April 17, 2025 • 44 mins
The bargain hunters are in the market but many big funds and family offices are concentrating more on building cash: That’s because investment markets are more than 'uncertain' just now - in reality they are unfathomable.
Today's guest spot goes to one of the best-known investors (and philanthropists) in Australia, Chris Cuffe.
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In today's episode, we cover:
* Asset allocation in an age of extreme uncertainty
* What investors at the big end of town are doing now
* Philanthropy for the active investor
* Tax optimisation in charitable giving
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:10):
Hello, and welcome to The Australian's Money Puzzle podcast. I'm
James Kirkby. Welcome aboard everybody now today for your Easter
break listening pleasure, I have a very special guest who
is Chris Cuff, a legendary fund manager de facto legendary
fund manager martiad who initially came to fame almost became
a household name at one stage through his success as
(00:32):
an investor and manager at what is still the Colonial Group,
and since then he's had a portfolio of interest. You'll
see him on a variety of boards. Some boards you
won't see him on because they're family offices, but you
would be familiar of course with UNI Super, which is
I think the fourth biggest industry fund in the country,
so that is a very big gig as you can imagine.
(00:52):
He's also on the board of Argyll, the listed investment company,
the original of the species. You have to mention Don
Bradman when you mentioned al Go, because he was once
involved with that. Do you know that his passion Chris's
passion is philanthropy. I have talked to him before regularly.
He's got involved in some terribly interesting projects of late
(01:14):
we're going to talk about that too, and the extent
to which you may be able to access some of
this if you wish to. But first I want to
hear what he has to say. Needless to say, I
want to hear what he says. You want to hear
what he says about the markets and the conditions of
the markets that were currently investing in. How are you, Chris?
Speaker 2 (01:33):
Very well? Thank you, James, straight.
Speaker 1 (01:36):
Up question, Okay, there's always periods of great uncertainty. I'm
always entertained when people talk about uncertainty and how there's
never as if there was never uncertainty before. I mean,
COVID was pretty uncertain, GFC was pretty uncertain. But this
particular period, instinctively to you, is there reasons for the
(01:57):
every day investor to change their approach to invest in
looking at the global trade crisis that we have in
front of us.
Speaker 2 (02:07):
I don't think there's great reasons to change. I mean,
I hope for every investor, if they're a true investor,
they should have a plan and they should have a
diversified portfolio. People ask me all the time, what do
you react? How are you reacting in this time? And
I think I just check down the securities I have
in my portfolio and make sure it's well diversified, because
(02:28):
I can't pick day to day or months a month
what's going to do well and what's not. And we're
in a period now, you know, sometimes there's no one
unknowns and now we've got unknown's unknowns, So we sort
of wake up each day and just sort of work
off the seat of your pants. But look, it also
very much depends on whether you're running your portfolio with
(02:50):
new money coming in, whether you're in draw down phase.
There'll always be issues around that. But look, right now,
I think it's a pretty good time to draw breath.
Probably don't get too anxious about anything, particularly if you've
got a well diversified portfolio, and really just you know,
it's a strange time we're in, James. What else can
(03:11):
we say.
Speaker 1 (03:12):
Would you have a hunch that the worst is over?
Speaker 2 (03:16):
I think the worst is over, as in the initial
shock of what has happened in America at the leadership
position and the fact that there are p and O
guardrails on making those decisions. You know, I would have
thought it's not legally possible when I first heard it
that the American President can just you know, issue tariff's
left right at the center without some type of emergency
(03:38):
going on. But anyhow, they've done it, so we just
have to live with that. So I think the shock
of seeing the magnitude is the big thing. And now
I think we'll grind for a probably a long period
of time as we see the effects of maybe the
base twer for ten percent. You know, it's probably going
to cause inflation at least in the short term. That's
(03:59):
probably going to put interest rates on hold at least
for the short term. And then I think behind the
scenes in Washington will be concession, slow concessions over time
as the American people get very hurt by what's happening,
and I think that will reverberate back to their members,
their elected officials, and hopefully, you know, get to the
(04:22):
President and his men. I don't think they anticipated anything
like what's going on, and I don't think there was
a grand plan. I think it was a complete mess.
Speaker 1 (04:32):
Can I ask you, when you say stable interest rates,
you mean global rates right, correct? Australian rates could fall
in the short term.
Speaker 2 (04:41):
You could definitely mount a case that if we get
a global recession, growth really going downhill, people losing jobs,
interest rates will drop, that's definitely on the cards. But
I think none of this is going to happen immediately.
There's a lot of time to play up yet to
see where these things land. I think you'd be a
(05:04):
brave person to think that the tariffs that America's put
on China and China put on America again to sit
as they are, it's just impractical. You just trade between
the nations will stop, and that just doesn't seem likely
to me at all. So this posturing going on, we've
got to wait for that to stop. But we might
(05:25):
get what they call imported inflation. If it costs Chinese
the Chinese a lot more to make the goodies that
we bring into Australia, it's going to cause some inflation.
But I think these are short term things. To go
back to your first question, I just wouldn't be in
a hurry to do anything radical right now and just
let the dust settle.
Speaker 1 (05:46):
You're on the board of family offices and investment vehicles
of some very wealthy people and families in Australia, so
anything that they are doing that would give our everyday
listeners an insight to sort of the tactical response to this.
Are they putting more money into gold? Are they lifting
their cash? Are their bargain hunting? Is there anything you
(06:08):
can insight you could give us as to how they're behaving.
Speaker 2 (06:11):
Well, certainly the groups I'm involved with, I think it's
as a generalization, it's fair to say they're just letting
cash build up right now. And unless you know, there's
something peculiar about their liabilities or there some external factor,
but it's really let it build up. Don't have a
fear of missing out if anything, right now, the fear
(06:32):
might be the other way around. The people. We are
all talking about the Australian dollar. I mean it was
a week ago it was at fifty nine cents. Today
it's at sixty four cents. So I did see some
groups put on hedges very quickly, which not everybody can do,
although there are easily accessible instruments in the market that
(06:55):
any investor can do for that. And we've seen the
currency already firm from the US Australian dollar a firm
from fifty nine to sixty four, and that's a very big,
very big change. You know, the urgency to do perhaps
do something about the currencies calm down a little, though.
Sixty four cents in a long term sense is still
(07:18):
well below the long term average, which is around seventy cents,
which it always seems to head back to at some
stage or another.
Speaker 1 (07:26):
We had people on the show saying, you're better off
being unheaged because the US is the heart of the machine,
heart of the markets. When the US markets fall, if
we all have more exposure to the US than we
ever had before, which is probably the case for both
our listeners and a lot of the big super funds,
that when the US markets fall, the US dollar, the
currency works your way. It's in your favor because you're
(07:50):
basically when the Australian dollar is falling as it has
so far, you're cushioned. You think that might not be
the case going forward.
Speaker 2 (07:58):
Well, look, I would say my position and those that
I work with, it's generally when you're buying overseas securities
that be they manage funds or direct shares or whatever
is to have it unheitched. So that's default position. But
we have seen in history where you get very large
aberrations and look, I remember it's got I remember once
(08:23):
when the Australian dollar got to forty five cents to
the US dollar, and I remember, yeah, and I remember
traveling when the Australian dollar got to one hundred and twenty.
So you know what the out of bounds, you know,
if it's got a five in front of it for sure,
or a nine in front on the other end, they're
probably times where you could opportunistically probably take advantage of
(08:48):
that with great likelihood of success, as long as you
don't pick your time frame.
Speaker 1 (08:55):
Okay, right, And just on the building up the cash,
can you give people any idea? You know a lot
of people have serf managed super funds. They're always been
criticized for having too much cash. And then the big
super funds have, compared to the smsfs, much lower cash levels.
With these family companies you have, it's the extent you
can answer this, what percentage would they generally have in cash?
(09:16):
What would be a neutral level? And then what might
they be building up to at the moment.
Speaker 2 (09:22):
Well, first all, to make it clear to the big
super funds, they always have it. I serve with one
of them for many years, as I still do. They
always have let's use the term liquidity rather when they
must have it. Of course they must have liquidity because
they've got people coming and going all the time, but
they have sort of modest cash levels actual cash probably
compared to many individuals with their own self managed super fund. Look,
(09:46):
I don't know if there's a common level, James. I
like to think, in any event, if you had sort
of ten to twenty percent of cash at most times,
you know, maybe that's useful to jump on things. Other
people like to be invested all the time. As long
as it's liquid, you can get money out and rotate
to something else. But I don't know if there's one
(10:07):
one better way than not, but there's Look, there's an
increasing number of securities that give you, i think, both
great diversification and some liquidity, so you can take advantage
of things. But it also, as I said before, it
depends very much on what stage you're at. If you've
got your own self managed super fund and you're a
retiree and you're drawing money off it each year, now,
(10:30):
so you know it's got to keep shrinking over time,
you'll probably have a higher amount of cash so you
don't have to sell down securities in volatile stressed times.
Speaker 1 (10:41):
And these listed securities that give you liquidity and versification.
Are you thinking of ETFs.
Speaker 2 (10:49):
It could be an ETF so, but it could be
there's plenty of ETFs. People often mix up a little
bit many ETFs. Most ETFs are what they call pass
as you've said many times on your show, they invest
in the index of whatever they're exposed to. But there's
also an increasing number of active ETFs. They're just happen
(11:11):
to be managed funds, managed by an active manager who's
trying to do better than the index, and they happen
to be listed on the stock market. You can get
in and out at nta net asset value, just like
you can for normal shares. And I have a preference myself.
(11:32):
Where a market is what I call thin, like Australia,
I have a preference to be in actively managed funds
because but in overseas, I'm very satisfied with ETFs as
well as active funds, simply because those markets offshore are
much wider, they're much bigger, they're well diversified. Whereas Australia,
(11:55):
as most people know, you the heavyweights. You're exposed a
handful of banks, a few miners, and a couple odds
and ends on the outside. So I find Australian ETFs
are a little bit risky for.
Speaker 1 (12:07):
Me, okay, because half the market is banks and miners. Yeah, okay,
So we can't have you on without asking you the
conventional thinking. And that may not be what you're thinking,
of course, but convention I'm thinking is, you know, there's
a swing, there's a lot of fear in the market.
You know that's proven, and the vix is elevated, so
people are going back into like supermarket stocks went up
(12:31):
during those scary days a few days ago. The bank's
coming with bank I mean, is just basically unmoved. In
the middle of all this, gold is going steadily higher
and people are looking at those conventional, traditional defensive stocks.
Just now, what do you think of that approach?
Speaker 2 (12:52):
Well, it's an interesting conundrum again listening, I'm a regular
listener to your show. There's always the issue that if
you look at the Commonwealth Bank, everybody says it's very
highly priced, has been for a long time. It's come
down a bit, but it's still at a healthy price.
And does that mean you should sell the thing and
(13:12):
rotate into something else. That's the difficult thing because you've
already been in the thing as opposed to if you've
got fresh money. So as you've made the point I
think last week or the week before, if you've been
in the Commonwealth Bank since it was say twenty dollars,
the dividend yield you're getting off that cost base is
magnificent and you might find it very hard to see
(13:35):
a reason why you'd want to sell it. And of
course there's always tax when you sell things. But if
you said if I was starting myself managed super fun
today with a fresh pile of cash, what would I do.
I certainly would be looking at the value of stocks.
I probably would not be investing big time in the banks,
(13:59):
just because they've gone up so much. But in my
starting point, as I've said a few times, I'd be
thinking of a diversified portfilo across local shares, international shares.
I always like a bit of private equity. I always
have plenty of private credit. I really do believe in
that sector. And there are other weird and wonderful investments
(14:19):
out there that I like to give me a great
way to sleep at night.
Speaker 1 (14:25):
Okay, actually I have in front of me a pigraph
of the accid allocation of your main of your flagship operation.
Really the aps Foundation. We'll take a break, we'll come back,
we'll pick up on this theme, but we'll also give
Chris the opportunity to talk about what he wants to
talk about more than anting as, which is this land
to pick fund. Okay, back in a moment. Hello, Welcome
(14:59):
back to The Australian's Money Puzzle podcast Easter a special
James Kirby here with Chris Kuff. It's a great time
to have Chris on, one of the best known fund
managers in the land. Now, Chris, I've mentioned that the
investors listening to the show will know UNI Super and
they'll know Argo et cetera. They listed investment company and
other operations you're involved in more recently and more recentimes,
(15:22):
you got a lot of time to philanthropy, active philanthropy,
and there's two we've talked about the Third Link Fund
on the before, which is an unlisted fund that you're
involved with that the retail investor can pay, maybe getting
them for about twenty thousand I think is the minimum.
And that's a fund where there is a strong philanthropic
element to it. And then separately, tell me if this
(15:45):
is wrong. You were involved with the Australian Philanthropic Services Group,
and they have a very big fund which is pretty
close to becoming the biggest fund charitable fund in the country.
It's called the Australian the APS Fund. And how much
is under management there?
Speaker 2 (16:01):
Chris Well, okay, if I just run through quickly how
each works. A Third Link Growth fund, it's been going
for about sixteen years. It's an Australian equity fund. All
the fees go to charity. It is a what's called
a fund of funds. So my job is to choose
fund managers underneath the fund who are managing Australian equities
(16:25):
who I think are best in breed. That's my opinion
of best in breed, and they manage the money. We
try to get our investors an excellent return. We do
the best we can. I think the returns on the
Third Link website it's been slightly better than the Australian
share market since this inception, and so far we've given
(16:46):
twenty three million dollars to charity over the sixteen years.
It's been a lot of fun. And all those fund
managers do it for free. I do it for free,
and our investors I think like the fact that they're
both making money and their fees they're paying. They've still
got to pay a fee, but that fee is going
to charity. So that's the third Link Growth Fund, which
(17:08):
is a minimum of twenty thousand dollars Australian equity fun
very specific and it's an active fund, so it's out
there trying to beat the index. Okay. The second organization
you mentioned is fairly unique, so it's called Australian Philanthropic Services.
It's actually a charity I set up about fourteen years
(17:29):
ago to help people do philanthropy better. And it's a
big word, but philanthropy is an increasing part of the
Australian wealth management landscape, particularly with the massive intergenerational wealth
transfer that's going on in the trillions of dollars. Philanesbury
is really growing. Anyhow, I decided fourteen years ago it's
(17:53):
set up an organization where you could really do engage
in philanthropy with the help of experts and do it
hopefully in a much better way. So we run products.
We have a couple of products, so we set up
and administer what's called ancillary funds and they're just like superannuation.
(18:14):
Your listeners will know in superannuation there's two types of
superannuation funds in the market. You can have a self
managed super fund that's a private super fund, or most
of the population are in public offer fund whether it's
an industry fund or whatever. It's exactly the same. In
the philanthropy industry, we have these vehicles called ancillary funds,
(18:36):
and you can set up a private ancillary fund just
like self meaning super very similar structure, or you hit
your car to an existing public ancillary fund and hold
an account within that fund. And so we are the
leading organization in Australia that helps people go into those
(18:58):
vehicles and help them with their general giving. And between
those things, those ancillary funds we ad minister about two
and a half billion dollars and our clients give currently
around one hundred and sixty million dollars per annum to
charity out of those funds. So it's been an enormously
(19:19):
beneficial business to set up again as a charity for
the Australian public.
Speaker 1 (19:24):
So I'm an investor and I'd like to be involved
in philanthropy, and I say there's two ways in here.
There's a third link fund, which is just a straight
fund that's a twenty grand minimum for the average retail investor.
Anyone can do it, no strings attached, and that fund
has done okay, it seems to me you're this bigger fund,
which unfortunately is higher up the scale to get into
(19:46):
as doing better. That is, its returns against its benchmarks
has been better. And we'll talk about that in the
moment as to why. But in any event, so if
I wanted to, if I wanted to get involved in this,
what is the rough bottom minimum in which I can
part play here in this particular sandpit. How much would
I need to put in?
Speaker 2 (20:06):
So let's just back off one slight bit here. With
Australian Philanthropic Services Foundation, the big public ancillary fund I run.
We don't necessarily call them investors that come in. It's
more philanthropists. So if you would like to be involved
with philanthropy, you can open an account in the APS
(20:27):
Foundation for a minimum of forty thousand dollars. You get
one hundred percent tax deduction for that forty thousand dollars
in the year in which you put the money in,
or indeed you could spread the tax deduction over five
years if that's better for you. So you put your
money in the foundation, and you are then attached to
a big pool of assets and those assets are invested
(20:51):
tax free. There's no tax payable by the foundation. And
then each year we write out to our people clients
in there and say you need to now here's your
proportionate balance of this big pool. You need to give
away four percent of that to charity. So you just
tell us which charity you want to give the money
(21:14):
to and the way it goes. So the magic that
it's the very simply stated, it's quite a unique vehicle
these it's broken the nexus between the timing of the
tax deduction and the timing of giving to charity. You
get the tax reduction all up front. The giving to
charity happens over many years, or you can do it
(21:36):
quicker if you want, but you can take your time.
You can because often when you give to get a
tax deduction for giving to charity. It'd be smart if
you could time that with events which might cause you
tax like selling your business or selling your CBA shares,
or getting a bonus from your employer or something you
get a taxable of anything. Chee, I wouldn't mind off
(21:58):
setting that TAXI. You could perhaps put a lump sum
over in the philanthropic vehicle, and then take your time
to think about what charities you want to give too.
Over time, we've seen wonderful growth in this area, and
it's really changed the dynamics of a lot of families
as well, because they involve their children in giving.
Speaker 1 (22:17):
Whereas once upon a time someone might have said, oh,
we should really give something to charity, and they'd pick
two or three they like and they'd hand it over
and it would be tax deductible, but it would be
unformed as such. What you've done is much more sophisticated
thing where the person says, okay, let's think long term.
We go into this fund aps and then the management
of that fund is you and your colleagues, and it
(22:42):
goes it has been doing very well, and you're able
to donate then on an ongoing basis on what you're
making on your initially depositive you like in that fund,
and it must be four percent each year. This is
probably why you need a minimum of forty thousand dicpresum
because you need to have a four percent is going
to go out to do it every year anyway, And
(23:03):
you didn't say you want you stop me calling it
investors for the simple reason that it's not it's it's
philanthropic in nature. And that means, Chris, if I've got
it right, that if listeners, you are interested in this
and you have the capacity to do so. It's ideal
of course, when people as you see liquidity event as
they call it in the trade. If you were about
to sell a business, if you're about to inherit your
(23:24):
uncle's house or whatever. But you can't, for instance, use
you can't take forty grand out of your or one
hundred and forty grand out of your super and put
it in Chris, can you, because that crunches up against
the best interest duty in super? If I've got that right, you.
Speaker 2 (23:38):
Can in a way in the sense of if you're
able to access your super so you'll pass your preservation age. Yes,
and you're able to access your super so you can
freely take your super into your own name. And then
you might think, I've got enough money now that I'd
like to put some money. I'd like to get involved
in philanthropy, particularly while you're alive. This is the most
(24:01):
important thing in these vehicles.
Speaker 1 (24:03):
You could be alive, but you just have to be retired.
You couldn't be an accumulation.
Speaker 2 (24:07):
Please, Oh no, it's not something that you can just
tell you super fund, put some money over here. The
two are quite very separate, but sort of the type
of person who might go into this tends to be
later in life. They tend to be financially secure. They
want to help society, they want to do it while
(24:30):
they're alive. Putting money into this sort of holding pattern
of a fund called an ancillary fund is a great way.
As we said, they can time their tax deduction, but
then the giving can go on for many many years later.
And in fact people often use it upon their passing,
which there's a thing in the way tax works is
(24:51):
quite interesting. If you were lucky enough to buy your
Common Warf Bank shares at five dollars. We always pick
on the Common Warf Bank as such well run institution,
I should say. And if on your passing your state
was then holding those shares, then all things being equal,
if your a state sold those shares, there would be
(25:13):
a massive capital gain that the state would have to pay. However,
if you had donated, if you donate those shares through
your will to a foundation, say that was in existence already,
then there's no tax to the state at all, and
the foundation then will not pay tax because the foundation
(25:36):
is a tax free vehicle. So it's a magnificent way
for people who have stored wealth beyond their needs, beyond
what they want to provide for their children, and still
don't want to pay tax. I love the idea of
not paying tax even when I die.
Speaker 1 (25:53):
Yes, no, I imagine many people would aspire to do that, Chris.
And it's a terrific It's a terrific structure. And it's
not an accident. Folks that I've I have that have
had at least once or twice a year brought up
this because to me, as a with an investor's mind,
this structure and by the way, to be fair, APS
is of course not the only operation in this area,
(26:14):
but it is one of the biggest, and it's a
very smart way, a kind of professional way to approach
philanthropy in a more strategic and tax effective manner. Why
why not do that if you do that in every
other area of life. Just briefly, Chris, So, the big fund,
the APS Fund, what was how much did you say
(26:35):
it has under management?
Speaker 2 (26:36):
Now? Okay, So the APS Foundation, the public ansigtery fund
we run is around about the four hundred million dollar mark,
so it's large. I think by the end of this
decade it'll be a billion dollars probably, So it's a
large and growing investor.
Speaker 1 (26:54):
So I want to tell the listeners what's in it.
You know, what you do, so they get a picture
of what goes on with the money. So the so
the allocation folks inside this one's really interesting. It's a
bit like when you can look into the future fund.
You know, it's very useful. So how it works is
twenty two percent in shares local, seventeen percent in shares international,
a pretty chunky seventeen percent in private equity, then thirteen
(27:17):
percent in what they call interest bearing securities. The rest
then is scattered between property, venture capital, and what they
call miscellaneous growth assets and liquid's been seven percent. Okay now, Chris,
seventeen percent of this fund is private equity. Can I
just ask you, a lot of people on the shore
are every day investors are only getting to know private equity,
(27:38):
and it's been put in front of them for the
first time. It's been put in front of them at
this time for a variety of reasons. This sense that
the banks are withdrawing. I don't know if that's completely true.
There's a sense that the hybrid market has been is
being wound up, and so people are looking for income
and they're putting private equity funds have been put in
front of people in a listed form. How do you
(28:01):
think the uninitiated should approach this very important area that
takes like seventeen percent of your successful fund, which, by
the way, folks, is just to give you an idea
of how it's going. It has a target return, very
like at the future fund to see inflation plus four
percent is what it looks for. And for instance, like
last year the one year did thirteen. But private equity, right,
(28:23):
we'd all love to be in it in a successful manner.
But I worry Chris, that kind of lead to the
party for a lot of everyday investors and they're going
to go into second red stuff.
Speaker 2 (28:34):
Yes, there's a couple of things you said that James,
which I'll pick up on. First of all, you said
it's a bit like a major superannuation fund the way
we've we sort of have a target return. So for
this big portfolio, I'm trying to get a return of
inflation plus four percent per annum measured over rolling seventy
(28:55):
year periods. You won't get that every year. Some years
will be negative, some years will be twice as much.
But I'm trying to do it over rolling seven year periods,
and so far that's been successful. So if you're trying
to get inflation plus four percent, you're not going to
get that by investing in term deposits. You have to
take a growth approach and you have to have time
(29:18):
on your side. So this pool of money is a
growing pool. People have parted with their money already into
it to get the tax duction and to give to charity.
They can't take the money back, so we know it's
a long term growing pool. So that means with a
rolling a target of rolling seven year periods and very
(29:40):
patient capital. On the other side, I can be very
patient in the way I invest. Now you talked about
private equity. There, I think in the portfolio you'll see
two segments that are reasonably large. You'll see private credit
and private equity. Private credit I might mention quickly first
(30:01):
and then come on to the equity because I know
you talk about private credit a bit on your show.
Private credit is a very important sector now. I think
it's sort of had a bad name at the start
a bit that. Of course, it really evolved from property
development and construction, which is risky the best of times,
but can be very risky when interest rates arising and
(30:24):
the economy is not doing well. But private credit is
very wide now across very white array of sectors. There's
many managers in Australia there as well over one hundred managers.
And you've got to understand if you looked at the
banks twenty years ago, two thirds of their borrowing book
the money they lend were to businesses and one third
(30:46):
to home owners. These days it's the reverse they like.
Speaker 1 (30:50):
So they really have with drawn Chris, they really.
Speaker 2 (30:52):
Have drawn out of the market and the appet yeah,
but the appetite for a business to borrow doesn't change.
They just have to go to a different group and
probably pay a bit more to be able to access
the capital they need to expand. So private credit very
important sector, very important to be to understand what the
(31:15):
fund is invested in, and the experience of the investment
team is really vital, and including how many securities they
have in their portfilo is very vital. These inevitably, some
loans will go bad, just like they do in banks.
That's why banks provided for loans, so they do go
Some of them do go bad, but good. A well
(31:37):
run private equity fund is a cornerstone in my portfilo always,
and you can't catch your normally in those things. They're
not liquid like money in the bank. You know, if
you want to get your money out of a private
equity fund, it's at best you could do it quarterly.
Maybe some of it, maybe not all of it. We
(32:00):
shouldn't think of it as highly liquid, but it's somewhat liquid.
The position is very different with private equity, so to
be clear to those listeners of yours that don't know
private equity by its nature. Instead of buying shares on
the stock market, these are shares in companies that don't
trade on the stock market. And generally speaking I do
(32:22):
that through managers who specialize in that area. But the
general way they will go about it is that they
will launch a fund and they'll lock your money up.
You commit to it, they'll lock it up for about
ten years, could be less, and they spend half their
time investing the money and the other half selling it down.
(32:43):
But what we do see in the numbers all the
time is that private equity isn't that good on average.
You have to be with the top quartile manager to
make good returns there. And the trouble with that for
most on the street people, if I call it, is
that the minimums are too high so they can't get
(33:04):
in those funds. But the minimums have been coming down.
Speaker 1 (33:07):
Yes, I've been waiting for someone to I take Olipse
that on the show and that is it. That is it,
And I said, led to the party at the start forks,
but I met. What I meant was that that everyone
will stand up and they'll give presentations and how terrific
private equity has been, And of course it has if
you happen to be, you know, a multi millionaire that
was with an extremely expensive financial advisory who got you
(33:31):
in the early days to the best ones. But as
Chris says, outside that top quarter, different business altogether.
Speaker 2 (33:37):
Very hard. We hope, you know, we were lucky in
this fund. You hope every now and then, in these
private companies you own, you might hit a little gold mine.
You know, you might hit a canber. You might hit
a canber. If your listeners know it a great Australian
success story. It's already up two hundred and fifty times
(33:58):
what we paid for it. I wish we had a
lot more.
Speaker 1 (34:02):
Yeah, but I bet you there was two hundred and
forty nine that didn't do.
Speaker 2 (34:05):
It exactly right. Private credit is very liquid and as
just a repeat again, you really do have to be
with a well regarded manager, and you know, the style
of how they invest is very important. And a lot
of these private equity groups they've got almost too big,
so they keep investing bigger and bigger amounts. You know.
(34:28):
That might suit some of them, but I prefer those
that are more in what I call the mid market,
where I think you can actually add a lot of
value and not just value with leverage. Often private credit
is criticized quite rightly that they often will invest in
a business that's got good cash flows and they'll leverage
(34:51):
up the business, which is fine until it's not fine.
It's not fine when interest rates are eyes interesting.
Speaker 1 (34:58):
All right, folks, we're going to take a short break.
We are running out of time, but because it was
an easter, I thought we could go a little bit longer.
We'll be back with Chris. We're just going to have
one or two questions which I'd really like to hear
what he has to say back in the moment. Hello,
(35:21):
Welcome back to the Money Puzzle podcast. James Kirby here
with Chris Cuff. All right, now a couple of co questions, Chris,
just to hear what your instinctive reaction to these, So
Raymond asks. Basically, he says, we had talked about how
it was good not to be hedged. It was certainly
not good not to be hedged during the most recent
(35:43):
American drop where they had that desperate day where they
had the worst day since twenty twenty because of the
weaker Australian dollar. But as he makes the point that
when things turn around, an on hedged position exposes Australians
to a strength Australian dollar, even when market sentiment improves
(36:04):
and you have increasing international equities across the board, both
private investors and institutional vestors. So he says, hedging isn't perfect,
but it reduces exposure to currency fluctuations. I imagine you
don't have anything to disagree with that. We've more or
less covered that at the start of the show. There,
all right, Andrew has two really good questions. The first one,
(36:24):
he says, Chris, is at the beginning of a global
at the beginning of a global market meltdown, before the
interest rates have been cut, is it broadly a good
or bad time to consider bonds or bond dtfs? WHOA Now,
you see when people like you talk about bonds, you're
talking about bonds in this sense of buying them one
(36:46):
by one and selecting them. But for everyday investors, their
way into bonds really as bond dtfs and bond dtfs
have not been great really in this market for a
variety of reasons, for most years of recent years. What's
your What do you say to everyday investors wh'll see
I should have bonds on my way in as ETFs?
Speaker 2 (37:08):
Well, I guess the first thing was interesting that Andrews says,
at the beginning of a global market meltdown, would it
be good to do this stuff? If someone could ring
the bell we know when the beginning is story about
all the mice gathering round and saying if we just
tie the bell to the cat's neck will know when
(37:28):
it's coming. Of course, no mouse is going to be
game to do that, so I look, I'm not a
fan at all of pulled vehicles for bonds, which include ETFs.
Now others may think differently. I'm just not a fan
because I feel in those areas you your health is
(37:51):
very dependent on the other people in the fund with you.
If they start to panic and want to come out
of the farm, there could be unintended cap gains because
the manager of the fund might have to sell bonds
and that might realize losses as well as gains. I
just don't like the idea of holding hands in these things,
(38:11):
so I always prefer to buy. If I want to
be in fixed intra securities down in this sort of area,
I like to buy them individually and own them individually,
and probably in the main think about holding them until
they mature, so I don't have to worry about the
(38:33):
you know, the market value of these things going up
and down. But of course, so your.
Speaker 1 (38:38):
First approach is to buy it as for its running yield.
Speaker 2 (38:41):
Yes, that's definitely right. But Australia has a very immature
market in this sense, so it's very hard to sort
of do that, particularly for investors with smaller amounts. If
you're a large investor like UNI Super or Australian Super,
you can go into the market, buy Australia in bonds
or international bonds one by one and tuck them away
(39:04):
and just enjoy receiving the coupon every quarter or six
months or whatever it is. But for Australia based Australian investors,
I think the better thing, or easier in my mind
at least, is probably just lock into some term deposits
if you really want to be in that area, because
you'll understand the term deposit. They're not traded on the market,
(39:26):
you don't see their value going up and down, and
you're generally forced to keep them until they mature. It's
very hard. You can break a term deposit, but there's
usually a break fee, so we don't. Particularly, and particularly
with the hybrid market disappearing, it's quite hard to find
securities around that you can just sort of buy and hold.
(39:47):
There are some, but it's not easy to find.
Speaker 1 (39:50):
That's terrific answer, thank you, And I think folks, that's
worth's hearing from someone who's actually on the board of
a big super fund. It really is okay because it's
because it's that helicopter view. So I think that is
a very interesting point and it never ends right about
the whole thing about bonds and should you have bonds?
But we've had more than one person on the show,
from financial advisors who are just dealing with their clients
(40:12):
to people who manage very large amounts of money saying
that at TDS that is term deposits. You know, government
guaranteed may serve that purpose more for most people most
of the time.
Speaker 2 (40:23):
Okay.
Speaker 1 (40:24):
And finally, Andrew asks, when the market has a meltdown,
isn't that just another way of saying that there is
now a stack of cash and liquidity waiting to invest
at a later stage. Yeah, yeah, sure, Andrew. A thing
is when? Okay, because in two o eight they didn't
come back for a long time into what they came
(40:45):
back pretty fast in COVID.
Speaker 2 (40:46):
What do you think of that one, Chris Well, I
have to smile too when I heard that question earlier,
because again, we never know when the meltdowns kind of start.
And people, you know, sun men, I have to say,
although I've mixed with them for many years that they're
very good marketers. I say, now's a buying opportunity. But
(41:08):
of course we don't all just have cash sitting on
the side waiting. I mean, you can It's like a
clock that's broken, you know, but it's actually right twice
a day if you think about it. You know, the
clock's stall, but it's right twice a day. And sometimes
people will sit there with a lot of cash waiting
for something to happen and miss out on the opportunities
(41:31):
or the good days in the more risky markets, so
to speak. So I never quite understand the buying opportunity
type of logic unless you do, you know, have cash,
and you've got some fantastic way of knowing that this
you're at the end of the meltdown. Because you know
that adage about trying to catch a falling knife. It's
(41:53):
very hard to know when things are going to stop
going down. And I remember in the glow or financial crisis,
where things ground on for ages down month after month
for a long time, and I remember after about three months,
I thought, I'm smart. Now I'm going to put money
in the market. And you know, I tried to catch
(42:13):
what I can now look back at. So it was
definitely a falling knife and cut a few fingers off
along the way. So it's not easy. I prefer a
strategy that says set yourself for an all weather market
upsow downs. That's you know, sit with a good advisor,
work out how you want your money placed across different sectors,
(42:35):
well diversified portfolio, enough cash to live on if you're
drawing it down, and just gritch your teeth and stay
away from knee jerk reactions, which we're all prone to do. That's,
you know, if I had my time again as an
investment professional, the first thing I should should have studied
at university is behavioral science, not financial science, because people
(43:00):
react in the investment markets with emotion first. The best
investment managers in my career I've seen are often those
who are slightly on the spectrum. They can be completely emotionless.
Speaker 1 (43:14):
Terrific. I imagine that is exactly true. That they all
understand the finance. Everyone understands the finance, right, So all
these people with the qualified they're all qualified. They understand
the finance. But who understands human emotion? All right, we
leave it there. That was terrific, Chris, Thank you very much,
Chris Coff.
Speaker 2 (43:30):
Love it to have you on My pleasure. I love
being on James.
Speaker 1 (43:33):
Great to have Chris Coff on the show. Folks, Okay,
have a good break, have a good easter. We will
be back very quickly. We're not taking a break. We
motor on. Keep the questions Commons ruling the money puzzle
at the Australian dot Com dot Au. Today's show was
produced by Leah Sam mcglue and she's not taking a
break either. Don't you soon, fo,
Hello, and welcome to The Australian's Money Puzzle podcast. I'm
James Kirkby. Welcome aboard everybody now today for your Easter
break listening pleasure, I have a very special guest who
is Chris Cuff, a legendary fund manager de facto legendary
fund manager martiad who initially came to fame almost became
a household name at one stage through his success as
(00:32):
an investor and manager at what is still the Colonial Group,
and since then he's had a portfolio of interest. You'll
see him on a variety of boards. Some boards you
won't see him on because they're family offices, but you
would be familiar of course with UNI Super, which is
I think the fourth biggest industry fund in the country,
so that is a very big gig as you can imagine.
(00:52):
He's also on the board of Argyll, the listed investment company,
the original of the species. You have to mention Don
Bradman when you mentioned al Go, because he was once
involved with that. Do you know that his passion Chris's
passion is philanthropy. I have talked to him before regularly.
He's got involved in some terribly interesting projects of late
(01:14):
we're going to talk about that too, and the extent
to which you may be able to access some of
this if you wish to. But first I want to
hear what he has to say. Needless to say, I
want to hear what he says. You want to hear
what he says about the markets and the conditions of
the markets that were currently investing in. How are you, Chris?
Speaker 2 (01:33):
Very well? Thank you, James, straight.
Speaker 1 (01:36):
Up question, Okay, there's always periods of great uncertainty. I'm
always entertained when people talk about uncertainty and how there's
never as if there was never uncertainty before. I mean,
COVID was pretty uncertain, GFC was pretty uncertain. But this
particular period, instinctively to you, is there reasons for the
(01:57):
every day investor to change their approach to invest in
looking at the global trade crisis that we have in
front of us.
Speaker 2 (02:07):
I don't think there's great reasons to change. I mean,
I hope for every investor, if they're a true investor,
they should have a plan and they should have a
diversified portfolio. People ask me all the time, what do
you react? How are you reacting in this time? And
I think I just check down the securities I have
in my portfolio and make sure it's well diversified, because
(02:28):
I can't pick day to day or months a month
what's going to do well and what's not. And we're
in a period now, you know, sometimes there's no one
unknowns and now we've got unknown's unknowns, So we sort
of wake up each day and just sort of work
off the seat of your pants. But look, it also
very much depends on whether you're running your portfolio with
(02:50):
new money coming in, whether you're in draw down phase.
There'll always be issues around that. But look, right now,
I think it's a pretty good time to draw breath.
Probably don't get too anxious about anything, particularly if you've
got a well diversified portfolio, and really just you know,
it's a strange time we're in, James. What else can
(03:11):
we say.
Speaker 1 (03:12):
Would you have a hunch that the worst is over?
Speaker 2 (03:16):
I think the worst is over, as in the initial
shock of what has happened in America at the leadership
position and the fact that there are p and O
guardrails on making those decisions. You know, I would have
thought it's not legally possible when I first heard it
that the American President can just you know, issue tariff's
left right at the center without some type of emergency
(03:38):
going on. But anyhow, they've done it, so we just
have to live with that. So I think the shock
of seeing the magnitude is the big thing. And now
I think we'll grind for a probably a long period
of time as we see the effects of maybe the
base twer for ten percent. You know, it's probably going
to cause inflation at least in the short term. That's
(03:59):
probably going to put interest rates on hold at least
for the short term. And then I think behind the
scenes in Washington will be concession, slow concessions over time
as the American people get very hurt by what's happening,
and I think that will reverberate back to their members,
their elected officials, and hopefully, you know, get to the
(04:22):
President and his men. I don't think they anticipated anything
like what's going on, and I don't think there was
a grand plan. I think it was a complete mess.
Speaker 1 (04:32):
Can I ask you, when you say stable interest rates,
you mean global rates right, correct? Australian rates could fall
in the short term.
Speaker 2 (04:41):
You could definitely mount a case that if we get
a global recession, growth really going downhill, people losing jobs,
interest rates will drop, that's definitely on the cards. But
I think none of this is going to happen immediately.
There's a lot of time to play up yet to
see where these things land. I think you'd be a
(05:04):
brave person to think that the tariffs that America's put
on China and China put on America again to sit
as they are, it's just impractical. You just trade between
the nations will stop, and that just doesn't seem likely
to me at all. So this posturing going on, we've
got to wait for that to stop. But we might
(05:25):
get what they call imported inflation. If it costs Chinese
the Chinese a lot more to make the goodies that
we bring into Australia, it's going to cause some inflation.
But I think these are short term things. To go
back to your first question, I just wouldn't be in
a hurry to do anything radical right now and just
let the dust settle.
Speaker 1 (05:46):
You're on the board of family offices and investment vehicles
of some very wealthy people and families in Australia, so
anything that they are doing that would give our everyday
listeners an insight to sort of the tactical response to this.
Are they putting more money into gold? Are they lifting
their cash? Are their bargain hunting? Is there anything you
(06:08):
can insight you could give us as to how they're behaving.
Speaker 2 (06:11):
Well, certainly the groups I'm involved with, I think it's
as a generalization, it's fair to say they're just letting
cash build up right now. And unless you know, there's
something peculiar about their liabilities or there some external factor,
but it's really let it build up. Don't have a
fear of missing out if anything, right now, the fear
(06:32):
might be the other way around. The people. We are
all talking about the Australian dollar. I mean it was
a week ago it was at fifty nine cents. Today
it's at sixty four cents. So I did see some
groups put on hedges very quickly, which not everybody can do,
although there are easily accessible instruments in the market that
(06:55):
any investor can do for that. And we've seen the
currency already firm from the US Australian dollar a firm
from fifty nine to sixty four, and that's a very big,
very big change. You know, the urgency to do perhaps
do something about the currencies calm down a little, though.
Sixty four cents in a long term sense is still
(07:18):
well below the long term average, which is around seventy cents,
which it always seems to head back to at some
stage or another.
Speaker 1 (07:26):
We had people on the show saying, you're better off
being unheaged because the US is the heart of the machine,
heart of the markets. When the US markets fall, if
we all have more exposure to the US than we
ever had before, which is probably the case for both
our listeners and a lot of the big super funds,
that when the US markets fall, the US dollar, the
currency works your way. It's in your favor because you're
(07:50):
basically when the Australian dollar is falling as it has
so far, you're cushioned. You think that might not be
the case going forward.
Speaker 2 (07:58):
Well, look, I would say my position and those that
I work with, it's generally when you're buying overseas securities
that be they manage funds or direct shares or whatever
is to have it unheitched. So that's default position. But
we have seen in history where you get very large
aberrations and look, I remember it's got I remember once
(08:23):
when the Australian dollar got to forty five cents to
the US dollar, and I remember, yeah, and I remember
traveling when the Australian dollar got to one hundred and twenty.
So you know what the out of bounds, you know,
if it's got a five in front of it for sure,
or a nine in front on the other end, they're
probably times where you could opportunistically probably take advantage of
(08:48):
that with great likelihood of success, as long as you
don't pick your time frame.
Speaker 1 (08:55):
Okay, right, And just on the building up the cash,
can you give people any idea? You know a lot
of people have serf managed super funds. They're always been
criticized for having too much cash. And then the big
super funds have, compared to the smsfs, much lower cash levels.
With these family companies you have, it's the extent you
can answer this, what percentage would they generally have in cash?
(09:16):
What would be a neutral level? And then what might
they be building up to at the moment.
Speaker 2 (09:22):
Well, first all, to make it clear to the big
super funds, they always have it. I serve with one
of them for many years, as I still do. They
always have let's use the term liquidity rather when they
must have it. Of course they must have liquidity because
they've got people coming and going all the time, but
they have sort of modest cash levels actual cash probably
compared to many individuals with their own self managed super fund. Look,
(09:46):
I don't know if there's a common level, James. I
like to think, in any event, if you had sort
of ten to twenty percent of cash at most times,
you know, maybe that's useful to jump on things. Other
people like to be invested all the time. As long
as it's liquid, you can get money out and rotate
to something else. But I don't know if there's one
(10:07):
one better way than not, but there's Look, there's an
increasing number of securities that give you, i think, both
great diversification and some liquidity, so you can take advantage
of things. But it also, as I said before, it
depends very much on what stage you're at. If you've
got your own self managed super fund and you're a
retiree and you're drawing money off it each year, now,
(10:30):
so you know it's got to keep shrinking over time,
you'll probably have a higher amount of cash so you
don't have to sell down securities in volatile stressed times.
Speaker 1 (10:41):
And these listed securities that give you liquidity and versification.
Are you thinking of ETFs.
Speaker 2 (10:49):
It could be an ETF so, but it could be
there's plenty of ETFs. People often mix up a little
bit many ETFs. Most ETFs are what they call pass
as you've said many times on your show, they invest
in the index of whatever they're exposed to. But there's
also an increasing number of active ETFs. They're just happen
(11:11):
to be managed funds, managed by an active manager who's
trying to do better than the index, and they happen
to be listed on the stock market. You can get
in and out at nta net asset value, just like
you can for normal shares. And I have a preference myself.
(11:32):
Where a market is what I call thin, like Australia,
I have a preference to be in actively managed funds
because but in overseas, I'm very satisfied with ETFs as
well as active funds, simply because those markets offshore are
much wider, they're much bigger, they're well diversified. Whereas Australia,
(11:55):
as most people know, you the heavyweights. You're exposed a
handful of banks, a few miners, and a couple odds
and ends on the outside. So I find Australian ETFs
are a little bit risky for.
Speaker 1 (12:07):
Me, okay, because half the market is banks and miners. Yeah, okay,
So we can't have you on without asking you the
conventional thinking. And that may not be what you're thinking,
of course, but convention I'm thinking is, you know, there's
a swing, there's a lot of fear in the market.
You know that's proven, and the vix is elevated, so
people are going back into like supermarket stocks went up
(12:31):
during those scary days a few days ago. The bank's
coming with bank I mean, is just basically unmoved. In
the middle of all this, gold is going steadily higher
and people are looking at those conventional, traditional defensive stocks.
Just now, what do you think of that approach?
Speaker 2 (12:52):
Well, it's an interesting conundrum again listening, I'm a regular
listener to your show. There's always the issue that if
you look at the Commonwealth Bank, everybody says it's very
highly priced, has been for a long time. It's come
down a bit, but it's still at a healthy price.
And does that mean you should sell the thing and
(13:12):
rotate into something else. That's the difficult thing because you've
already been in the thing as opposed to if you've
got fresh money. So as you've made the point I
think last week or the week before, if you've been
in the Commonwealth Bank since it was say twenty dollars,
the dividend yield you're getting off that cost base is
magnificent and you might find it very hard to see
(13:35):
a reason why you'd want to sell it. And of
course there's always tax when you sell things. But if
you said if I was starting myself managed super fun
today with a fresh pile of cash, what would I do.
I certainly would be looking at the value of stocks.
I probably would not be investing big time in the banks,
(13:59):
just because they've gone up so much. But in my
starting point, as I've said a few times, I'd be
thinking of a diversified portfilo across local shares, international shares.
I always like a bit of private equity. I always
have plenty of private credit. I really do believe in
that sector. And there are other weird and wonderful investments
(14:19):
out there that I like to give me a great
way to sleep at night.
Speaker 1 (14:25):
Okay, actually I have in front of me a pigraph
of the accid allocation of your main of your flagship operation.
Really the aps Foundation. We'll take a break, we'll come back,
we'll pick up on this theme, but we'll also give
Chris the opportunity to talk about what he wants to
talk about more than anting as, which is this land
to pick fund. Okay, back in a moment. Hello, Welcome
(14:59):
back to The Australian's Money Puzzle podcast Easter a special
James Kirby here with Chris Kuff. It's a great time
to have Chris on, one of the best known fund
managers in the land. Now, Chris, I've mentioned that the
investors listening to the show will know UNI Super and
they'll know Argo et cetera. They listed investment company and
other operations you're involved in more recently and more recentimes,
(15:22):
you got a lot of time to philanthropy, active philanthropy,
and there's two we've talked about the Third Link Fund
on the before, which is an unlisted fund that you're
involved with that the retail investor can pay, maybe getting
them for about twenty thousand I think is the minimum.
And that's a fund where there is a strong philanthropic
element to it. And then separately, tell me if this
(15:45):
is wrong. You were involved with the Australian Philanthropic Services Group,
and they have a very big fund which is pretty
close to becoming the biggest fund charitable fund in the country.
It's called the Australian the APS Fund. And how much
is under management there?
Speaker 2 (16:01):
Chris Well, okay, if I just run through quickly how
each works. A Third Link Growth fund, it's been going
for about sixteen years. It's an Australian equity fund. All
the fees go to charity. It is a what's called
a fund of funds. So my job is to choose
fund managers underneath the fund who are managing Australian equities
(16:25):
who I think are best in breed. That's my opinion
of best in breed, and they manage the money. We
try to get our investors an excellent return. We do
the best we can. I think the returns on the
Third Link website it's been slightly better than the Australian
share market since this inception, and so far we've given
(16:46):
twenty three million dollars to charity over the sixteen years.
It's been a lot of fun. And all those fund
managers do it for free. I do it for free,
and our investors I think like the fact that they're
both making money and their fees they're paying. They've still
got to pay a fee, but that fee is going
to charity. So that's the third Link Growth Fund, which
(17:08):
is a minimum of twenty thousand dollars Australian equity fun
very specific and it's an active fund, so it's out
there trying to beat the index. Okay. The second organization
you mentioned is fairly unique, so it's called Australian Philanthropic Services.
It's actually a charity I set up about fourteen years
(17:29):
ago to help people do philanthropy better. And it's a
big word, but philanthropy is an increasing part of the
Australian wealth management landscape, particularly with the massive intergenerational wealth
transfer that's going on in the trillions of dollars. Philanesbury
is really growing. Anyhow, I decided fourteen years ago it's
(17:53):
set up an organization where you could really do engage
in philanthropy with the help of experts and do it
hopefully in a much better way. So we run products.
We have a couple of products, so we set up
and administer what's called ancillary funds and they're just like superannuation.
(18:14):
Your listeners will know in superannuation there's two types of
superannuation funds in the market. You can have a self
managed super fund that's a private super fund, or most
of the population are in public offer fund whether it's
an industry fund or whatever. It's exactly the same. In
the philanthropy industry, we have these vehicles called ancillary funds,
(18:36):
and you can set up a private ancillary fund just
like self meaning super very similar structure, or you hit
your car to an existing public ancillary fund and hold
an account within that fund. And so we are the
leading organization in Australia that helps people go into those
(18:58):
vehicles and help them with their general giving. And between
those things, those ancillary funds we ad minister about two
and a half billion dollars and our clients give currently
around one hundred and sixty million dollars per annum to
charity out of those funds. So it's been an enormously
(19:19):
beneficial business to set up again as a charity for
the Australian public.
Speaker 1 (19:24):
So I'm an investor and I'd like to be involved
in philanthropy, and I say there's two ways in here.
There's a third link fund, which is just a straight
fund that's a twenty grand minimum for the average retail investor.
Anyone can do it, no strings attached, and that fund
has done okay, it seems to me you're this bigger fund,
which unfortunately is higher up the scale to get into
(19:46):
as doing better. That is, its returns against its benchmarks
has been better. And we'll talk about that in the
moment as to why. But in any event, so if
I wanted to, if I wanted to get involved in this,
what is the rough bottom minimum in which I can
part play here in this particular sandpit. How much would
I need to put in?
Speaker 2 (20:06):
So let's just back off one slight bit here. With
Australian Philanthropic Services Foundation, the big public ancillary fund I run.
We don't necessarily call them investors that come in. It's
more philanthropists. So if you would like to be involved
with philanthropy, you can open an account in the APS
(20:27):
Foundation for a minimum of forty thousand dollars. You get
one hundred percent tax deduction for that forty thousand dollars
in the year in which you put the money in,
or indeed you could spread the tax deduction over five
years if that's better for you. So you put your
money in the foundation, and you are then attached to
a big pool of assets and those assets are invested
(20:51):
tax free. There's no tax payable by the foundation. And
then each year we write out to our people clients
in there and say you need to now here's your
proportionate balance of this big pool. You need to give
away four percent of that to charity. So you just
tell us which charity you want to give the money
(21:14):
to and the way it goes. So the magic that
it's the very simply stated, it's quite a unique vehicle
these it's broken the nexus between the timing of the
tax deduction and the timing of giving to charity. You
get the tax reduction all up front. The giving to
charity happens over many years, or you can do it
(21:36):
quicker if you want, but you can take your time.
You can because often when you give to get a
tax deduction for giving to charity. It'd be smart if
you could time that with events which might cause you
tax like selling your business or selling your CBA shares,
or getting a bonus from your employer or something you
get a taxable of anything. Chee, I wouldn't mind off
(21:58):
setting that TAXI. You could perhaps put a lump sum
over in the philanthropic vehicle, and then take your time
to think about what charities you want to give too.
Over time, we've seen wonderful growth in this area, and
it's really changed the dynamics of a lot of families
as well, because they involve their children in giving.
Speaker 1 (22:17):
Whereas once upon a time someone might have said, oh,
we should really give something to charity, and they'd pick
two or three they like and they'd hand it over
and it would be tax deductible, but it would be
unformed as such. What you've done is much more sophisticated
thing where the person says, okay, let's think long term.
We go into this fund aps and then the management
of that fund is you and your colleagues, and it
(22:42):
goes it has been doing very well, and you're able
to donate then on an ongoing basis on what you're
making on your initially depositive you like in that fund,
and it must be four percent each year. This is
probably why you need a minimum of forty thousand dicpresum
because you need to have a four percent is going
to go out to do it every year anyway, And
(23:03):
you didn't say you want you stop me calling it
investors for the simple reason that it's not it's it's
philanthropic in nature. And that means, Chris, if I've got
it right, that if listeners, you are interested in this
and you have the capacity to do so. It's ideal
of course, when people as you see liquidity event as
they call it in the trade. If you were about
to sell a business, if you're about to inherit your
(23:24):
uncle's house or whatever. But you can't, for instance, use
you can't take forty grand out of your or one
hundred and forty grand out of your super and put
it in Chris, can you, because that crunches up against
the best interest duty in super? If I've got that right, you.
Speaker 2 (23:38):
Can in a way in the sense of if you're
able to access your super so you'll pass your preservation age. Yes,
and you're able to access your super so you can
freely take your super into your own name. And then
you might think, I've got enough money now that I'd
like to put some money. I'd like to get involved
in philanthropy, particularly while you're alive. This is the most
(24:01):
important thing in these vehicles.
Speaker 1 (24:03):
You could be alive, but you just have to be retired.
You couldn't be an accumulation.
Speaker 2 (24:07):
Please, Oh no, it's not something that you can just
tell you super fund, put some money over here. The
two are quite very separate, but sort of the type
of person who might go into this tends to be
later in life. They tend to be financially secure. They
want to help society, they want to do it while
(24:30):
they're alive. Putting money into this sort of holding pattern
of a fund called an ancillary fund is a great way.
As we said, they can time their tax deduction, but
then the giving can go on for many many years later.
And in fact people often use it upon their passing,
which there's a thing in the way tax works is
(24:51):
quite interesting. If you were lucky enough to buy your
Common Warf Bank shares at five dollars. We always pick
on the Common Warf Bank as such well run institution,
I should say. And if on your passing your state
was then holding those shares, then all things being equal,
if your a state sold those shares, there would be
(25:13):
a massive capital gain that the state would have to pay. However,
if you had donated, if you donate those shares through
your will to a foundation, say that was in existence already,
then there's no tax to the state at all, and
the foundation then will not pay tax because the foundation
(25:36):
is a tax free vehicle. So it's a magnificent way
for people who have stored wealth beyond their needs, beyond
what they want to provide for their children, and still
don't want to pay tax. I love the idea of
not paying tax even when I die.
Speaker 1 (25:53):
Yes, no, I imagine many people would aspire to do that, Chris.
And it's a terrific It's a terrific structure. And it's
not an accident. Folks that I've I have that have
had at least once or twice a year brought up
this because to me, as a with an investor's mind,
this structure and by the way, to be fair, APS
is of course not the only operation in this area,
(26:14):
but it is one of the biggest, and it's a
very smart way, a kind of professional way to approach
philanthropy in a more strategic and tax effective manner. Why
why not do that if you do that in every
other area of life. Just briefly, Chris, So, the big fund,
the APS Fund, what was how much did you say
(26:35):
it has under management?
Speaker 2 (26:36):
Now? Okay, So the APS Foundation, the public ansigtery fund
we run is around about the four hundred million dollar mark,
so it's large. I think by the end of this
decade it'll be a billion dollars probably, So it's a
large and growing investor.
Speaker 1 (26:54):
So I want to tell the listeners what's in it.
You know, what you do, so they get a picture
of what goes on with the money. So the so
the allocation folks inside this one's really interesting. It's a
bit like when you can look into the future fund.
You know, it's very useful. So how it works is
twenty two percent in shares local, seventeen percent in shares international,
a pretty chunky seventeen percent in private equity, then thirteen
(27:17):
percent in what they call interest bearing securities. The rest
then is scattered between property, venture capital, and what they
call miscellaneous growth assets and liquid's been seven percent. Okay now, Chris,
seventeen percent of this fund is private equity. Can I
just ask you, a lot of people on the shore
are every day investors are only getting to know private equity,
(27:38):
and it's been put in front of them for the
first time. It's been put in front of them at
this time for a variety of reasons. This sense that
the banks are withdrawing. I don't know if that's completely true.
There's a sense that the hybrid market has been is
being wound up, and so people are looking for income
and they're putting private equity funds have been put in
front of people in a listed form. How do you
(28:01):
think the uninitiated should approach this very important area that
takes like seventeen percent of your successful fund, which, by
the way, folks, is just to give you an idea
of how it's going. It has a target return, very
like at the future fund to see inflation plus four
percent is what it looks for. And for instance, like
last year the one year did thirteen. But private equity, right,
(28:23):
we'd all love to be in it in a successful manner.
But I worry Chris, that kind of lead to the
party for a lot of everyday investors and they're going
to go into second red stuff.
Speaker 2 (28:34):
Yes, there's a couple of things you said that James,
which I'll pick up on. First of all, you said
it's a bit like a major superannuation fund the way
we've we sort of have a target return. So for
this big portfolio, I'm trying to get a return of
inflation plus four percent per annum measured over rolling seventy
(28:55):
year periods. You won't get that every year. Some years
will be negative, some years will be twice as much.
But I'm trying to do it over rolling seven year periods,
and so far that's been successful. So if you're trying
to get inflation plus four percent, you're not going to
get that by investing in term deposits. You have to
take a growth approach and you have to have time
(29:18):
on your side. So this pool of money is a
growing pool. People have parted with their money already into
it to get the tax duction and to give to charity.
They can't take the money back, so we know it's
a long term growing pool. So that means with a
rolling a target of rolling seven year periods and very
(29:40):
patient capital. On the other side, I can be very
patient in the way I invest. Now you talked about
private equity. There, I think in the portfolio you'll see
two segments that are reasonably large. You'll see private credit
and private equity. Private credit I might mention quickly first
(30:01):
and then come on to the equity because I know
you talk about private credit a bit on your show.
Private credit is a very important sector now. I think
it's sort of had a bad name at the start
a bit that. Of course, it really evolved from property
development and construction, which is risky the best of times,
but can be very risky when interest rates arising and
(30:24):
the economy is not doing well. But private credit is
very wide now across very white array of sectors. There's
many managers in Australia there as well over one hundred managers.
And you've got to understand if you looked at the
banks twenty years ago, two thirds of their borrowing book
the money they lend were to businesses and one third
(30:46):
to home owners. These days it's the reverse they like.
Speaker 1 (30:50):
So they really have with drawn Chris, they really.
Speaker 2 (30:52):
Have drawn out of the market and the appet yeah,
but the appetite for a business to borrow doesn't change.
They just have to go to a different group and
probably pay a bit more to be able to access
the capital they need to expand. So private credit very
important sector, very important to be to understand what the
(31:15):
fund is invested in, and the experience of the investment
team is really vital, and including how many securities they
have in their portfilo is very vital. These inevitably, some
loans will go bad, just like they do in banks.
That's why banks provided for loans, so they do go
Some of them do go bad, but good. A well
(31:37):
run private equity fund is a cornerstone in my portfilo always,
and you can't catch your normally in those things. They're
not liquid like money in the bank. You know, if
you want to get your money out of a private
equity fund, it's at best you could do it quarterly.
Maybe some of it, maybe not all of it. We
(32:00):
shouldn't think of it as highly liquid, but it's somewhat liquid.
The position is very different with private equity, so to
be clear to those listeners of yours that don't know
private equity by its nature. Instead of buying shares on
the stock market, these are shares in companies that don't
trade on the stock market. And generally speaking I do
(32:22):
that through managers who specialize in that area. But the
general way they will go about it is that they
will launch a fund and they'll lock your money up.
You commit to it, they'll lock it up for about
ten years, could be less, and they spend half their
time investing the money and the other half selling it down.
(32:43):
But what we do see in the numbers all the
time is that private equity isn't that good on average.
You have to be with the top quartile manager to
make good returns there. And the trouble with that for
most on the street people, if I call it, is
that the minimums are too high so they can't get
(33:04):
in those funds. But the minimums have been coming down.
Speaker 1 (33:07):
Yes, I've been waiting for someone to I take Olipse
that on the show and that is it. That is it,
And I said, led to the party at the start forks,
but I met. What I meant was that that everyone
will stand up and they'll give presentations and how terrific
private equity has been, And of course it has if
you happen to be, you know, a multi millionaire that
was with an extremely expensive financial advisory who got you
(33:31):
in the early days to the best ones. But as
Chris says, outside that top quarter, different business altogether.
Speaker 2 (33:37):
Very hard. We hope, you know, we were lucky in
this fund. You hope every now and then, in these
private companies you own, you might hit a little gold mine.
You know, you might hit a canber. You might hit
a canber. If your listeners know it a great Australian
success story. It's already up two hundred and fifty times
(33:58):
what we paid for it. I wish we had a
lot more.
Speaker 1 (34:02):
Yeah, but I bet you there was two hundred and
forty nine that didn't do.
Speaker 2 (34:05):
It exactly right. Private credit is very liquid and as
just a repeat again, you really do have to be
with a well regarded manager, and you know, the style
of how they invest is very important. And a lot
of these private equity groups they've got almost too big,
so they keep investing bigger and bigger amounts. You know.
(34:28):
That might suit some of them, but I prefer those
that are more in what I call the mid market,
where I think you can actually add a lot of
value and not just value with leverage. Often private credit
is criticized quite rightly that they often will invest in
a business that's got good cash flows and they'll leverage
(34:51):
up the business, which is fine until it's not fine.
It's not fine when interest rates are eyes interesting.
Speaker 1 (34:58):
All right, folks, we're going to take a short break.
We are running out of time, but because it was
an easter, I thought we could go a little bit longer.
We'll be back with Chris. We're just going to have
one or two questions which I'd really like to hear
what he has to say back in the moment. Hello,
(35:21):
Welcome back to the Money Puzzle podcast. James Kirby here
with Chris Cuff. All right, now a couple of co questions, Chris,
just to hear what your instinctive reaction to these, So
Raymond asks. Basically, he says, we had talked about how
it was good not to be hedged. It was certainly
not good not to be hedged during the most recent
(35:43):
American drop where they had that desperate day where they
had the worst day since twenty twenty because of the
weaker Australian dollar. But as he makes the point that
when things turn around, an on hedged position exposes Australians
to a strength Australian dollar, even when market sentiment improves
(36:04):
and you have increasing international equities across the board, both
private investors and institutional vestors. So he says, hedging isn't perfect,
but it reduces exposure to currency fluctuations. I imagine you
don't have anything to disagree with that. We've more or
less covered that at the start of the show. There,
all right, Andrew has two really good questions. The first one,
(36:24):
he says, Chris, is at the beginning of a global
at the beginning of a global market meltdown, before the
interest rates have been cut, is it broadly a good
or bad time to consider bonds or bond dtfs? WHOA Now,
you see when people like you talk about bonds, you're
talking about bonds in this sense of buying them one
(36:46):
by one and selecting them. But for everyday investors, their
way into bonds really as bond dtfs and bond dtfs
have not been great really in this market for a
variety of reasons, for most years of recent years. What's
your What do you say to everyday investors wh'll see
I should have bonds on my way in as ETFs?
Speaker 2 (37:08):
Well, I guess the first thing was interesting that Andrews says,
at the beginning of a global market meltdown, would it
be good to do this stuff? If someone could ring
the bell we know when the beginning is story about
all the mice gathering round and saying if we just
tie the bell to the cat's neck will know when
(37:28):
it's coming. Of course, no mouse is going to be
game to do that, so I look, I'm not a
fan at all of pulled vehicles for bonds, which include ETFs.
Now others may think differently. I'm just not a fan
because I feel in those areas you your health is
(37:51):
very dependent on the other people in the fund with you.
If they start to panic and want to come out
of the farm, there could be unintended cap gains because
the manager of the fund might have to sell bonds
and that might realize losses as well as gains. I
just don't like the idea of holding hands in these things,
(38:11):
so I always prefer to buy. If I want to
be in fixed intra securities down in this sort of area,
I like to buy them individually and own them individually,
and probably in the main think about holding them until
they mature, so I don't have to worry about the
(38:33):
you know, the market value of these things going up
and down. But of course, so your.
Speaker 1 (38:38):
First approach is to buy it as for its running yield.
Speaker 2 (38:41):
Yes, that's definitely right. But Australia has a very immature
market in this sense, so it's very hard to sort
of do that, particularly for investors with smaller amounts. If
you're a large investor like UNI Super or Australian Super,
you can go into the market, buy Australia in bonds
or international bonds one by one and tuck them away
(39:04):
and just enjoy receiving the coupon every quarter or six
months or whatever it is. But for Australia based Australian investors,
I think the better thing, or easier in my mind
at least, is probably just lock into some term deposits
if you really want to be in that area, because
you'll understand the term deposit. They're not traded on the market,
(39:26):
you don't see their value going up and down, and
you're generally forced to keep them until they mature. It's
very hard. You can break a term deposit, but there's
usually a break fee, so we don't. Particularly, and particularly
with the hybrid market disappearing, it's quite hard to find
securities around that you can just sort of buy and hold.
(39:47):
There are some, but it's not easy to find.
Speaker 1 (39:50):
That's terrific answer, thank you, And I think folks, that's
worth's hearing from someone who's actually on the board of
a big super fund. It really is okay because it's
because it's that helicopter view. So I think that is
a very interesting point and it never ends right about
the whole thing about bonds and should you have bonds?
But we've had more than one person on the show,
from financial advisors who are just dealing with their clients
(40:12):
to people who manage very large amounts of money saying
that at TDS that is term deposits. You know, government
guaranteed may serve that purpose more for most people most
of the time.
Speaker 2 (40:23):
Okay.
Speaker 1 (40:24):
And finally, Andrew asks, when the market has a meltdown,
isn't that just another way of saying that there is
now a stack of cash and liquidity waiting to invest
at a later stage. Yeah, yeah, sure, Andrew. A thing
is when? Okay, because in two o eight they didn't
come back for a long time into what they came
(40:45):
back pretty fast in COVID.
Speaker 2 (40:46):
What do you think of that one, Chris Well, I
have to smile too when I heard that question earlier,
because again, we never know when the meltdowns kind of start.
And people, you know, sun men, I have to say,
although I've mixed with them for many years that they're
very good marketers. I say, now's a buying opportunity. But
(41:08):
of course we don't all just have cash sitting on
the side waiting. I mean, you can It's like a
clock that's broken, you know, but it's actually right twice
a day if you think about it. You know, the
clock's stall, but it's right twice a day. And sometimes
people will sit there with a lot of cash waiting
for something to happen and miss out on the opportunities
(41:31):
or the good days in the more risky markets, so
to speak. So I never quite understand the buying opportunity
type of logic unless you do, you know, have cash,
and you've got some fantastic way of knowing that this
you're at the end of the meltdown. Because you know
that adage about trying to catch a falling knife. It's
(41:53):
very hard to know when things are going to stop
going down. And I remember in the glow or financial crisis,
where things ground on for ages down month after month
for a long time, and I remember after about three months,
I thought, I'm smart. Now I'm going to put money
in the market. And you know, I tried to catch
(42:13):
what I can now look back at. So it was
definitely a falling knife and cut a few fingers off
along the way. So it's not easy. I prefer a
strategy that says set yourself for an all weather market
upsow downs. That's you know, sit with a good advisor,
work out how you want your money placed across different sectors,
(42:35):
well diversified portfolio, enough cash to live on if you're
drawing it down, and just gritch your teeth and stay
away from knee jerk reactions, which we're all prone to do. That's,
you know, if I had my time again as an
investment professional, the first thing I should should have studied
at university is behavioral science, not financial science, because people
(43:00):
react in the investment markets with emotion first. The best
investment managers in my career I've seen are often those
who are slightly on the spectrum. They can be completely emotionless.
Speaker 1 (43:14):
Terrific. I imagine that is exactly true. That they all
understand the finance. Everyone understands the finance, right, So all
these people with the qualified they're all qualified. They understand
the finance. But who understands human emotion? All right, we
leave it there. That was terrific, Chris, Thank you very much,
Chris Coff.
Speaker 2 (43:30):
Love it to have you on My pleasure. I love
being on James.
Speaker 1 (43:33):
Great to have Chris Coff on the show. Folks, Okay,
have a good break, have a good easter. We will
be back very quickly. We're not taking a break. We
motor on. Keep the questions Commons ruling the money puzzle
at the Australian dot Com dot Au. Today's show was
produced by Leah Sam mcglue and she's not taking a
break either. Don't you soon, fo,
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