll come back,
Speaker 1: we'll pick up on this theme, but we'll also give
Speaker 1: Chris the opportunity to talk about what he wants to
Speaker 1: talk about more than anting as, which is this land
Speaker 1: to pick fund. Okay, back in a moment. Hello, Welcome
Speaker 1: back to The Australian's Money Puzzle podcast Easter a special
Speaker 1: James Kirby here with Chris Kuff. It's a great time
Speaker 1: to have Chris on, one of the best known fund
Speaker 1: managers in the land. Now, Chris, I've mentioned that the
Speaker 1: investors listening to the show will know UNI Super and
Speaker 1: they'll know Argo et cetera. They listed investment company and
Speaker 1: other operations you're involved in more recently and more recentimes,
Speaker 1: you got a lot of time to philanthropy, active philanthropy,
Speaker 1: and there's two we've talked about the Third Link Fund
Speaker 1: on the before, which is an unlisted fund that you're
Speaker 1: involved with that the retail investor can pay, maybe getting
Speaker 1: them for about twenty thousand I think is the minimum.
Speaker 1: And that's a fund where there is a strong philanthropic
Speaker 1: element to it. And then separately, tell me if this
Speaker 1: is wrong. You were involved with the Australian Philanthropic Services Group,
Speaker 1: and they have a very big fund which is pretty
Speaker 1: close to becoming the biggest fund charitable fund in the country.
Speaker 1: It's called the Australian the APS Fund. And how much
Speaker 1: is under management there?
Speaker 2: Chris Well, okay, if I just run through quickly how
Speaker 2: each works. A Third Link Growth fund, it's been going
Speaker 2: for about sixteen years. It's an Australian equity fund. All
Speaker 2: the fees go to charity. It is a what's called
Speaker 2: a fund of funds. So my job is to choose
Speaker 2: fund managers underneath the fund who are managing Australian equities
Speaker 2: who I think are best in breed. That's my opinion
Speaker 2: of best in breed, and they manage the money. We
Speaker 2: try to get our investors an excellent return. We do
Speaker 2: the best we can. I think the returns on the
Speaker 2: Third Link website it's been slightly better than the Australian
Speaker 2: share market since this inception, and so far we've given
Speaker 2: twenty three million dollars to charity over the sixteen years.
Speaker 2: It's been a lot of fun. And all those fund
Speaker 2: managers do it for free. I do it for free,
Speaker 2: and our investors I think like the fact that they're
Speaker 2: both making money and their fees they're paying. They've still
Speaker 2: got to pay a fee, but that fee is going
Speaker 2: to charity. So that's the third Link Growth Fund, which
Speaker 2: is a minimum of twenty thousand dollars Australian equity fun
Speaker 2: very specific and it's an active fund, so it's out
Speaker 2: there trying to beat the index. Okay. The second organization
Speaker 2: you mentioned is fairly unique, so it's called Australian Philanthropic Services.
Speaker 2: It's actually a charity I set up about fourteen years
Speaker 2: ago to help people do philanthropy better. And it's a
Speaker 2: big word, but philanthropy is an increasing part of the
Speaker 2: Australian wealth management landscape, particularly with the massive intergenerational wealth
Speaker 2: transfer that's going on in the trillions of dollars. Philanesbury
Speaker 2: is really growing. Anyhow, I decided fourteen years ago it's
Speaker 2: set up an organization where you could really do engage
Speaker 2: in philanthropy with the help of experts and do it
Speaker 2: hopefully in a much better way. So we run products.
Speaker 2: We have a couple of products, so we set up
Speaker 2: and administer what's called ancillary funds and they're just like superannuation.
Speaker 2: Your listeners will know in superannuation there's two types of
Speaker 2: superannuation funds in the market. You can have a self
Speaker 2: managed super fund that's a private super fund, or most
Speaker 2: of the population are in public offer fund whether it's
Speaker 2: an industry fund or whatever. It's exactly the same. In
Speaker 2: the philanthropy industry, we have these vehicles called ancillary funds,
Speaker 2: and you can set up a private ancillary fund just
Speaker 2: like self meaning super very similar structure, or you hit
Speaker 2: your car to an existing public ancillary fund and hold
Speaker 2: an account within that fund. And so we are the
Speaker 2: leading organization in Australia that helps people go into those
Speaker 2: vehicles and help them with their general giving. And between
Speaker 2: those things, those ancillary funds we ad minister about two
Speaker 2: and a half billion dollars and our clients give currently
Speaker 2: around one hundred and sixty million dollars per annum to
Speaker 2: charity out of those funds. So it's been an enormously
Speaker 2: beneficial business to set up again as a charity for
Speaker 2: the Australian public.
Speaker 1: So I'm an investor and I'd like to be involved
Speaker 1: in philanthropy, and I say there's two ways in here.
Speaker 1: There's a third link fund, which is just a straight
Speaker 1: fund that's a twenty grand minimum for the average retail investor.
Speaker 1: Anyone can do it, no strings attached, and that fund
Speaker 1: has done okay, it seems to me you're this bigger fund,
Speaker 1: which unfortunately is higher up the scale to get into
Speaker 1: as doing better. That is, its returns against its benchmarks
Speaker 1: has been better. And we'll talk about that in the
Speaker 1: moment as to why. But in any event, so if
Speaker 1: I wanted to, if I wanted to get involved in this,
Speaker 1: what is the rough bottom minimum in which I can
Speaker 1: part play here in this particular sandpit. How much would
Speaker 1: I need to put in?
Speaker 2: So let's just back off one slight bit here. With
Speaker 2: Australian Philanthropic Services Foundation, the big public ancillary fund I run.
Speaker 2: We don't necessarily call them investors that come in. It's
Speaker 2: more philanthropists. So if you would like to be involved
Speaker 2: with philanthropy, you can open an account in the APS
Speaker 2: Foundation for a minimum of forty thousand dollars. You get
Speaker 2: one hundred percent tax deduction for that forty thousand dollars
Speaker 2: in the year in which you put the money in,
Speaker 2: or indeed you could spread the tax deduction over five
Speaker 2: years if that's better for you. So you put your
Speaker 2: money in the foundation, and you are then attached to
Speaker 2: a big pool of assets and those assets are invested
Speaker 2: tax free. There's no tax payable by the foundation. And
Speaker 2: then each year we write out to our people clients
Speaker 2: in there and say you need to now here's your
Speaker 2: proportionate balance of this big pool. You need to give
Speaker 2: away four percent of that to charity. So you just
Speaker 2: tell us which charity you want to give the money
Speaker 2: to and the way it goes. So the magic that
Speaker 2: it's the very simply stated, it's quite a unique vehicle
Speaker 2: these it's broken the nexus between the timing of the
Speaker 2: tax deduction and the timing of giving to charity. You
Speaker 2: get the tax reduction all up front. The giving to
Speaker 2: charity happens over many years, or you can do it
Speaker 2: quicker if you want, but you can take your time.
Speaker 2: You can because often when you give to get a
Speaker 2: tax deduction for giving to charity. It'd be smart if
Speaker 2: you could time that with events which might cause you
Speaker 2: tax like selling your business or selling your CBA shares,
Speaker 2: or getting a bonus from your employer or something you
Speaker 2: get a taxable of anything. Chee, I wouldn't mind off
Speaker 2: setting that TAXI. You could perhaps put a lump sum
Speaker 2: over in the philanthropic vehicle, and then take your time
Speaker 2: to think about what charities you want to give too.
Speaker 2: Over time, we've seen wonderful growth in this area, and
Speaker 2: it's really changed the dynamics of a lot of families
Speaker 2: as well, because they involve their children in giving.
Speaker 1: Whereas once upon a time someone might have said, oh,
Speaker 1: we should really give something to charity, and they'd pick
Speaker 1: two or three they like and they'd hand it over
Speaker 1: and it would be tax deductible, but it would be
Speaker 1: unformed as such. What you've done is much more sophisticated
Speaker 1: thing where the person says, okay, let's think long term.
Speaker 1: We go into this fund aps and then the management
Speaker 1: of that fund is you and your colleagues, and it
Speaker 1: goes it has been doing very well, and you're able
Speaker 1: to donate then on an ongoing basis on what you're
Speaker 1: making on your initially depositive you like in that fund,
Speaker 1: and it must be four percent each year. This is
Speaker 1: probably why you need a minimum of forty thousand dicpresum
Speaker 1: because you need to have a four percent is going
Speaker 1: to go out to do it every year anyway, And
Speaker 1: you didn't say you want you stop me calling it
Speaker 1: investors for the simple reason that it's not it's it's
Speaker 1: philanthropic in nature. And that means, Chris, if I've got
Speaker 1: it right, that if listeners, you are interested in this
Speaker 1: and you have the capacity to do so. It's ideal
Speaker 1: of course, when people as you see liquidity event as
Speaker 1: they call it in the trade. If you were about
Speaker 1: to sell a business, if you're about to inherit your
Speaker 1: uncle's house or whatever. But you can't, for instance, use
Speaker 1: you can't take forty grand out of your or one
Speaker 1: hundred and forty grand out of your super and put
Speaker 1: it in Chris, can you, because that crunches up against
Speaker 1: the best interest duty in super? If I've got that right, you.
Speaker 2: Can in a way in the sense of if you're
Speaker 2: able to access your super so you'll pass your preservation age. Yes,
Speaker 2: and you're able to access your super so you can
Speaker 2: freely take your super into your own name. And then
Speaker 2: you might think, I've got enough money now that I'd
Speaker 2: like to put some money. I'd like to get involved
Speaker 2: in philanthropy, particularly while you're alive. This is the most
Speaker 2: important thing in these vehicles.
Speaker 1: You could be alive, but you just have to be retired.
Speaker 1: You couldn't be an accumulation.
Speaker 2: Please, Oh no, it's not something that you can just
Speaker 2: tell you super fund, put some money over here. The
Speaker 2: two are quite very separate, but sort of the type
Speaker 2: of person who might go into this tends to be
Speaker 2: later in life. They tend to be financially secure. They
Speaker 2: want to help society, they want to do it while
Speaker 2: they're alive. Putting money into this sort of holding pattern
Speaker 2: of a fund called an ancillary fund is a great way.
Speaker 2: As we said, they can time their tax deduction, but
Speaker 2: then the giving can go on for many many years later.
Speaker 2: And in fact people often use it upon their passing,
Speaker 2: which there's a thing in the way tax works is
Speaker 2: quite interesting. If you were lucky enough to buy your
Speaker 2: Common Warf Bank shares at five dollars. We always pick
Speaker 2: on the Common Warf Bank as such well run institution,
Speaker 2: I should say. And if on your passing your state
Speaker 2: was then holding those shares, then all things being equal,
Speaker 2: if your a state sold those shares, there would be
Speaker 2: a massive capital gain that the state would have to pay. However,
Speaker 2: if you had donated, if you donate those shares through
Speaker 2: your will to a foundation, say that was in existence already,
Speaker 2: then there's no tax to the state at all, and
Speaker 2: the foundation then will not pay tax because the foundation
Speaker 2: is a tax free vehicle. So it's a magnificent way
Speaker 2: for people who have stored wealth beyond their needs, beyond
Speaker 2: what they want to provide for their children, and still
Speaker 2: don't want to pay tax. I love the idea of
Speaker 2: not paying tax even when I die.
Speaker 1: Yes, no, I imagine many people would aspire to do that, Chris.
Speaker 1: And it's a terrific It's a terrific structure. And it's
Speaker 1: not an accident. Folks that I've I have that have
Speaker 1: had at least once or twice a year brought up
Speaker 1: this because to me, as a with an investor's mind,
Speaker 1: this structure and by the way, to be fair, APS
Speaker 1: is of course not the only operation in this area,
Speaker 1: but it is one of the biggest, and it's a
Speaker 1: very smart way, a kind of professional way to approach
Speaker 1: philanthropy in a more strategic and tax effective manner. Why
Speaker 1: why not do that if you do that in every
Speaker 1: other area of life. Just briefly, Chris, So, the big fund,
Speaker 1: the APS Fund, what was how much did you say
Speaker 1: it has under management?
Speaker 2: Now? Okay, So the APS Foundation, the public ansigtery fund
Speaker 2: we run is around about the four hundred million dollar mark,
Speaker 2: so it's large. I think by the end of this
Speaker 2: decade it'll be a billion dollars probably, So it's a
Speaker 2: large and growing investor.
Speaker 1: So I want to tell the listeners what's in it.
Speaker 1: You know, what you do, so they get a picture
Speaker 1: of what goes on with the money. So the so
Speaker 1: the allocation folks inside this one's really interesting. It's a
Speaker 1: bit like when you can look into the future fund.
Speaker 1: You know, it's very useful. So how it works is
Speaker 1: twenty two percent in shares local, seventeen percent in shares international,
Speaker 1: a pretty chunky seventeen percent in private equity, then thirteen
Speaker 1: percent in what they call interest bearing securities. The rest
Speaker 1: then is scattered between property, venture capital, and what they
Speaker 1: call miscellaneous growth assets and liquid's been seven percent. Okay now, Chris,
Speaker 1: seventeen percent of this fund is private equity. Can I
Speaker 1: just ask you, a lot of people on the shore
Speaker 1: are every day investors are only getting to know private equity,
Speaker 1: and it's been put in front of them for the
Speaker 1: first time. It's been put in front of them at
Speaker 1: this time for a variety of reasons. This sense that
Speaker 1: the banks are withdrawing. I don't know if that's completely true.
Speaker 1: There's a sense that the hybrid market has been is
Speaker 1: being wound up, and so people are looking for income
Speaker 1: and they're putting private equity funds have been put in
Speaker 1: front of people in a listed form. How do you
Speaker 1: think the uninitiated should approach this very important area that
Speaker 1: takes like seventeen percent of your successful fund, which, by
Speaker 1: the way, folks, is just to give you an idea
Speaker 1: of how it's going. It has a target return, very
Speaker 1: like at the future fund to see inflation plus four
Speaker 1: percent is what it looks for. And for instance, like
Speaker 1: last year the one year did thirteen. But private equity, right,
Speaker 1: we'd all love to be in it in a successful manner.
Speaker 1: But I worry Chris, that kind of lead to the
Speaker 1: party for a lot of everyday investors and they're going
Speaker 1: to go into second red stuff.
Speaker 2: Yes, there's a couple of things you said that James,
Speaker 2: which I'll pick up on. First of all, you said
Speaker 2: it's a bit like a major superannuation fund the way
Speaker 2: we've we sort of have a target return. So for
Speaker 2: this big portfolio, I'm trying to get a return of
Speaker 2: inflation plus four percent per annum measured over rolling seventy
Speaker 2: year periods. You won't get that every year. Some years
Speaker 2: will be negative, some years will be twice as much.
Speaker 2: But I'm trying to do it over rolling seven year periods,
Speaker 2: and so far that's been successful. So if you're trying
Speaker 2: to get inflation plus four percent, you're not going to
Speaker 2: get that by investing in term deposits. You have to
Speaker 2: take a growth approach and you have to have time
Speaker 2: on your side. So this pool of money is a
Speaker 2: growing pool. People have parted with their money already into
Speaker 2: it to get the tax duction and to give to charity.
Speaker 2: They can't take the money back, so we know it's
Speaker 2: a long term growing pool. So that means with a
Speaker 2: rolling a target of rolling seven year periods and very
Speaker 2: patient capital. On the other side, I can be very
Speaker 2: patient in the way I invest. Now you talked about
Speaker 2: private equity. There, I think in the portfolio you'll see
Speaker 2: two segments that are reasonably large. You'll see private credit
Speaker 2: and private equity. Private credit I might mention quickly first
Speaker 2: and then come on to the equity because I know
Speaker 2: you talk about private credit a bit on your show.
Speaker 2: Private credit is a very important sector now. I think
Speaker 2: it's sort of had a bad name at the start
Speaker 2: a bit that. Of course, it really evolved from property
Speaker 2: development and construction, which is risky the best of times,
Speaker 2: but can be very risky when interest rates arising and
Speaker 2: the economy is not doing well. But private credit is
Speaker 2: very wide now across very white array of sectors. There's
Speaker 2: many managers in Australia there as well over one hundred managers.
Speaker 2: And you've got to understand if you looked at the
Speaker 2: banks twenty years ago, two thirds of their borrowing book
Speaker 2: the money they lend were to businesses and one third
Speaker 2: to home owners. These days it's the reverse they like.
Speaker 1: So they really have with drawn Chris, they really.
Speaker 2: Have drawn out of the market and the appet yeah,
Speaker 2: but the appetite for a business to borrow doesn't change.
Speaker 2: They just have to go to a different group and
Speaker 2: probably pay a bit more to be able to access
Speaker 2: the capital they need to expand. So private credit very
Speaker 2: important sector, very important to be to understand what the
Speaker 2: fund is invested in, and the experience of the investment
Speaker 2: team is really vital, and including how many securities they
Speaker 2: have in their portfilo is very vital. These inevitably, some
Speaker 2: loans will go bad, just like they do in banks.
Speaker 2: That's why banks provided for loans, so they do go
Speaker 2: Some of them do go bad, but good. A well
Speaker 2: run private equity fund is a cornerstone in my portfilo always,
Speaker 2: and you can't catch your normally in those things. They're
Speaker 2: not liquid like money in the bank. You know, if
Speaker 2: you want to get your money out of a private
Speaker 2: equity fund, it's at best you could do it quarterly.
Speaker 2: Maybe some of it, maybe not all of it. We
Speaker 2: shouldn't think of it as highly liquid, but it's somewhat liquid.
Speaker 2: The position is very different with private equity, so to
Speaker 2: be clear to those listeners of yours that don't know
Speaker 2: private equity by its nature. Instead of buying shares on
Speaker 2: the stock market, these are shares in companies that don't
Speaker 2: trade on the stock market. And generally speaking I do
Speaker 2: that through managers who specialize in that area. But the
Speaker 2: general way they will go about it is that they
Speaker 2: will launch a fund and they'll lock your money up.
Speaker 2: You commit to it, they'll lock it up for about
Speaker 2: ten years, could be less, and they spend half their
Speaker 2: time investing the money and the other half selling it down.
Speaker 2: But what we do see in the numbers all the
Speaker 2: time is that private equity isn't that good on average.
Speaker 2: You have to be with the top quartile manager to
Speaker 2: make good returns there. And the trouble with that for
Speaker 2: most on the street people, if I call it, is
Speaker 2: that the minimums are too high so they can't get
Speaker 2: in those funds. But the minimums have been coming down.
Speaker 1: Yes, I've been waiting for someone to I take Olipse
Speaker 1: that on the show and that is it. That is it,
Speaker 1: And I said, led to the party at the start forks,
Speaker 1: but I met. What I meant was that that everyone
Speaker 1: will stand up and they'll give presentations and how terrific
Speaker 1: private equity has been, And of course it has if
Speaker 1: you happen to be, you know, a multi millionaire that
Speaker 1: was with an extremely expensive financial advisory who got you
Speaker 1: in the early days to the best ones. But as
Speaker 1: Chris says, outside that top quarter, different business altogether.
Speaker 2: Very hard. We hope, you know, we were lucky in
Speaker 2: this fund. You hope every now and then, in these
Speaker 2: private companies you own, you might hit a little gold mine.
Speaker 2: You know, you might hit a canber. You might hit
Speaker 2: a canber. If your listeners know it a great Australian
Speaker 2: success story. It's already up two hundred and fifty times
Speaker 2: what we paid for it. I wish we had a
Speaker 2: lot more.
Speaker 1: Yeah, but I bet you there was two hundred and
Speaker 1: forty nine that didn't do.
Speaker 2: It exactly right. Private credit is very liquid and as
Speaker 2: just a repeat again, you really do have to be
Speaker 2: with a well regarded manager, and you know, the style
Speaker 2: of how they invest is very important. And a lot
Speaker 2: of these private equity groups they've got almost too big,
Speaker 2: so they keep investing bigger and bigger amounts. You know.
Speaker 2: That might suit some of them, but I prefer those
Speaker 2: that are more in what I call the mid market,
Speaker 2: where I think you can actually add a lot of
Speaker 2: value and not just value with leverage. Often private credit
Speaker 2: is criticized quite rightly that they often will invest in
Speaker 2: a business that's got good cash flows and they'll leverage
Speaker 2: up the business, which is fine until it's not fine.
Speaker 2: It's not fine when interest rates are eyes interesting.
Speaker 1: All right, folks, we're going to take a short break.
Speaker 1: We are running out of time, but because it was
Speaker 1: an easter, I thought we could go a little bit longer.
Speaker 1: We'll be back with Chris. We're just going to have
Speaker 1: one or two questions which I'd really like to hear
Speaker 1: what he has to say back in the moment. Hello,
Speaker 1: Welcome back to the Money Puzzle podcast. James Kirby here
Speaker 1: with Chris Cuff. All right, now a couple of co questions, Chris,
Speaker 1: just to hear what your instinctive reaction to these, So
Speaker 1: Raymond asks. Basically, he says, we had talked about how
Speaker 1: it was good not to be hedged. It was certainly
Speaker 1: not good not to be hedged during the most recent
Speaker 1: American drop where they had that desperate day where they
Speaker 1: had the worst day since twenty twenty because of the
Speaker 1: weaker Australian dollar. But as he makes the point that
Speaker 1: when things turn around, an on hedged position exposes Australians
Speaker 1: to a strength Australian dollar, even when market sentiment improves
Speaker 1: and you have increasing international equities across the board, both
Speaker 1: private investors and institutional vestors. So he says, hedging isn't perfect,
Speaker 1: but it reduces exposure to currency fluctuations. I imagine you
Speaker 1: don't have anything to disagree with that. We've more or
Speaker 1: less covered that at the start of the show. There,
Speaker 1: all right, Andrew has two really good questions. The first one,
Speaker 1: he says, Chris, is at the beginning of a global
Speaker 1: at the beginning of a global market meltdown, before the
Speaker 1: interest rates have been cut, is it broadly a good
Speaker 1: or bad time to consider bonds or bond dtfs? WHOA Now,
Speaker 1: you see when people like you talk about bonds, you're
Speaker 1: talking about bonds in this sense of buying them one
Speaker 1: by one and selecting them. But for everyday investors, their
Speaker 1: way into bonds really as bond dtfs and bond dtfs
Speaker 1: have not been great really in this market for a
Speaker 1: variety of reasons, for most years of recent years. What's
Speaker 1: your What do you say to everyday investors wh'll see
Speaker 1: I should have bonds on my way in as ETFs?
Speaker 2: Well, I guess the first thing was interesting that Andrews says,
Speaker 2: at the beginning of a global market meltdown, would it
Speaker 2: be good to do this stuff? If someone could ring
Speaker 2: the bell we know when the beginning is story about
Speaker 2: all the mice gathering round and saying if we just
Speaker 2: tie the bell to the cat's neck will know when
Speaker 2: it's coming. Of course, no mouse is going to be
Speaker 2: game to do that, so I look, I'm not a
Speaker 2: fan at all of pulled vehicles for bonds, which include ETFs.
Speaker 2: Now others may think differently. I'm just not a fan
Speaker 2: because I feel in those areas you your health is
Speaker 2: very dependent on the other people in the fund with you.
Speaker 2: If they start to panic and want to come out
Speaker 2: of the farm, there could be unintended cap gains because
Speaker 2: the manager of the fund might have to sell bonds
Speaker 2: and that might realize losses as well as gains. I
Speaker 2: just don't like the idea of holding hands in these things,
Speaker 2: so I always prefer to buy. If I want to
Speaker 2: be in fixed intra securities down in this sort of area,
Speaker 2: I like to buy them individually and own them individually,
Speaker 2: and probably in the main think about holding them until
Speaker 2: they mature, so I don't have to worry about the
Speaker 2: you know, the market value of these things going up
Speaker 2: and down. But of course, so your.
Speaker 1: First approach is to buy it as for its running yield.
Speaker 2: Yes, that's definitely right. But Australia has a very immature
Speaker 2: market in this sense, so it's very hard to sort
Speaker 2: of do that, particularly for investors with smaller amounts. If
Speaker 2: you're a large investor like UNI Super or Australian Super,
Speaker 2: you can go into the market, buy Australia in bonds
Speaker 2: or international bonds one by one and tuck them away
Speaker 2: and just enjoy receiving the coupon every quarter or six
Speaker 2: months or whatever it is. But for Australia based Australian investors,
Speaker 2: I think the better thing, or easier in my mind
Speaker 2: at least, is probably just lock into some term deposits
Speaker 2: if you really want to be in that area, because
Speaker 2: you'll understand the term deposit. They're not traded on the market,
Speaker 2: you don't see their value going up and down, and
Speaker 2: you're generally forced to keep them until they mature. It's
Speaker 2: very hard. You can break a term deposit, but there's
Speaker 2: usually a break fee, so we don't. Particularly, and particularly
Speaker 2: with the hybrid market disappearing, it's quite hard to find
Speaker 2: securities around that you can just sort of buy and hold.
Speaker 2: There are some, but it's not easy to find.
Speaker 1: That's terrific answer, thank you, And I think folks, that's
Speaker 1: worth's hearing from someone who's actually on the board of
Speaker 1: a big super fund. It really is okay because it's
Speaker 1: because it's that helicopter view. So I think that is
Speaker 1: a very interesting point and it never ends right about
Speaker 1: the whole thing about bonds and should you have bonds?
Speaker 1: But we've had more than one person on the show,
Speaker 1: from financial advisors who are just dealing with their clients
Speaker 1: to people who manage very large amounts of money saying
Speaker 1: that at TDS that is term deposits. You know, government
Speaker 1: guaranteed may serve that purpose more for most people most
Speaker 1: of the time.
Speaker 2: Okay.
Speaker 1: And finally, Andrew asks, when the market has a meltdown,
Speaker 1: isn't that just another way of saying that there is
Speaker 1: now a stack of cash and liquidity waiting to invest
Speaker 1: at a later stage. Yeah, yeah, sure, Andrew. A thing
Speaker 1: is when? Okay, because in two o eight they didn't
Speaker 1: come back for a long time into what they came
Speaker 1: back pretty fast in COVID.
Speaker 2: What do you think of that one, Chris Well, I
Speaker 2: have to smile too when I heard that question earlier,
Speaker 2: because again, we never know when the meltdowns kind of start.
Speaker 2: And people, you know, sun men, I have to say,
Speaker 2: although I've mixed with them for many years that they're
Speaker 2: very good marketers. I say, now's a buying opportunity. But
Speaker 2: of course we don't all just have cash sitting on
Speaker 2: the side waiting. I mean, you can It's like a
Speaker 2: clock that's broken, you know, but it's actually right twice
Speaker 2: a day if you think about it. You know, the
Speaker 2: clock's stall, but it's right twice a day. And sometimes
Speaker 2: people will sit there with a lot of cash waiting
Speaker 2: for something to happen and miss out on the opportunities
Speaker 2: or the good days in the more risky markets, so
Speaker 2: to speak. So I never quite understand the buying opportunity
Speaker 2: type of logic unless you do, you know, have cash,
Speaker 2: and you've got some fantastic way of knowing that this
Speaker 2: you're at the end of the meltdown. Because you know
Speaker 2: that adage about trying to catch a falling knife. It's
Speaker 2: very hard to know when things are going to stop
Speaker 2: going down. And I remember in the glow or financial crisis,
Speaker 2: where things ground on for ages down month after month
Speaker 2: for a long time, and I remember after about three months,
Speaker 2: I thought, I'm smart. Now I'm going to put money
Speaker 2: in the market. And you know, I tried to catch
Speaker 2: what I can now look back at. So it was
Speaker 2: definitely a falling knife and cut a few fingers off
Speaker 2: along the way. So it's not easy. I prefer a
Speaker 2: strategy that says set yourself for an all weather market
Speaker 2: upsow downs. That's you know, sit with a good advisor,
Speaker 2: work out how you want your money placed across different sectors,
Speaker 2: well diversified portfolio, enough cash to live on if you're
Speaker 2: drawing it down, and just gritch your teeth and stay
Speaker 2: away from knee jerk reactions, which we're all prone to do. That's,
Speaker 2: you know, if I had my time again as an
Speaker 2: investment professional, the first thing I should should have studied
Speaker 2: at university is behavioral science, not financial science, because people
Speaker 2: react in the investment markets with emotion first. The best
Speaker 2: investment managers in my career I've seen are often those
Speaker 2: who are slightly on the spectrum. They can be completely emotionless.
Speaker 1: Terrific. I imagine that is exactly true. That they all
Speaker 1: understand the finance. Everyone understands the finance, right, So all
Speaker 1: these people with the qualified they're all qualified. They understand
Speaker 1: the finance. But who understands human emotion? All right, we
Speaker 1: leave it there. That was terrific, Chris, Thank you very much,
Speaker 1: Chris Coff.
Speaker 2: Love it to have you on My pleasure. I love
Speaker 2: being on James.
Speaker 1: Great to have Chris Coff on the show. Folks, Okay,
Speaker 1: have a good break, have a good easter. We will
Speaker 1: be back very quickly. We're not taking a break. We
Speaker 1: motor on. Keep the questions Commons ruling the money puzzle
Speaker 1: at the Australian dot Com dot Au. Today's show was
Speaker 1: produced by Leah Sam mcglue and she's not taking a
Speaker 1: break either. Don't you soon, fo,