WEBVTT - Private markets - A beginner’s guide 0:00:09.920 --> 0:00:12.920 Hello, and welcome to The Australian's Money Puzzle podcast. I'm 0:00:13.000 --> 0:00:17.360 James Kirkby. Welcome aboard everybody. The biggest boom area in 0:00:17.360 --> 0:00:20.799 investment now, believe it or not, it's not the share market. 0:00:21.200 --> 0:00:26.120 It's the private market on listed investments, private credit, private equity. 0:00:26.800 --> 0:00:29.920 And in the recent past, you know, wealthy investors and 0:00:29.960 --> 0:00:33.879 big institutions like the Future Fund or universities made a 0:00:33.880 --> 0:00:36.599 lot of money here. The issue is it for you? 0:00:36.680 --> 0:00:39.880 What you need to know. My guest today is top 0:00:40.000 --> 0:00:45.560 rated financial advisor Charlie Viola of Viola Private Wealth. All Ai, Charlie, 0:00:45.960 --> 0:00:49.280 good times. I mean, broadly from what I gather, what 0:00:49.400 --> 0:00:52.360 I read, what we've talked about in the past, I mean, 0:00:52.400 --> 0:00:59.120 you're broadly enthusiastic about this private if I can call 0:00:59.160 --> 0:01:02.080 it a privatizer of investment, where there's much more than 0:01:02.120 --> 0:01:05.240 there used to be on the private markets for everybody. 0:01:06.880 --> 0:01:09.440 Look, we're probably more than enthusiastic about it. We were 0:01:09.440 --> 0:01:12.720 probably a very early mover in terms of using private 0:01:12.760 --> 0:01:16.600 market investments and unlisted investments for our client portfolios. And 0:01:16.640 --> 0:01:18.679 what we're very well known for in the market is 0:01:18.680 --> 0:01:22.720 making sure that we find those good quality, diverse assets 0:01:22.760 --> 0:01:27.039 for investors to allocate too. And you know, like we 0:01:27.120 --> 0:01:29.760 sort of always say we're big ones for diversity, we're 0:01:29.800 --> 0:01:32.280 big ones for the right type of asset allocation, and 0:01:32.360 --> 0:01:36.680 where we're big ones for asset quality. But I guess 0:01:36.760 --> 0:01:40.040 what's probably happened over the last I don't know, call 0:01:40.080 --> 0:01:43.520 it fifteen years, is this private market stuff has been 0:01:43.680 --> 0:01:48.280 democratized in a lot of ways. So once upon a time, 0:01:48.360 --> 0:01:50.520 this was only an area that you could get to 0:01:50.560 --> 0:01:53.360 if you were a large family office, you know, an 0:01:53.440 --> 0:01:57.560 institutional investor or a big super fund, whereas or a 0:01:57.680 --> 0:02:00.560 very high netwealth individual where you could hand or the 0:02:00.640 --> 0:02:04.160 significant lock up of the capital. What's happened over the 0:02:04.200 --> 0:02:06.440 last number of years is a lot of the funds 0:02:06.440 --> 0:02:08.960 have sort of seen the demand and the need for 0:02:09.560 --> 0:02:12.959 these types of investors, these types of investments in normal 0:02:13.000 --> 0:02:19.000 investment portfolios, and therefore they've created what we call evergreen 0:02:19.120 --> 0:02:22.360 vehicles where money can kind of go in all the time, 0:02:22.440 --> 0:02:25.359 where your money has invested straight away, and it gives 0:02:25.480 --> 0:02:30.960 normal investors access to those private markets. So we like it, 0:02:31.160 --> 0:02:33.359 you know, we think it gives investors a great way 0:02:33.400 --> 0:02:36.960 of diversifying. You know, most investors in Australia have had 0:02:37.040 --> 0:02:40.560 lots of kind of CBA and BAGP shares over their lifetime. 0:02:40.919 --> 0:02:43.120 You know, they've taken lots of kind of equity risk 0:02:43.200 --> 0:02:46.600 within their portfolios and ultimately that's done pretty well. Right 0:02:46.639 --> 0:02:49.480 Like since GFC, equity markets have basically done nothing but 0:02:49.560 --> 0:02:53.200 go up. But what we've seen is with the democratization 0:02:53.720 --> 0:02:57.040 of these private markets is now investors are getting access 0:02:57.040 --> 0:02:59.120 to all the things that they couldn't before. And as 0:02:59.160 --> 0:03:02.560 you said, before private equity, private debt, private credit, access 0:03:02.600 --> 0:03:06.400 to markets that generally were only available to really high 0:03:06.440 --> 0:03:09.520 night wealth individuals, family offices, institutional investors. 0:03:09.840 --> 0:03:12.840 Have we any reason to believe that there's better value 0:03:13.000 --> 0:03:16.480 in these markets that are understed compared to the share market. 0:03:18.040 --> 0:03:20.799 Now about it being better value, I don't think it's 0:03:20.800 --> 0:03:23.840 about diversity, and it's about it's about sort of having 0:03:23.919 --> 0:03:28.520 an uncorrelated level of risk compared to equity markets. I 0:03:28.520 --> 0:03:30.920 think lots of people will argue and their arguments are 0:03:30.919 --> 0:03:33.720 probably not that wrong that if you actually look at 0:03:33.720 --> 0:03:36.240 the last four or five years, public markets have done 0:03:36.240 --> 0:03:38.360 a heap of the heavy lifting. So you know, in 0:03:38.400 --> 0:03:40.320 the last three or four years you could have done 0:03:40.320 --> 0:03:43.680 nothing but invested you know, megacap US stocks and large 0:03:43.720 --> 0:03:46.000 cap domestic stocks in your returns would have been more 0:03:46.000 --> 0:03:47.920 than acceptable, right, they would have been ten or fifteen 0:03:47.920 --> 0:03:50.640 percent a year. It's about ensuring that you don't have 0:03:50.720 --> 0:03:53.840 all of your money is exposed to the exact same risks. 0:03:54.120 --> 0:03:57.120 It's about ensuring that you're generating your revenue flows in 0:03:57.240 --> 0:04:01.160 different ways. So in lots of ways, it's about reducing 0:04:01.160 --> 0:04:03.960 the risk in your portfolio. Some people think that when 0:04:03.960 --> 0:04:06.680 you go and invest in alternatives, and we hate the 0:04:06.760 --> 0:04:08.760 use of the word alternative, right, these are just normal 0:04:08.760 --> 0:04:11.360 assets packaged in a different way. But when you go 0:04:11.400 --> 0:04:14.640 and invest in private markets, you're taking more risk. In fact, 0:04:14.960 --> 0:04:18.279 you're reducing your risk profile because you're starting to allocate 0:04:18.320 --> 0:04:21.159 your moneys to different types of investments that perform differently 0:04:21.200 --> 0:04:24.560 at different times. So, you know, we talk to investors 0:04:24.600 --> 0:04:28.880 a lot about we will have normal public market exposures. 0:04:29.000 --> 0:04:31.240 You know, they're there to do a job in terms 0:04:31.240 --> 0:04:34.440 of producing earnings growth, producing us a bit of revenue 0:04:34.640 --> 0:04:37.080 over time, and giving us some growth. But we want 0:04:37.160 --> 0:04:39.400 other assets too. You know, we want infrastructure in our 0:04:39.440 --> 0:04:42.520 portfolio because it's a hedge to inflation. We want good 0:04:42.560 --> 0:04:45.760 quality private debt or private credit in the portfolio because 0:04:45.800 --> 0:04:48.000 it generates really good quality cash flow. 0:04:48.520 --> 0:04:51.359 I don't doubt you with your connections with your career 0:04:51.400 --> 0:04:54.240 in financial advice at the level you have been at. 0:04:54.279 --> 0:04:56.640 And folks, if you're not familiar with Charlie, he has 0:04:56.760 --> 0:04:59.240 been a long time a veteran at the operank so 0:04:59.240 --> 0:05:03.760 off the Barons Top one fifty advisors list the youngest 0:05:03.839 --> 0:05:08.040 veteran that that might actually be true. But what I 0:05:08.040 --> 0:05:11.520 want to ask you is, for most people, right this 0:05:11.680 --> 0:05:15.920 is all new and their financial advisor is flooding them 0:05:15.920 --> 0:05:18.440 with this stuff, and the market is flooding the advisors 0:05:18.440 --> 0:05:21.720 with this stuff, and I wonder, how does an advisor 0:05:21.800 --> 0:05:24.160 what are the dangers here? Like for instance, just let's 0:05:24.200 --> 0:05:27.920 just look locally. For instance, we're not most people wouldn't 0:05:27.960 --> 0:05:31.040 be used to even knowing what's going on in private equity. 0:05:31.080 --> 0:05:33.119 There was mezzanine finance and that was that kind of stuff, 0:05:33.120 --> 0:05:34.880 but it was marginal and it was, as you say, 0:05:34.920 --> 0:05:38.360 for very wealthy people. Now we have we're getting When 0:05:38.520 --> 0:05:43.120 a major private credit group like Metrics Credit Partners gets there, 0:05:43.600 --> 0:05:47.240 some of their products downgraded, it's front page news. This 0:05:47.400 --> 0:05:50.960 is because this is the early days in our market 0:05:51.000 --> 0:05:54.160 for private credit, and we're not used to seeing the 0:05:54.760 --> 0:05:57.400 ups and downs of private credit. How do you navigate 0:05:57.440 --> 0:06:00.000 that as as an investor when it's all new to you. 0:06:01.600 --> 0:06:03.760 So I think a couple of things are still really 0:06:03.800 --> 0:06:07.120 important in how you build out portfolios. Asset our location 0:06:07.200 --> 0:06:10.800 and diversity is really important. Yeah, So making sure that 0:06:10.920 --> 0:06:12.640 not all the eggs are in the same basket and 0:06:12.680 --> 0:06:14.960 making sure that you slice the pie up and you've 0:06:14.960 --> 0:06:17.560 built your portfolio out of different types of investments is 0:06:17.600 --> 0:06:20.880 really important. So the second piece is when you look 0:06:20.920 --> 0:06:24.200 at those individual sleeves that belong with your portfolios, and 0:06:24.240 --> 0:06:27.040 you have a sleeve for the private credit or private 0:06:27.080 --> 0:06:30.000 debt section, you have to understand that with that sleeve 0:06:30.080 --> 0:06:32.200 there are different types of things that make that up. 0:06:32.360 --> 0:06:35.560 So in the private credit space, it is an entire spectrum. 0:06:35.560 --> 0:06:38.560 Like it's an entire sphere of investments all the way 0:06:38.600 --> 0:06:43.240 from as you say, mezzanine secondary construction debt and then 0:06:43.360 --> 0:06:46.400 first more eage type stuff. We in our business very 0:06:46.480 --> 0:06:49.280 much use private debt private credit as a defensive end 0:06:49.320 --> 0:06:52.400 of the portfolio. We use it to producing comfort clients. 0:06:52.400 --> 0:06:55.159 So we use it. We only invest in the really 0:06:55.200 --> 0:06:59.200 defensive stuff. When you think about something like metrics, for instance, 0:06:59.360 --> 0:07:01.719 it's important you kind of look at the signals and 0:07:01.800 --> 0:07:04.720 not the noise. So the noise around it is that 0:07:04.720 --> 0:07:07.080 they that they've gone and taken over a business and 0:07:07.120 --> 0:07:09.080 suddenly they run restaurants. 0:07:09.440 --> 0:07:11.920 Yeah, they're stock with stuff, they're stop with stuff they 0:07:11.920 --> 0:07:14.040 didn't intend to hold it. 0:07:14.480 --> 0:07:16.320 And what they've done is they've had to have the 0:07:16.400 --> 0:07:20.160 debt step into the shoes at equity. But fundamentally, that 0:07:20.360 --> 0:07:23.920 process of debt becoming equity is how they actually protect 0:07:23.960 --> 0:07:28.760 their investor's capital. So Andrew Lockhart, the guy who runs Metrics, 0:07:29.240 --> 0:07:31.920 is probably one of the smartest guys in the market, 0:07:32.080 --> 0:07:36.000 does an incredibly good job in understanding how that credit 0:07:36.040 --> 0:07:39.760 actually gets put together and how he protects the investor capital. 0:07:40.680 --> 0:07:43.880 Every good private credit manager, every good private debt manager, 0:07:44.040 --> 0:07:47.280 over time we'll understand their equity, we'll understand what they're 0:07:47.280 --> 0:07:52.160 securing their debt against. It becomes incumbent upon the manager. 0:07:52.320 --> 0:07:54.760 And this is why we're big ones around manager selection. 0:07:54.840 --> 0:07:57.440 We're big ones around making sure you know who you're 0:07:57.440 --> 0:07:59.520 giving your clients money to or who you're giving you 0:07:59.600 --> 0:08:04.320 money to, because ultimately, the security that is provided becomes 0:08:04.520 --> 0:08:07.840 really important. There is this question out there that what's 0:08:07.840 --> 0:08:11.920 a higher risk investment, private credit or private equity. Private 0:08:11.920 --> 0:08:14.240 equity by nature is always going to be a higher 0:08:14.320 --> 0:08:18.160 risk investment than private credit because private credit is generally 0:08:18.160 --> 0:08:20.880 going to be asset backed. There is generally something behind 0:08:20.920 --> 0:08:25.040 it that can falled upon to actually get you your 0:08:25.080 --> 0:08:27.440 money back, or you will own something at the other 0:08:27.600 --> 0:08:31.560 end private equity again, and remember private equity is a 0:08:31.560 --> 0:08:34.160 whole other sleeve of the portfolio and it is broken 0:08:34.240 --> 0:08:37.400 up into different pieces. Is investing in something that you 0:08:37.480 --> 0:08:40.160 hope will do well over a period of time. So 0:08:40.640 --> 0:08:44.120 my message to investors and my message to advisors is 0:08:44.200 --> 0:08:46.920 make sure you are putting these in the right parts 0:08:46.920 --> 0:08:49.520 of your portfolio, and you're only holding the right amount 0:08:49.600 --> 0:08:52.440 of it, and you're asking that part of the portfolio 0:08:52.600 --> 0:08:55.479 to do a very specific job within the portfolio. 0:08:55.800 --> 0:08:58.120 Okay, Can I ask you what question with the Lemon's 0:08:58.240 --> 0:09:01.280 question really about private credit? But it comes up every time, 0:09:01.360 --> 0:09:05.000 It's very simple question. If it's so good, why does 0:09:05.080 --> 0:09:06.640 the banks do it? 0:09:06.840 --> 0:09:08.840 Do you mean, why are they non banked lenders? 0:09:09.160 --> 0:09:12.560 Why do the banks withdraw from certain businesses and private 0:09:12.679 --> 0:09:15.240 credit go in there and it's unlisted and this is 0:09:15.520 --> 0:09:17.600 a hot area now, But why do the banks retreat 0:09:17.679 --> 0:09:20.800 from this in the first piece if it's so good. 0:09:22.480 --> 0:09:25.719 Because of the regulations. So the capital required on the 0:09:26.160 --> 0:09:28.160 bank's balance sheet for the lending that they make is 0:09:28.240 --> 0:09:31.480 very different to the non bank lenders. So there isn't 0:09:31.679 --> 0:09:35.000 there isn't a space for the major banks to be investing. 0:09:35.240 --> 0:09:36.959 And what you tend to find is the non bank 0:09:37.080 --> 0:09:40.360 lenders will generally do the stuff at the beginning, and 0:09:40.400 --> 0:09:44.080 then the majors will come along afterwards when the capital 0:09:44.160 --> 0:09:47.560 requirement isn't as high. So remembering that lots of the 0:09:47.600 --> 0:09:50.120 projects that we see, you know, lots of the kind 0:09:50.160 --> 0:09:53.480 of land subdivision, is all done by non baked lending. 0:09:53.920 --> 0:09:56.439 Non bank lending is not something that's new. People have 0:09:56.520 --> 0:09:59.960 even lending other people money for you know, virtually effect 0:10:00.280 --> 0:10:03.440 hundreds of years. Right. The banks will only ever come 0:10:03.480 --> 0:10:09.360 along where their regulatory restraints and constraints are absolutely met. 0:10:09.440 --> 0:10:12.760 Okay. So it was the capital adequacy rules basically that 0:10:13.000 --> 0:10:16.120 titans what banks could do, which open this opportunity. Okay, 0:10:16.120 --> 0:10:18.560 I hear you. Now on the private equity here's the 0:10:18.600 --> 0:10:21.000 thing again. So someone saying, okay, I'm used to the 0:10:21.000 --> 0:10:24.360 share market. You know, I've always had shares. I see 0:10:24.400 --> 0:10:27.840 this area. It looks very interesting. But are you concerned? 0:10:28.240 --> 0:10:32.160 You must be, I imagine about what goes on. It's not 0:10:32.200 --> 0:10:35.520 as transparent, right, private equity as the share market. By definition, 0:10:35.559 --> 0:10:37.560 we can find out everything in the share market, we 0:10:37.600 --> 0:10:40.160 can find out the salaries of the executives. Everything in 0:10:40.160 --> 0:10:42.560 private equity we can't. And so there is this risk 0:10:42.600 --> 0:10:44.960 that they will play games behind the scenes. And I 0:10:45.040 --> 0:10:47.040 read reports all the time about what goes on and 0:10:47.080 --> 0:10:50.320 buyout funds and how buyout funds can can these days, 0:10:50.320 --> 0:10:53.880 for instance, go on forever without actually floating the asset 0:10:53.920 --> 0:10:56.000 off on the share market because they can't get them 0:10:56.000 --> 0:10:58.480 off so that they can come up with new tricks 0:10:58.480 --> 0:11:01.480 basically continuation vehicles and that sort of thing. I mean, 0:11:01.520 --> 0:11:03.760 you have to stay across all that. I'm sure what 0:11:03.800 --> 0:11:06.679 are the risks and the private equity space, which you 0:11:06.880 --> 0:11:09.080 have said in the first part of the show, is 0:11:09.160 --> 0:11:09.959 riskier anyway. 0:11:12.000 --> 0:11:15.360 Yeah, So remembering what you're wanting your private equity portion 0:11:15.400 --> 0:11:18.240 of your portfolio to do. It's your highest portion of 0:11:18.280 --> 0:11:20.880 the portfolio. You want it to generate the biggest outsized 0:11:20.880 --> 0:11:23.680 returns within the portfolio. My answer to all that is 0:11:23.720 --> 0:11:27.280 manager selection. So different managers do different things and different 0:11:27.280 --> 0:11:30.920 managers will live best money and by portfolio companies across 0:11:30.920 --> 0:11:34.439 different sectors. So we do you know, certainly in our 0:11:34.480 --> 0:11:37.880 business we have a reasonable sleeve. In the private equity sector, 0:11:38.200 --> 0:11:41.319 we work really hard around the due diligence on the managers, 0:11:41.320 --> 0:11:44.319 making sure we understand, you know, who's looking after our 0:11:44.320 --> 0:11:48.200 client money. So you are ultimately exactly right. You are 0:11:48.280 --> 0:11:51.080 backing the jockey. You're backing that manager to do a 0:11:51.120 --> 0:11:54.280 good job and make the right decisions with the capital 0:11:54.520 --> 0:11:57.960 that they've got. And remembering that private equity is kind 0:11:57.960 --> 0:12:00.320 of a homogeneous term that goes all the way from 0:12:00.800 --> 0:12:05.120 kind of seed VC, you know, buyout and pre IPO. 0:12:05.920 --> 0:12:07.520 You just need to and as you sort of go 0:12:07.640 --> 0:12:11.040 up that curve, you're effectively taking less risk. Right, So 0:12:11.080 --> 0:12:13.160 the closer you get to pro IPO, the less risk 0:12:13.200 --> 0:12:15.720 because the companies are more well known. Just make sure 0:12:15.720 --> 0:12:19.120 you understand what you're investing in, where you're investing, and 0:12:19.240 --> 0:12:23.520 generally speaking, what your line of sight to liquidity actually is, 0:12:24.040 --> 0:12:27.520 so you know, if you're investing in a VC fund 0:12:27.559 --> 0:12:30.880 that has a period like a fund where you make 0:12:30.920 --> 0:12:33.520 a capital commitment. They'll call it over three years, and 0:12:33.559 --> 0:12:35.760 they'll use it over five years, and you might not 0:12:35.880 --> 0:12:38.240 get your money back for ten or twelve. You have 0:12:38.320 --> 0:12:40.040 to be very comfortable with that. You've got to be 0:12:40.080 --> 0:12:43.360 really comfortable that your money is out being harvested for 0:12:43.880 --> 0:12:46.920 eight or ten years. If you want that capital back, 0:12:47.080 --> 0:12:49.520 you've made a bad decision in terms of the investment 0:12:49.520 --> 0:12:52.880 that you've made. Yeah, so you have to feel really 0:12:52.920 --> 0:12:55.640 comfortable with the risk that you're taking. So it's eyes 0:12:55.679 --> 0:12:59.080 wide open. But it's also about understanding, like try not 0:12:59.160 --> 0:13:02.000 to get intoxic by the returns that managers tell you 0:13:02.040 --> 0:13:05.079 they're going to produce, and understand what it is that 0:13:05.080 --> 0:13:08.720 they're investing in. We've met lots of private equity managers. 0:13:08.760 --> 0:13:11.480 In fact, we probably see a deck, you know, every 0:13:11.520 --> 0:13:14.040 other day. You've never met a dumb one. You've never 0:13:14.080 --> 0:13:16.400 met a dumb fund manager. They're all the smartest blokes 0:13:16.400 --> 0:13:20.600 of the room. So you know, understanding what you're investing, 0:13:20.720 --> 0:13:23.280 how long they're going to have your capital for, you 0:13:23.320 --> 0:13:25.800 know what sector of the market, what the risks are, 0:13:26.120 --> 0:13:29.480 and what the liquidity constraints will be is like so 0:13:29.720 --> 0:13:33.640 super important. And remember these these are intended to be 0:13:34.240 --> 0:13:38.640 Remember these are intended to be small parts of big portfolios. 0:13:39.040 --> 0:13:41.719 Okay, yeah, very good, put it in proportion. Folks. See 0:13:41.720 --> 0:13:44.000 you as part of diversification. I suppose it's a new 0:13:44.040 --> 0:13:47.160 charity to most people. Is it's a new diversification, it's 0:13:47.160 --> 0:13:50.040 a new avenue. And it's interesting that, of course your access, 0:13:50.160 --> 0:13:52.120 the access in your case at least, is strictly through 0:13:52.120 --> 0:13:55.000 managers rather than direct Okay, we'll take a short break. 0:13:55.240 --> 0:14:09.960 We'll be back in a moment. Hello, Welcome back to 0:14:10.000 --> 0:14:13.960 the Australians Money Puzzle podcast. James Kirby here with a guest, 0:14:14.080 --> 0:14:16.839 Charlie Viola, who has often been on the show. In fact, 0:14:16.880 --> 0:14:18.360 the last time he was on the show, he was 0:14:18.400 --> 0:14:23.160 so close to starting his new operation Viola Private Wealth, 0:14:23.160 --> 0:14:26.080 but he couldn't tell me. I remember, because it was 0:14:26.120 --> 0:14:28.880 literally I think it was weeks, wasn't it before you started? 0:14:29.080 --> 0:14:31.400 How long are you up and about now as a 0:14:31.440 --> 0:14:32.280 new entity? A year? 0:14:33.560 --> 0:14:37.200 Yes, yeah, so we completed on the management buyer about 0:14:37.200 --> 0:14:40.400 October last year, so we still getting you brand, you know, 0:14:40.480 --> 0:14:43.480 almost a year ago we did a management buyer though, 0:14:43.560 --> 0:14:46.120 so it was very much sort of same shop, new sign. 0:14:46.440 --> 0:14:48.640 But yeah, it's been sniting, it's been great. We're doing 0:14:48.680 --> 0:14:49.200 really well. 0:14:49.240 --> 0:14:53.800 So yes, well, of course you're unleashed. Tell me, speaking 0:14:53.840 --> 0:14:58.560 of unleashed, unleashing oneself into the world of new age investments, 0:14:59.160 --> 0:15:00.560 where do you stand on crypto? 0:15:01.760 --> 0:15:05.280 So you know, I'm probably quoted on this before that 0:15:05.360 --> 0:15:08.200 once upon a time, crypto was probably the place for 0:15:08.520 --> 0:15:10.120 you know, people that are lawned the money or it 0:15:10.160 --> 0:15:12.760 felt like a bit like a game, et cetera. The 0:15:12.800 --> 0:15:16.000 reality is that crypto probably carries a bunch of the 0:15:16.080 --> 0:15:19.880 underlying fundamentals that all currency carries. You know, it's separable, 0:15:19.880 --> 0:15:22.560 it's rare, you know, it can be used as an 0:15:22.600 --> 0:15:25.360 exchange for goods, et cetera. I think one of the 0:15:25.440 --> 0:15:28.680 I think one of the concerns with you know, crypto 0:15:28.840 --> 0:15:33.760 generally is that there's still no kind of logical use case, 0:15:33.960 --> 0:15:35.640 or at least we haven't kind of got to the 0:15:35.720 --> 0:15:38.080 answer in terms of it being a logical use case. 0:15:38.480 --> 0:15:41.800 So the thing that's driven its price over time has 0:15:42.000 --> 0:15:45.160 just been the demand, like the supply versus demand or 0:15:45.160 --> 0:15:48.920 the scarcity of it over time, so we kind of 0:15:48.920 --> 0:15:51.400 see it, you know, like I think over time it's 0:15:51.400 --> 0:15:53.520 probably started to act a bit more like a sort 0:15:53.560 --> 0:15:56.880 of digital gold proxy. You know, we still don't put 0:15:56.920 --> 0:16:01.360 it as a specific piece into client folios. We don't 0:16:01.360 --> 0:16:04.240 put gold in the client portfolios generally either unless they 0:16:04.320 --> 0:16:06.240 ask for it. You know, we're big ones for hold 0:16:06.480 --> 0:16:10.120 really good, normal traditional assets that generate revenue. And you 0:16:10.160 --> 0:16:14.320 know I said before about diversity, but you know, what 0:16:14.360 --> 0:16:17.000 we've seen is that you know, probably for the first 0:16:17.040 --> 0:16:19.360 time in the last four or five years, bitcoin and 0:16:19.400 --> 0:16:23.600 gold probably traded in lockstep over the past sort of 0:16:23.840 --> 0:16:27.800 few years, over the fast past few months. But remember 0:16:27.840 --> 0:16:29.880 that big cooin was meant to be the kind of 0:16:30.040 --> 0:16:35.680 ultimate kind of decorrelation from markets. Bgcoin really has just 0:16:35.760 --> 0:16:39.240 correlated itself to the NASDAK over the last number of years. 0:16:39.320 --> 0:16:41.920 So you know, when risk assets have gone up, it's 0:16:41.920 --> 0:16:45.000 gone up. When risk assets have gone down, it's gone down. 0:16:45.200 --> 0:16:48.080 So in your reviewer doesn't have what gould has, which 0:16:48.120 --> 0:16:50.760 is the ability to be non correlated to go up 0:16:50.840 --> 0:16:55.160 when basically when everything goes after eels God will go up. 0:16:55.280 --> 0:16:58.040 Do you think bitgoin will go down with the market basically. 0:16:58.400 --> 0:17:00.520 Yeah, correct, because it still feels like a scas set 0:17:00.640 --> 0:17:03.880 in our view. So do I think that crypto like 0:17:04.280 --> 0:17:06.960 and you know, I'm going to preserve my comments to bitcoin. 0:17:07.040 --> 0:17:10.840 Do I think bitcoin is going to disappear? No, I don't. Like. 0:17:10.880 --> 0:17:13.280 I think that it's been around for long enough. Now 0:17:13.320 --> 0:17:18.399 there's enough investors, there's enough institutional support for it. You know, 0:17:18.480 --> 0:17:21.080 we've obviously seen a bunch of these kind of exchange 0:17:21.119 --> 0:17:25.280 traded funds and kind of access vehicles created, especially in 0:17:25.320 --> 0:17:28.800 the US. The inflows into those vehicles have been just 0:17:29.000 --> 0:17:31.760 you know, off the planet over a period of time. 0:17:32.119 --> 0:17:35.399 So I don't think it'll disappear. Do I think it 0:17:35.480 --> 0:17:37.560 is what people say it is, where it is this 0:17:37.840 --> 0:17:41.000 kind of protection mechanism of your capital. I don't think 0:17:41.040 --> 0:17:44.040 that at all. Are we putting it into client portfolios 0:17:44.200 --> 0:17:46.959 as you know, the same way we would with you know, 0:17:47.160 --> 0:17:51.440 private debt or private equity or you know, public market equities, 0:17:51.480 --> 0:17:53.879 where they absolutely have to have that as part of 0:17:53.920 --> 0:17:57.800 a good diverse portfolio. We're not because we can't track 0:17:57.880 --> 0:18:02.159 the fundamentals of that class, so we don't want to 0:18:02.160 --> 0:18:03.400 expose client moneys to it. 0:18:04.280 --> 0:18:06.760 Just one nase thing which I'm deeply intrigued by. At 0:18:06.800 --> 0:18:13.240 least there is now crypto going back into gold. There is, 0:18:13.480 --> 0:18:19.000 for instance, gold backed crypto there is deeply intriguing Teather, 0:18:19.200 --> 0:18:21.400 which is one of the very biggest so stable coin 0:18:21.480 --> 0:18:26.880 groups buying gold miners. So it's like they are, well, 0:18:26.880 --> 0:18:27.840 what do you think they're doing? 0:18:30.160 --> 0:18:33.200 Yeah, I don't know. I mean, I think in reality 0:18:33.240 --> 0:18:35.439 what you're seeing is just sort of an increase in 0:18:35.520 --> 0:18:38.159 relevance because of the size of the crypto market. So 0:18:38.640 --> 0:18:40.399 I think I've read somewhere the other day that the 0:18:40.520 --> 0:18:43.920 crypto market and bitcoin alone is the eighth largest global 0:18:43.920 --> 0:18:46.800 asset by market cap. So now what you've got is 0:18:46.840 --> 0:18:49.080 you've got a number of really smart people, you know, 0:18:49.119 --> 0:18:51.840 these kind of beautiful mind type people who are putting 0:18:51.840 --> 0:18:55.840 together derivative style arrangements to try and back the underlying 0:18:55.840 --> 0:18:59.080 growth and bad asset class over time. And you know, 0:18:59.119 --> 0:19:02.639 whenever it it's momentum, you find that it continues to 0:19:02.640 --> 0:19:06.040 grow quite quickly. And you know, the bitcoin market cap 0:19:06.080 --> 0:19:09.000 is bigger than better right now, right, So there's obviously 0:19:09.000 --> 0:19:12.200 a level of relevance. There's a level of relevance there. 0:19:12.560 --> 0:19:15.439 So in terms of kind of you know, are we 0:19:15.480 --> 0:19:17.960 a picks and shovels or should we be buying the 0:19:18.000 --> 0:19:21.359 asset itself. Look, I think we've probably swayed over time 0:19:22.000 --> 0:19:24.040 on that. You know, we were at picks and shovels 0:19:24.440 --> 0:19:27.159 type business where we like those operating businesses that we're 0:19:27.200 --> 0:19:30.600 generating revenue as a result of going in mining the bitcoin. 0:19:31.040 --> 0:19:33.359 You now, I think if you want the exposure to it, 0:19:33.400 --> 0:19:35.280 because you believe it's going you know, if you believe 0:19:35.320 --> 0:19:37.560 the harving theory, you believe it's going to keep going up, 0:19:37.720 --> 0:19:39.439 they just go and buy it and you kind of 0:19:39.440 --> 0:19:41.680 hope for the best. But again, make sure it's very 0:19:41.680 --> 0:19:45.760 small parts of your overall wealth position. So and don't 0:19:45.800 --> 0:19:48.240 forget those people who got really rich off this stuff. 0:19:48.600 --> 0:19:51.840 They are the absolute exception. They're not the rule. Like, 0:19:52.000 --> 0:19:54.280 just because one blow boarded at four dollars and now 0:19:54.280 --> 0:19:56.840 it's one hundred and sixteen thousand or whatever the price is, 0:19:57.119 --> 0:19:59.680 that's not going to generally happen for most people. Right, 0:20:00.800 --> 0:20:03.639 You've got to get away from the noise associated with that. 0:20:04.440 --> 0:20:06.800 Okay, very interesting, Charlie, And there is that theory of 0:20:06.800 --> 0:20:10.280 course that the paradox for a lot of investors is 0:20:10.280 --> 0:20:15.040 that as it does become mainstream, its volatility lessons and 0:20:15.240 --> 0:20:19.000 the days of it doubling overnight are probably gone. Where 0:20:19.040 --> 0:20:21.320 that was happening, you know easily in the early days. 0:20:21.480 --> 0:20:23.879 All right, okay, terrific. Now I've got some great questions 0:20:23.880 --> 0:20:25.560 that kept for you. Stay with us. We'll be back 0:20:25.560 --> 0:20:37.040 in a second. Hello, Welcome back to The Australian's Money 0:20:37.080 --> 0:20:41.760 Puzzle podcast, James Kirkby with Charlie Viola. A couple of questions. Carl, 0:20:42.000 --> 0:20:45.360 I was watching the news. I noticed PHP shares fell 0:20:45.440 --> 0:20:48.120 after going ex dividend. It makes me wonder whether there's 0:20:48.160 --> 0:20:52.240 a broader pattern of shares losing value after going X dividends. 0:20:52.680 --> 0:20:56.119 Do you know if there's any research on this phenomenon, Carl, 0:20:56.160 --> 0:20:57.800 there's buckets of research on it. 0:20:57.800 --> 0:21:01.080 It's probably not a phenomenon. Cal Simply what's happening is, 0:21:01.119 --> 0:21:03.720 obviously all of the profits have been banked up in 0:21:03.760 --> 0:21:05.639 the company and then they've paid them out, so naturally 0:21:05.720 --> 0:21:07.880 it's going to go down in value when you obviously 0:21:07.920 --> 0:21:10.639 pay those out. So it's the theory of kind of 0:21:10.920 --> 0:21:13.959 you know, the company breathes in, it creates all the profit. 0:21:14.160 --> 0:21:16.080 It then has a dividend policy to pay that out 0:21:16.080 --> 0:21:18.560 to investors. It pays it out, and naturally the share 0:21:18.600 --> 0:21:20.760 price goes down as a result of the dividend being 0:21:20.800 --> 0:21:25.240 paid out. So and that's why you'll find that generally, 0:21:25.720 --> 0:21:28.400 you know, we talk about cumulative share price and then 0:21:28.600 --> 0:21:32.160 X ex dividend ex dividend price being the share price 0:21:32.200 --> 0:21:33.760 after the dividends being paid. 0:21:33.880 --> 0:21:37.560 So yes, so that's basically it's simple maths. And remember 0:21:37.560 --> 0:21:40.760 this is not advice information only, but if HP was 0:21:40.760 --> 0:21:43.520 worth X plus five and they had a dividend payout 0:21:43.680 --> 0:21:45.720 and it was five, well then they've dropped the five. 0:21:45.920 --> 0:21:47.840