Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
Speaker 1: James Kirby, the editor at the Australian. Welcome aboard everybody
Speaker 1: you know. For a long time on this show, we
Speaker 1: have supported big industry super funds and we have said
Speaker 1: regularly that they perform well, and they do over a
Speaker 1: ten year period, and that they are cheap. That is,
Speaker 1: the expenses that they have and what they charge you
Speaker 1: the investor is quite reasonable. Part of that is because
Speaker 1: they don't have to make a profit they are not
Speaker 1: for profit industry funds. But always added the caveat that
Speaker 1: they are alone to themselves. They're very big fish in
Speaker 1: a small pond. They're not particularly answerable to any regulator.
Speaker 1: In particular, they're not particularly answerable to their own investors.
Speaker 1: And sooner or later this was going to be trouble
Speaker 1: and Sebus, the big industry super fund, really has spoils
Speaker 1: party here. They have about nine hundred and thirty thousand members,
Speaker 1: about ninety four billion under assets, big operation and behave
Speaker 1: so badly basically behind the scenes in terms of not
Speaker 1: delivering due payments to death benefits and disability payments the
Speaker 1: most basically it's the most vulnerable people and investors in
Speaker 1: their group. That ACID had to go as far as
Speaker 1: taking them to court and suing them for allegations of
Speaker 1: problems in this area. So this sort of bursts the bubble,
Speaker 1: I think to would agree on big super and there
Speaker 1: has been in and around the same time a whole
Speaker 1: string of incidents. Cebus isn't the only one unisuper. Their
Speaker 1: site was out for days some months ago where people
Speaker 1: couldn't see their super couldn't see what they have. Art
Speaker 1: Australian Retirement which is the second largest super fund in
Speaker 1: the market, they had delays for days of pensioner payments
Speaker 1: and in common with these issues I just mentioned at
Speaker 1: the other funds, they don't advertise this, they don't tell
Speaker 1: you about this, they tell you if you're affected. But basically,
Speaker 1: onto the current system they're able to quietly try and
Speaker 1: put out these spotfires as they occur. The issue now,
Speaker 1: of course, is that ASEK has really put this on
Speaker 1: the table and the ACIC Deputy chair Sarah Court, is
Speaker 1: saying that there's going to be more action on this,
Speaker 1: and even as I speak to you today this morning,
Speaker 1: literally an hour or so before we started to sit
Speaker 1: down and record this show. Hesta big fund that's traditionally
Speaker 1: associated with hospital workers and nurses, is also in trouble,
Speaker 1: can you believe for an entirely different issue. But it's
Speaker 1: got to do with their unlisted assets and the greet
Speaker 1: which they mark them down and didn't mark them down
Speaker 1: in a coordinated fashion back at the time of the
Speaker 1: COVID crisis. So it's really all starting to turn and
Speaker 1: I want to look at this, and I want to
Speaker 1: also look at property unlisted assets on the investment side.
Speaker 1: Unlisted assets are the big mystery at industry funds. They
Speaker 1: have been useful to them, but they also are very
Speaker 1: opaque and it's very hard to get steer on how
Speaker 1: much they have, how much they're worth, except to say
Speaker 1: that in commercial property, certainly there's a lot of problems
Speaker 1: starting to form and SeaBus has had big losses there
Speaker 1: and so have other funds. We'll put it all together,
Speaker 1: I guess today is James Girard of Financial Advisor dot
Speaker 1: com dot au. Hi, James, how are you hy?
Speaker 2: James good? Thanks for having me on.
Speaker 1: Good to have you on. I can't recall if we
Speaker 1: spoke on air about industry funds before, but one of
Speaker 1: the things we've talked about them, but we haven't talked
Speaker 1: about what could go wrong. One of the things I
Speaker 1: noticed that it's very clear in these scandals that are
Speaker 1: breaking almost weekly on the big super funds is that
Speaker 1: they used outsourced services. In the case of Cebus, they've
Speaker 1: tried to turn the blowhort should you like, on link
Speaker 1: market services which they had used. And I think in
Speaker 1: some of the more recent scandals there's been other service
Speaker 1: companies like Mercer has been mentioned in passing here. I
Speaker 1: don't know about you, but I never take I have
Speaker 1: no time for a company who blames the outsourced service
Speaker 1: because they outsourced, right. I don't want to know. I
Speaker 1: don't care. I don't even want to hear that they
Speaker 1: outsourced it. It's their problem. I don't know if that's
Speaker 1: a reasonable response. Do I sound reasonable? It is?
Speaker 2: I agree with you. I don't think it really matters
Speaker 2: how you get to the outcome. That's not that the
Speaker 2: super members concern, whether it's done in house or it's outsourced.
Speaker 2: It should be the timeframe and what happens at the
Speaker 2: end of it, and there should be management there sort
Speaker 2: of ensuring these timeframesmit whether they're in house or they're outsourced,
Speaker 2: and it's funny that link has popped up and said, hey,
Speaker 2: you know we outsource. Well, we do the outsourcing for
Speaker 2: quite a few super funds on the insurance side, and
Speaker 2: there's plenty of other customers that we have. They're all
Speaker 2: meeting their KPIs with regards to processing times. We're just
Speaker 2: following the instructions that you gave us, and so don't
Speaker 2: blame us, go blame yourself.
Speaker 1: Yes, yeah, that's right. So one of the things that
Speaker 1: for listeners, I'm sure many of our listeners have their savings.
Speaker 1: Probably the most important financial dimension of their lives beyond
Speaker 1: their homes if they own their homes, is their super
Speaker 1: and we're seeing in each of these cases that there
Speaker 1: are weaknesses being revealed as super funds, serious weaknesses. Now
Speaker 1: in the case to see Bus in case you've missed it, folks,
Speaker 1: it's worth actually just going through what on earth's going
Speaker 1: on there. They are facing regulatory inquiry by both OPRA,
Speaker 1: the prudential regulator unquestionable expense, questionable expenses. They're also basing
Speaker 1: an acquiry from APRAA on the links and suitability of
Speaker 1: personnel related to their union appointments through CFMU and then
Speaker 1: they're facing a core case from ACIC about delays to payments,
Speaker 1: And as a sort of rational financial person, I will say, okay,
Speaker 1: I don't like any of that, but I look at
Speaker 1: the ten year returns for c BUS and they're fine.
Speaker 1: They're absolutely passable. They're about eight percent, and that's about
Speaker 1: what you'd expect at most of those big funds. So
Speaker 1: the investment formats to date, James hasn't been hit. But
Speaker 1: as an advisor, like, do you are you concerned if
Speaker 1: there's an organization and there's all sorts of problems at
Speaker 1: the back office, are you concerned that could in some
Speaker 1: way or could it interfere with their performance at the
Speaker 1: front office where they're investing? You know, otherwords, could one
Speaker 1: spoil the other? Could one poison the other?
Speaker 2: Look, it's a flag or an indicator. You would suspect
Speaker 2: that the teams are very separate in terms of the
Speaker 2: investment committee and the investment team versus the back office function.
Speaker 2: But they're all governed by the same upper management. And
Speaker 2: so it's a logical conclusion to go, all right, well,
Speaker 2: if this part's not working, is that a systemic issue
Speaker 2: with the superfund overall? Do they not have the right
Speaker 2: management in the board to be able to make these
Speaker 2: decisions across all different departments. And I think it's a
Speaker 2: shame overall, because I like the competition that the industry
Speaker 2: super funds bring, that they hold the retail accounts super
Speaker 2: funds accountable and drive competition in the market, and it's
Speaker 2: a shame to see that these things have come out
Speaker 2: and that their conduct has been that that way, because
Speaker 2: if anything, we want more super funds out there, driving
Speaker 2: down costs and more competition for investors, rather than less
Speaker 2: super funds. But one point I'd make is that industry
Speaker 2: super funds are still a little bit in the bed
Speaker 2: with the union. So when you look at the investment
Speaker 2: committee and the board composition, I'm sort of painting a
Speaker 2: broad brush here, but for several of the major industry
Speaker 2: super funds, their management end directors are comprised of something
Speaker 2: like half of independent directors and half linked to unions,
Speaker 2: and so I sometimes question the I guess the governance
Speaker 2: and the investment expertise that these super funds have given
Speaker 2: that And probably this is too strong to say, but
Speaker 2: it's not like a union junket, but there's definitely union
Speaker 2: influence there and a lot of the major industry super funds,
Speaker 2: which I don't particularly like.
Speaker 1: So what you're bringing up is the credentials, if you like,
Speaker 1: of these people at the top of the funds. And
Speaker 1: I seel what you're saying, because once upon a time
Speaker 1: when there were small funds, when there was a few
Speaker 1: million in them, then maybe perhaps that was to be expected.
Speaker 1: But now we're talking about gigantic organizations like Cebus as
Speaker 1: ninety two billion dollars. Is everyone on the board across
Speaker 1: all aspects of that money? Are they capable of sitting
Speaker 1: on a board? Would they be put on another board
Speaker 1: of another company that was valued at ninety two billion?
Speaker 1: There's a question. I think it does. Puts it on
Speaker 1: the line or right now, I want to What I
Speaker 1: want to do is take short break and we're going
Speaker 1: to come back and we're going to look at what
Speaker 1: if you are facing this situation, if you are in
Speaker 1: these funds, what you should be doing. Hello and welcome
Speaker 1: back to The Australian's Money Puzzled podcast. I'm James Kirby
Speaker 1: talking to James Gerard. Look, I suppose for most people, James,
Speaker 1: they see these stories and they say, gosh, I don't
Speaker 1: like that I see Unisuper. There was a problem with Unisuper.
Speaker 1: If I was in Unisuper, I couldn't actually see my
Speaker 1: super for a while, or at art my payments were
Speaker 1: delayed for one reason or another. At Cebus, I can
Speaker 1: hardly keep up with the number of investigations that's going
Speaker 1: on in this fund. So what does someone do if
Speaker 1: they're in one of those funds? And is it a
Speaker 1: big trouble? Should they switch? And is it a big
Speaker 1: trouble to switch?
Speaker 2: I think it's a case of not overreacting in the
Speaker 2: first instance, and not throwing out the baby with the
Speaker 2: bath water. I think understanding what the issue is with
Speaker 2: your particular super fun So I'd encourage people to read
Speaker 2: James Kirby's articles in the WORL section of The Australian,
Speaker 2: which covers all of these industry super fund issues.
Speaker 1: I wanted to just jump in there about one think,
Speaker 1: which is which I should mention, just to finish off
Speaker 1: on SeaBus, because I didn't quite I didn't quite finish
Speaker 1: off there. One of the things I didn't make that
Speaker 1: point in the weekend was that morning Star, the International
Speaker 1: Rating Agency, was not able to separate the cultural weaknesses.
Speaker 1: If you like in their assessment of SeaBus, and specifically
Speaker 1: when they were moving to downgrade their parent view of
Speaker 1: SeaBus from average to below average, met the point that
Speaker 1: they were uncomfortable with the personnel on the board, specifically
Speaker 1: with the political links. So to that extent, that's a
Speaker 1: financial agency not remotely interested in politics, which found that
Speaker 1: they couldn't separate the two. So, coming full circle back
Speaker 1: to that, I think we have to take it that
Speaker 1: there is a point at which they crossed, and there's
Speaker 1: a point in which one cuts into the other, and
Speaker 1: they're not actually entirely autonomous. So develop what you're saying
Speaker 1: there about how people should assess this. Not will react
Speaker 1: fair enough, but at what point do you act?
Speaker 2: So just finish plugging news I read James in The Australian,
Speaker 2: and then it's about putting it into context, understanding what's
Speaker 2: important for you in your super account and if you
Speaker 2: have had delayed pension payments once in a ten year period,
Speaker 2: you think okay, that's okay. But if there seems to
Speaker 2: be more systemic problems and you have the government regulator
Speaker 2: coming in, you have third party independent research houses coming
Speaker 2: in putting out views, then you start to build a
Speaker 2: bit of a case for well, is it that are
Speaker 2: there alternatives that don't have the same scrutiny in issues
Speaker 2: that are with my current fund, and would my retirement
Speaker 2: savings be better being put elsewhere? And then if you
Speaker 2: make that decision that yes, okay, I prefer to go
Speaker 2: to another fund, then the next step is to understand
Speaker 2: what will that cost you financially to move from one
Speaker 2: super fund to another super fund, And in answering that,
Speaker 2: it really depends on what stage you're in. If you're
Speaker 2: in the accumulation stage, there's potentially a capital gains tax
Speaker 2: will be triggered when you sell down all of the investments.
Speaker 2: But then on the other hand, it may not be
Speaker 2: triggered because most industry super funds are unitized, which continuously
Speaker 2: calculate capital gains tax. So whatever you have as a
Speaker 2: balot showing today, that's inclusive of any capital gains tax
Speaker 2: that's continuously counted. And then it depends also if you
Speaker 2: maybe you're in the pension phase where there's definitely no
Speaker 2: tax implications. The next thing to consider is time out
Speaker 2: of the market. It usually takes one to two weeks
Speaker 2: for the current super fund to sell down your investment
Speaker 2: you're in cash, there's a rollover request with the new
Speaker 2: super account. It will usually take three to five days
Speaker 2: to set up your new super account, so under normal
Speaker 2: commercial timeframes, you might be out of the market from
Speaker 2: one to three weeks, and if that the markets move
Speaker 2: upwards over that period, you've lost out because you're sitting
Speaker 2: in cash. But conversely, it can work out in your
Speaker 2: favor if there's a downturn in the market. So that's
Speaker 2: just a risk which could go for you or against you.
Speaker 1: And there is one other issue, which is you're probably
Speaker 1: insured by your super fund and if you switch, what happens?
Speaker 1: Do you know?
Speaker 2: Yeah, now that it's a great question. And some people
Speaker 2: are unable to get new insurances, so it's of critical
Speaker 2: importance that we keep their current insurances in play. So
Speaker 2: some super funds will have takeover clauses where you can
Speaker 2: port your current insurances over to the new one. But
Speaker 2: if that doesn't work, it's not offered too difficult. You've
Speaker 2: got options. You either look to take out insurance with
Speaker 2: the new super fund. You can take out independent insurance
Speaker 2: where with a retail standalone company and they'll link it
Speaker 2: to super fun then request a payment once a year.
Speaker 2: Or alternatively, you can keep a small residual balance in
Speaker 2: your old super account and you need to contact the
Speaker 2: super fund because every superfund is different, but it's usually
Speaker 2: between five to ten thousand dollars that you need to
Speaker 2: keep as a minimum balance, and you need to keep
Speaker 2: the account active by either signing the form every year
Speaker 2: and a half or putting a contribution in to keep
Speaker 2: the insurance cover active in the old superfund.
Speaker 1: Well, that's interesting. So if you keep the minimum a mountain,
Speaker 1: so you could let's say a person has one hundred thousand,
Speaker 1: they could take out eighty five and leave ten or
Speaker 1: fifteen in there and then that could just tick along,
Speaker 1: but in doing so, the insurance arranginess would tick along.
Speaker 1: And if they switch funds, and can they choose not
Speaker 1: to have insurance with the new.
Speaker 2: Fund again, Yeah, it's part of the application form whether
Speaker 2: you want to opt in or out of the automatic insurances.
Speaker 1: Right. Okay, that's really interesting, so folks, that's really what
Speaker 1: thinking about that issue, and very interesting what James said
Speaker 1: that you can switch. Okay, if you're an accumulation that's
Speaker 1: pre retirement, right, you can switch and most of the
Speaker 1: funds unitize as they go, so actually, for once, capital
Speaker 1: gains isn't an issue. You just slide across from fund
Speaker 1: number one to fund number two. So the issue might
Speaker 1: be the older you are, particularly the more the issue
Speaker 1: of insurance will come up, because as you know, as
Speaker 1: you get older, it costs more to be insured. And
Speaker 1: if you walk in cold off the street, you're going
Speaker 1: to pay a lot more than someone who was in
Speaker 1: an arrangement and industrial relate arrangement if you like, for
Speaker 1: a decade or two decades. So keep that in mind,
Speaker 1: and it's it for everyone. We are not going to
Speaker 1: we are not going to stand here actually and say
Speaker 1: roll over from one fund to another. That's not how
Speaker 1: we operate. But we would ask everyone to consider their
Speaker 1: own situation and whether they think the fund that they're
Speaker 1: in is good enough and it's the same fund that
Speaker 1: they that they considered when they joined. And there are
Speaker 1: people out there already suggesting that people roll over. I
Speaker 1: would always say there's two sides to that. You know,
Speaker 1: there's leaving and then that's where do you go. And
Speaker 1: one of the things that's occurring with these incidents with
Speaker 1: the super funds is that it's like any of these
Speaker 1: stories when the damn bursts, they all come flying through.
Speaker 1: So if you ask me who's in trouble last week,
Speaker 1: I would have said art, Uni, Super and SEEBUS. This
Speaker 1: week I have to add hest to that gang. So
Speaker 1: it's not over yet. We are not quite clear as
Speaker 1: to who the good guys are and who the bad
Speaker 1: guys are. And that's only in terms of their management ability.
Speaker 1: I would call it their non investment management ability. This
Speaker 1: is where the issues are. The performance of the funds
Speaker 1: have run broadly as you would expect them to so far.
Speaker 1: So we haven't seen any fund infectedly beliked by these
Speaker 1: incompetence in other parts of the organization. But there's time
Speaker 1: for that. Okay, we'll take short break back in a minute. Hello,
Speaker 1: welcome back to the Australian's Money Puzzle. I'm James Kirby
Speaker 1: talking to James Gerard. We're talking to our surprise really
Speaker 1: about a lot of the issues that have emerged in
Speaker 1: recent days on the big super funds, and I thought,
Speaker 1: folks that we really should cover that. It would be
Speaker 1: remiss of us not to do so. Part of the
Speaker 1: trouble at the funds, I said that their performance to
Speaker 1: a large degree is are acting as one by that
Speaker 1: I mean, there isn't an awful lot of difference in
Speaker 1: the ten year timeframe if you look at how the
Speaker 1: different big funds are performing. And I'm talking here all
Speaker 1: the time about the industry funds, and they dominate Australian Super,
Speaker 1: c Bus Host Plus, Unisuper. You know that you know them.
Speaker 1: They never stop advertising. I'm sure you're familiar with them.
Speaker 1: One of the things that has occurred though, is that
Speaker 1: on the investment side, the big funds, also the industry funds.
Speaker 1: One of their merits, or certainly one of their advantages,
Speaker 1: had been that they have unlisted assets. That is, they
Speaker 1: have a large way on listed assets, very simply their
Speaker 1: assets that aren't on the share market that you can't
Speaker 1: go and look up and find out about. And part
Speaker 1: of that had been in commercial property. The property that
Speaker 1: operator for the big funds is called ISPT and it
Speaker 1: acts for It acts as an umbrella group for them.
Speaker 1: It acts for Australian Super and SeaBus and UNI Super,
Speaker 1: all those names I've just mentioned. They pooh their money
Speaker 1: and ISPT is their operator in commercial property and they
Speaker 1: released they had a two hundred million dollar loss last year.
Speaker 1: They had a one point five billion dollar loss this year,
Speaker 1: which tells you that the big super funds are exposed
Speaker 1: quite heavily to commercial property and separately SeaBus, who are
Speaker 1: so far the worst of the funds in relation to
Speaker 1: their management issues just now. They have also had a
Speaker 1: negative return in the last financial year. They did twelve
Speaker 1: percent over a decade. That's really dropped and it's top
Speaker 1: twenty two percent you see in the last three years,
Speaker 1: so you can see that they're starting. The unlisted asset
Speaker 1: side of the business for the big super funds are
Speaker 1: starting to become a problem at the worst possible time,
Speaker 1: you might say, James, What.
Speaker 2: I observe over time with these unlisted assets is that
Speaker 2: they're good for a smoothing effect because share markets can.
Speaker 2: Listed share markets sometimes very volatile. They go up a lot,
Speaker 2: they fall a lot, where these unlisted assets just tend
Speaker 2: to chug along. And also the funds who own them
Speaker 2: have the advantage of I guess a bit of valuation
Speaker 2: bias or treatment that it's a little bit difficult to
Speaker 2: value these investments on a daily basis, so sometimes they
Speaker 2: might only be valued half yearly or yearly, which means
Speaker 2: that if you have a short shock to share markets
Speaker 2: like what we saw when COVID hit, and that recovers
Speaker 2: a few months later that whole market downturn has been
Speaker 2: in between saluation cycle of the unlisted asset, and so
Speaker 2: its value has been flat throughout that whole period.
Speaker 1: What stabilizes the ship because it doesn't look as bad
Speaker 1: because they don't have shares that are falling through the floor.
Speaker 1: That's part of what happened that HESTER, really, isn't it.
Speaker 1: That's part of the issue that they had to sooner
Speaker 1: or later sort of adjust their evaluations. But their problem
Speaker 1: was that they did it in stages. This hasn't been
Speaker 1: good enough, and this is the problem they've been hit with.
Speaker 2: That's right. Yeah, it's unfortunate for those HESTER members because
Speaker 2: my understanding from what I saw today was that they
Speaker 2: HESTER had to revalue down and unlisted investment, and they
Speaker 2: did so for part of the investment options that they had,
Speaker 2: and then I think some members saw it and go, oh,
Speaker 2: that went down a lot. I'm going to move over
Speaker 2: to a different investment option, maybe one that hasn't fallen
Speaker 2: by as much. So they switched out of the one
Speaker 2: that had been readjusted to another one which they thought
Speaker 2: was more stable. But it was just turned out that
Speaker 2: one hadn't been adjusted yet, so then that one got
Speaker 2: readjusted a week later, so they've got a double kit.
Speaker 1: Gosh. Yeah, and there is always that thing of arbitrage.
Speaker 1: But that's the problem, isn't it. Because they're unlisted, the customer,
Speaker 1: the investor can't possibly know how much their own portfolio
Speaker 1: is worth. Yeah, and there's a point which they'll never
Speaker 1: know because they're unlisted and they won't know to the
Speaker 1: day they put them for sale. Really, isn't that the
Speaker 1: ultimate test?
Speaker 2: That's the thing. Like these some of these assets are
Speaker 2: very expensive for talking hundreds of millions of dollars type assets.
Speaker 2: There could be toll roads, there could be airports, and yeah,
Speaker 2: these type of assets they don't sell every day, so
Speaker 2: you can have investment specialists and value as give opinions
Speaker 2: as to what they're worth. But as you say, you
Speaker 2: don't really know until you actually sell the assets. So
Speaker 2: you might be creating this false sense of security by
Speaker 2: thinking you have these assets, but when you go to
Speaker 2: liquidate it, there's no one around wanting to pay the
Speaker 2: price that you thought it was worth.
Speaker 1: Yes, So I think maybe to be fair to the funds,
Speaker 1: the big funds and to listeners. The thing about the
Speaker 1: industry funds is they are more dependent on on listed assets.
Speaker 1: I know unlisted assets have their advantages in many ways,
Speaker 1: but beyond a doubt, part of the problem is that
Speaker 1: you can't fully or as easily understand exactly how much
Speaker 1: your portfolio in that fund is worth because they can't
Speaker 1: understand it, or they certainly won't reveal it unless they must.
Speaker 1: And that's an ongoing problem because of their dependency on
Speaker 1: these on disted aseids, much more so than for profit funds. Traditionally,
Speaker 1: that is a big difference between the two funds. Okay,
Speaker 1: really interesting. We want to stay with this issue now
Speaker 1: and segue for once usefully into a question that relates
Speaker 1: to the show that we've just been doing. Quite a
Speaker 1: detailed question. It's from Direct dr e K. I'll try
Speaker 1: to synopsize it as much as I can. We invest
Speaker 1: it in a privately helpbsidially fund of a sex listed
Speaker 1: century capital called Censurre Health, and direct boat big time
Speaker 1: basically into this fund, and the units were to generate
Speaker 1: six percent yield, and they used jointly held self managed
Speaker 1: super funds. And of course the point I should have
Speaker 1: made the earlier part of the show is the obvious
Speaker 1: alternative if you are unhappy altogether with your industry fund
Speaker 1: or your big super fund of any description, is self
Speaker 1: managed super We will leave that another day as to
Speaker 1: how suitable you might be to it and how much
Speaker 1: you should have in it, but it is the obvious
Speaker 1: ultimate sort of alternative to big super is self managed
Speaker 1: super funds that anyone can have if they're prepared to
Speaker 1: put in the time Now, Derek says, because the initial
Speaker 1: return of our investment was in line with the company brochure,
Speaker 1: we increased the investment with two additional payments. Soon after
Speaker 1: the final payment, the unit prices started declining. Then we
Speaker 1: started losing some money in our investment. Initially, we trusted
Speaker 1: the fund they would overcome this weakness, and we kept
Speaker 1: our full support in it. Anfortunately, our judgment was wrong
Speaker 1: and the unit prices continued to decline. In twenty twenty four,
Speaker 1: that's a few months ago, March twenty twenty four, we
Speaker 1: asked for a complete withdrawal of our investment. At that
Speaker 1: time we held over and he gives a large number here,
Speaker 1: a dollar number. As soon as the redemption process started,
Speaker 1: the price per units started plummeting. Down to seventy six
Speaker 1: cents at the third redemption. Also, the number of units
Speaker 1: in each redemption was ridiculously low. That is, they were
Speaker 1: letting them only redeem a small amount. I expect at
Speaker 1: the time, summarizing the amount of cash received and the
Speaker 1: current value of the remaining units, we've lost twenty five
Speaker 1: percent of our initial investment. That's a terrible hit on
Speaker 1: what should have been a steady property. Just to finish.
Speaker 1: Direk says. We thought multi billion dollar companies such as
Speaker 1: a Tourer Capital was to be reputable and trust worth
Speaker 1: the ASX company and couldn't get it wrong. My question
Speaker 1: is there anything that I can do to stop this? Okay,
Speaker 1: first things first, there's nothing obviously inappropriate in this issue
Speaker 1: with this property truster or a reta as they call
Speaker 1: them now at Centura. Commercial property has been in the
Speaker 1: doghouse for some time now, and if a fund said
Speaker 1: that they expected things to improve, that could have been
Speaker 1: a genuine expectation. They all want things to improve, they
Speaker 1: don't want things to get worse. But the issue is
Speaker 1: obviously with a fund when people start selling at the
Speaker 1: same time and they have redemptions, then that they have
Speaker 1: to manage that very slowly because the money is not there.
Speaker 1: It's as simple as that, and that happens at most
Speaker 1: big funds. And though we tell people on the show
Speaker 1: a million times this is the issue, it always surprises
Speaker 1: people that they can't get all their money out of
Speaker 1: a big property fund. When things go the wrong way,
Speaker 1: they can't get it out on the day they wish
Speaker 1: You've read that fairly close to James. This is never advice.
Speaker 1: It's only information, as everyone knows. But if I was
Speaker 1: sitting opposite you and I said to you, Hey, James,
Speaker 1: I've been in censura and I can't believe how badly
Speaker 1: it's gone. I've lost twenty five percent. Is there anything
Speaker 1: you would say to me that I haven't thought of? There?
Speaker 2: Probably would have started by saying that you should have
Speaker 2: seen me in twenty twenty when you first invested, and
Speaker 2: we would have discussed.
Speaker 1: Yes, I'm sure it would have been wonderful. But I've
Speaker 1: talked to you in late twenty twenty four and I'm
Speaker 1: really pissed off because I've lost twenty five percent of
Speaker 1: on my investment. Is there anything At first glance, as
Speaker 1: I said, that seems to me very bad luck, bad timing,
Speaker 1: particularly bad timing.
Speaker 2: I guess it's important for people to have the right
Speaker 2: time frame for these type of investments because even though
Speaker 2: it's property, it's healthcare related, it's still classified as a
Speaker 2: growth investment. And so i'd start by saying that you
Speaker 2: should go into something like this if you have at
Speaker 2: least a five year timeframe, and it hasn't been five
Speaker 2: years yet, and appreciate you. They're still behind the initial
Speaker 2: investment amount by quite a bit, but they should be
Speaker 2: having at least a five to ten year timeframe on
Speaker 2: this type of thing. And then that's because the fortunes
Speaker 2: of this type of investment really swings from year to
Speaker 2: year quite dramatically. And so if I use the index,
Speaker 2: for example, there's a Vanguard ETFVAP which covers the whole
Speaker 2: listed property and reach sector, so it'll have Goodman Group
Speaker 2: and at Move, Ecdexus, all these type of companies over
Speaker 2: the past twelve months. If you put money in at
Speaker 2: this time a year ago, you'd be up forty percent.
Speaker 2: But then if you go back twelve months before that
Speaker 2: and you put money into it, you would have been
Speaker 2: down thirty percent. So even though it's property, you think
Speaker 2: it's all commercial buildings and hospitals. It does swing quite
Speaker 2: wildly because there's these external factors which impact the value
Speaker 2: of these investments. And so when it comes to property
Speaker 2: and these type of property investments, one of the big
Speaker 2: things that's an external factor in terms of what they're
Speaker 2: worth is what's happening in the bond market. Because these
Speaker 2: type of property trusts are seen as what we call
Speaker 2: in the finance world as a quote unquote bond proxy.
Speaker 2: Investors will swing between bonds to generate yield and swing
Speaker 2: to property trusts at the right time. And what we've
Speaker 2: seen over the past couple of years is the cash
Speaker 2: rate go up, bond rates go up, and investors have
Speaker 2: sold out of these type of property and healthcare trust
Speaker 2: and thus we're seeing these big drops.
Speaker 1: This would partially explain the censure health yeah partly.
Speaker 2: Yeah. And I've reviewed and had to look into some
Speaker 2: of the other healthcare property trust because our clients own them.
Speaker 2: So one, for example, is Australian Unity. They have a
Speaker 2: healthcare trust and that hasn't performed spectacularly over the past
Speaker 2: recent period, but over the long term it's notne absolutely fine,
Speaker 2: and so it's been this bond proxy issue. But Also
Speaker 2: there's industry specific issues as well that's caused some headwinds
Speaker 2: for these type of investments, which in time, you'd expect
Speaker 2: them to resolve themselves. Looking at the long time frame,
Speaker 2: things have been fine. But it's a difficult one for
Speaker 2: Derek as to what to do because I can feel
Speaker 2: the disdain with this investment and the wanting to get
Speaker 2: out of it, but on the other hand not wanting
Speaker 2: to take a twenty five percent loss there. So yeah,
Speaker 2: I can't give the personal advice.
Speaker 1: Why have they had such a good the last six
Speaker 1: months you say have been good? Yeah, for this even
Speaker 1: though the news has been bad, like about commercial property
Speaker 1: up until very recently. Why the change in sentiment towards
Speaker 1: the property trusts of late.
Speaker 2: Yes, because investors have a crystal ball and they're always
Speaker 2: looking forward. They're not looking at today at their feet.
Speaker 2: They're looking down the road and they see that inflation's
Speaker 2: coming down. America, Europe, places around the world have reduced
Speaker 2: the cash rate and so we're seeing the bond rates
Speaker 2: start to come down, and so ahead of that, the
Speaker 2: property investments are receiving a lot of money again as
Speaker 2: people reverse what they did a few years ago. They're
Speaker 2: now selling out of the bonds and shoveling money back
Speaker 2: into the property trusts.
Speaker 1: And they're doing that on the assumption that rates are
Speaker 1: going to come down, correct, and they didn't. They did
Speaker 1: or didn't allow for the election of Donald Trump in
Speaker 1: that particular scenario. I don't know about those rates coming down, folks. Sorry,
Speaker 1: just the thought. Okay, we've come back to that one.
Speaker 1: All right, final question you'd like to read it. It's
Speaker 1: from Andrew. Yeah, again, it's from Andrew. Andrew ass do
Speaker 1: you think it's time for Combank to split stock?
Speaker 2: Stock split? They seem to be very high in which
Speaker 2: is a detriment compared to other banks in the broader market.
Speaker 2: And then he also adds that when the last major
Speaker 2: when was the last major stock split in the ASX
Speaker 2: twenty and what happened? Do they have a positive or
Speaker 2: negative impact on the price. And Andrew says that you
Speaker 2: can't think of any stock split over the past four years.
Speaker 1: Okay, thank you, Andrew. I question one aspect of that question,
Speaker 1: which is whether Combank is suffering in any fashion because
Speaker 1: there a stock is about one hundred and fifty bucks
Speaker 1: or thereabouts, and I think es certainly in this market
Speaker 1: of late, there's a wow factor being attached to Combank
Speaker 1: and the fact that the stock is one hundred and
Speaker 1: fifty bucks, and it almost sort of makes a point
Speaker 1: about just how good a stock, or just how successful
Speaker 1: a stock it's been for once worth. You might challenge
Speaker 1: me on this, James. The only stock split of any
Speaker 1: serious significance I could have find really was CSL back
Speaker 1: in two oh seven three from one split and overseas
Speaker 1: Tesla course, and in Nvidia. I think more recently, when
Speaker 1: a company has the stock split, it tends to be
Speaker 1: they are dizzyingly successful. Warren Buffett famously, of course, they
Speaker 1: did a sort of a kind of a split which
Speaker 1: the THEA class hairs and the big class chairs once
Speaker 1: upon a time, which was a similar thing. So we
Speaker 1: haven't had one for a long time. I think it's
Speaker 1: a great notion, Andrew, sometimes a great notion that they
Speaker 1: could split. There is a there is obviously people who
Speaker 1: for some reason feel better buying two stars two combat
Speaker 1: shares for seventy five bucks each rather than one for
Speaker 1: one fifty. But actually it makes no difference whatsoever. I think,
Speaker 1: What do you think, James.
Speaker 2: Yeah, no, that's absolutely right, and I would pretty much
Speaker 2: guarantee that if they did a stock split that the
Speaker 2: stock split would go up in value because there'd be
Speaker 2: more perceived value in having the stock at a lower price.
Speaker 2: But as you say, it makes absolutely no difference. But
Speaker 2: for the average mom and dad investor, they like a
Speaker 2: lower price because they're used to investing into things like
Speaker 2: physical property, and that's very straightforward, the higher price and
Speaker 2: more expensive of property. But it doesn't work the same
Speaker 2: on the share market. That's said, I don't think CBA
Speaker 2: has too much of an issue. You touched on Berkshire
Speaker 2: half away. Their Class A units are over seven hundred
Speaker 2: thousand dollars per stock, so that's each each class Andrew, Yeah, yeah,
Speaker 2: so yeah, if CBA gets the seven hundred thousand, maybe
Speaker 2: send in another request and then yeah, that's probably more
Speaker 2: valid at that stage. But I think at the current
Speaker 2: price it's it would be good for perception, but it's
Speaker 2: not really necessary.
Speaker 1: It's a fascinating thing that Comebank is sitting there at
Speaker 1: one hundred and fifty and all the brokers are saying
Speaker 1: sell at one hundred, sell at one hundred and ten,
Speaker 1: it goes to one twenty one thirty sell. I mean,
Speaker 1: it's an embarrassment at this stage for them that all
Speaker 1: the major brokers are saying that this stock is worth
Speaker 1: roughly one hundred dollars and the market is saying it's
Speaker 1: worth one hundred and fifty dollars. And that situation has
Speaker 1: been going on all year. No one knows how it's
Speaker 1: going to change. But I'll tell you one thing. If
Speaker 1: I was Matt Common and it started to slide, that
Speaker 1: might be the time to announce a split. And then
Speaker 1: you forget the James Gerard theory that it would just
Speaker 1: go up anyway because people would think it's cheaper, though
Speaker 1: of course it isn't cheaper. It's the same price. It's
Speaker 1: more liquid though it is more liquid. And we should
Speaker 1: explain to everyone that the theory behind the stock sibility
Speaker 1: is that at a certain point, stocks that are very
Speaker 1: successful where the share price goes absolutely bananas, a liquidity
Speaker 1: issue does arrive ultimately, and so they do split to
Speaker 1: bolster liquidity, which is what happened at Tesla and in
Speaker 1: Media and CSL once upon a time. There's no risk
Speaker 1: of them needing to do a stock split at the
Speaker 1: moment at CSL because they have been sliding and going nowhere.
Speaker 2: I have to say.
Speaker 1: For some time and now with Kennedy Junior as Health
Speaker 1: Minister in the Trump administration, CSO has been sort of
Speaker 1: fresh because of the fears that he will be that
Speaker 1: he will not be enthusiastic about vaccines, and that's very
Speaker 1: likely since he never has been all the way till now. Okay,
Speaker 1: but we're moving slightly off track, aren't we. We were
Speaker 1: supposed to be talking about big funds and property. Okay, terrific, Hey, James,
Speaker 1: thank you very much. That was very interesting and I
Speaker 1: think it was a very pragmatic response to the issue
Speaker 1: at big super and the issues that are forming. I mean,
Speaker 1: as we say, the million dollar question on those big funds, folks,
Speaker 1: is whether they can quarantine their successful investment performance from
Speaker 1: the sort of hapless, inept news stories we're seeing on
Speaker 1: their management side. How long can they keep those two
Speaker 1: things separate? That's the issue. Okay, we'll be talking to
Speaker 1: you soon. Thank you, James, talk to you again, pleasure.
Speaker 2: Thanks James.
Speaker 1: Thanks very much to Leah Samuel glu who produced today's show.
Speaker 1: On Thursday, lookout for Will Hamilton on our annual Advisor's
Speaker 1: List special that will be on Thursday, and keep the
Speaker 1: emails rolling at the money puzzle at the Australian dot com,
Speaker 1: dot au dot you soon