A week is, apparently, a lifetime in politics. It’s an eon in the market mindset.
Marj is set to leave Qantas, hand in hand with James Packer. Despite the entire board’s insistence that a failure by the APA bid would see the share price fall, instead it has risen. Geoff Dixon, as wedded to the APA buyout as Marj, is now the shining knight of a revitalised Qantas with a revised profit forecast and a new OMO bright vision of a corporate future full of vim and vigour.
Macquarie Equities aviation analyst Andrew Wilkinson released on Friday morning an upgrade of the 12 month price target for Qantas shares to $7.05. Note key words – Macquarie and $7.05. How odd- that’s $1.60 above the APA offer price. A $3.1 billion loss to shareholders had the bid succeeded.
Goodness gracious. All in the same week that the SMH revealed that James Packer had sold his 1 million Macquarie Bank shares in January & February. After the APA bid had begun, and after Marj had fiercely stated that it was wicked to suggest that Mr Packer had any conflict of interest & would most certainly not be withdrawing from the discussions about the bid.
Packer’s holding in Macquarie was the largest of a single individual. He sold, losing a potential 10% increase in share value since February as well as copping a loss of $1.9 million in dividends. The sales proceeds he did collect have presumably gone into packer’s own Ellerston GEMS Fund, which released its prospectus on Friday, aiming to raise $600 million from the market for an eventual 85% split in investing in Ellerston’s unlisted global equities fund & the remaining 15% going into “special situations.� And among the underwriters? Besides ANZ, ABN Amro Morgans etc etc & oh look Macquarie Equity Capita Markets.
And Saturday’s Herald also reported two previous attempts by Macquarie to lead a private equity buyout of Qantas, both involving the Packers. Is any of this illegal? Probably not. Is it unusual? Within the Australian markets, certainly not. This is a very very small pond, filled to the brim with lots of lovely super fund money, not to mention all that governmental surplus being diverted into investment as well. The cross membership of boards and ownership of chunks of each other is incestuous to say the least; a necessity, it is claimed, by the small size of the talent pool.
Though that definition of talent might be slightly different from the rest of us. It seems that its gunna be a loooong time before the Macquarie led APA debacle is forgotten in the US. Putting 600 hedge fund managers into one room & giving Jim Chanos from Kynikos Associates the microphone is probably not the stuff to make Allan Moss smile. As happened last Wednesday night in NYC. Apart from informing the audience that he’d sold MacBank shares short, confident they were heading for a fall, he was most critical of their accounting practice. This is the chap who, with a fixation about accounting standards, predicted the fall and fall of such financial luminaries as Enron and Tyco.
Finally? There’s Alan Greenspan, 8975 not out, and still influencing US markets, confidently predicting the Chinese economy is heading into bubble-pop–now we’re all in big trouble territory. A market that new wunderkind, Fortescue Metals Groups, is entirely exposed to. “There’s got to be a morning after� coming through the pinewood trees….
& still they come running with their clients’ monies to throw it at anyone hanging up a shingle saying “Priveight Equaty Maniger�. As my father was fond of saying, ‘If it’s too good to be true, then it probably is�. Rather a lot of the Australian market seems to have forgotten that maxim.
Yep, we’re all being ripped off. We’ve all got our super money sloshing round the financial markets, and our lazy super managers are overpaying company directors, and fund managers. They are overspending and wasting our money, and we dont know about it.
My super fund, after 6 months of writing letters to them, finally admitted to me that it has never voted against executive pay. It lazily just holds unit trusts, with managers who have no plans to ever vote against executive pay rises. And my fund is an industry fund.
A recent article said the ASX had risen 24% in a year. And the average return from super funds was 22%. In other words all this rubbishing around with fund managers gives us a yield of -2%. We are better off just investing directly ourselves. In the same newspaper there’s a theoretical sharedholder competition - its currently being won by an astrologer.
One day, ordinary Australian super fund holders will realize just how much they are being bilked by the insiders club which is Australian Business. And then, watch out.
Keep this up Bernice and you’ll be getting job offers.
Enron’s babysitter has been appointed as guardian of the Future Fund!
Babysitter of part of Enron’s pension fund - and were directed to make monies available by the noble leaders of Enron. Later exonerated by US regulatory authorities. But Northern Trust’s appointment is a recognition of the over supply of investment funds in the Oz market - ship it OS. Share price to earnings ratio too dodgey here.
I think I’ll start at the end and work my way up the screen.
On Northern (Enron’s babysitter) as trustee they make no decisions on investments. They are responsible for holding the certificates (in the pre-electronic language) and effecting the transactions. Bernice is right, I think, in suggesting that Northern got the gig because they operate overseas. But so do other investment banks, like Morgan Stanley, who were pipped for the contract and are well-established here.
I heard the Northern guy interviewed and he said they were going to set up an Australian operation and employ real Australians. So I think it must have been a very competitive tender and seen by Northern as a beachhead with the critical mass to start up their Australian venture.
Absolutely nothing wrong with any of that.
As to shipping the money overseas, I do believe the FF, which is patient money, should leap at infrastructure investment in Australia and a nice broadband network should be near top of the list.
But investing $50 bill in the Australian market is a big ask and there are other reasons why we should invest overseas. The principle one relates to our balance of payments. Super and Cossie’s fancy funds are savings. We need savings. If we invest overseas, a dividend stream comes back the other way, which helps our BOP. We need to build it to the size of the dividend stream going out of Oz because of overseas ownership of our enterprises, our overseas debt, and our negative trade balance. The more overseas investment the better in a sense.
Dave it’s not easy for a large fund to do better than the market without undue risk. I’d be pretty happy with my 22% if I were you.
A few years ago an investment house did a study on investment styles. One was to use professionals like your super fund does.
The second was to look at the performance of direct share investors (I’m one of those).
The third was to put all the names up on a board and throw darts at it. (I don’t think they did that literally, but it was meant to be random.)
Obviously the last is going to produce a ‘market perform’ result if you do it often enough, but so did the other two. The three styles produced the same results.
The problem is, though, that roughly half the private direct investors do worse than the market. Those that do OK have to put a fair bit of time and effort into it.
I started in September 1991 and I reckon it took me about 10 years to learn the ropes, in which time I read a lot of stuff and went to lectures and courses. So be warned!
Brian.
I’m confused.
You state that basically the random ‘dartboard’ approach would yield the same result over time as the overall market.
You further state that half of the private investors did worse than the market. This makes sense. And half did better.
In other words, the facts you quote bear out what I’m saying. Fund managers are a waste of time, they do no better than the overall market.
Curiously, your post seems to have the position that when an individual outpeforms the market, its fine, but when they under perform, its somehow the result of inexperience. But it seems really its just the role of luck. And a fund manager could underperform as well. We just seem to blame ourselves more when we dont perform, than we would blame a fund manager.
Really, if ‘past performance is no guarantee of future success’ then really there is no need for the funds management industry at all.
Bernice I agree about the Chinese market getting toppy. Whether it means that the actual economy is toppy, is another question.
I think the story with Packer is that he doesn’t want to spend his time directly on managing his media investment. They say he’s very good with the figures. I suspect he wants to spend more time on things he’s both good at and is interested in. If he’s starting a publicly listed hedge fund, he’ll need time to manage that.
Remember he also has private interests in the rural sector and meatwoks etc. which must occupy a few minutes a week of his time.
I don’t have shares in Macquarie.
I do most of my share investing through Macquarie Financial services, their private broking arm.
I do have a small super rollover which I invested through their financial planning section, but not with them it’s with Colonial First State, who have it in a master trust (you get diversity of managers that way, which I gather is what Dave gets).
I do have direct investments in three of their property trusts (Office, Countrywide and Leisure) which have overseas property investments as well as here.
I also have some Macquarie Communications Group shares. It’s a company with investments in media infrastructure.
First up Macquarie does a lot of things other than private equity deals. Underwriting share floats is one of them and fairly normal fare. I don’t think I’ve got much downside if they go bust, it’d be an inconvenience for sure, but the bits would be sold off.
Investorweb, which has a rare “buy” on them, emphasises their fund management operations with A$131 billion of assets under management. A lot of this is mundane things like shopping centres and offices, but increasingly exploring other market niches.
Aspecthuntley give the recommendations of 10 major brokers. Two have it on a ’strong buy’ five on a ‘moderate buy’ and three on ‘hold’. That is way more positive that the market, the peer group and more positive than any stocks I own. It’s brilliant, in fact. you can be sure your super fund has a slice of the action.
The story in large part with Qantas is that the APA bid has made people realise the proper worth of Qantas. Dixon had been whingeing for ages that it was undervalued. It inhibits his capacity to raise capital or to borrow.
Aspecthuntley have 13 recommendations which run the full spectrum. there are two ’strong buys’, three ‘moderate buys’ and the average is slightly positive.
The Macquarie analysts inform their broking network (Macqurie Financial Services) which are extensive and Australia-wide. They also sell their research to funbd managers, including, very likely, your super fund. You can be sure that they are focussed on getting it right for their investment clients rather than any silly corporate games.
There is a bit of a herd mentality amongst the analysts, however. Leighton ran up from about 70 cents in 1990 to over $12 in 2005. Then they pulled back to under $10 and most brokers were saying “sell”. They pulled back last year from $20 to about $16 in 2006 and again it was “sell”. Today they pulled back 3% to $44.18, so a “sell” rating can’t be far away.
Bernice, this is for me a very interesting post. You certainly have information I don’t have. From where I sit, I think you’ve overcooked the drama a bit, but then I’m not an insider and if something is going belly-up they sure won’t tell me.
Dave,
you can manage your own super fund if you wish however,
1) You will find it takes a lot more time and effort than you apparently seem to think. You cannot simply park your money in a couple of shares and leave it there, you have to be actively managing your investment. There is also the ongoing administration of the fund in the form of tax returns etc.
2) You ignore the costs the fund managers costs that would transfer straight to your own self managed fund, such as accountancy and audit fees. On average this would probably amount to $2-3,000 per annum for a small self managed fund.
3) Diversity - a managed fund can get a much more diversified potfolio. The more diversified the lower the overall risk.
If the market averaged 24% and I got a return of 22% on my investment I would be pretty happy with the fund manager.
If you compared the ROI of self-managed super funds with the ROI of managed funds I know which one would come out on top.
Dave, lets take the three scenarios separately. If you randomly sample the market and your sample is large enough, what you get is the market. That is if your sampling technique is any good. So that exercise is a waste of time.
I’m not sure that’s what they actually did, because I heard about it in a public lecture.
Secondly, private direct investors.
Many go in with little knowledge, on a tip from someone, or enter the market when it is inflated and everyone’s doing it. They end up buying high and then selling in a panic. Or holding on to a dud share to get their money back, which they never do because it’s a dud.
There is risk in the market, and you can make a lot by successfully investing in high risk stocks. But you have to be on the ball and know what you are doing. Most investors would do well to stay out of such stocks but these companies lift the average.
You should start with enough capital to diversify in order to spread risk. The same lecture said that you get most of the advantages of diversification by buying 8-15 stocks across different market segments. But you shouldn’t buy any business you don’t understand in any market sector you don’t understand, so immediately there is a stack of work. You have to learn about the relevant investment ratios, how the market works, when to buy, when to sell and how to keep reason and emotion apart.
It’s not easy and if you don’t put in the work you’ll most likely underperform. If you outperform you need to review you risk practices to make sure you won’t stuff up. “Market perform’ consistently is not a bad place to be.
The fund managers, who you outsource to, have different investment philosophies and strategies, and offer you funds via prospectus. You really need to work through someone who researches fund manaagers, usually a financial adviser. Best go for one who charges only for time rather than works on commission. A financial advisor will normally advise you to invest funds in a number of differnt outfits. This is essentially what your super fund is doing, it seems to me. It’s sensible diversification.
Fund managers can’t outperform the market on average because they are the market, or, from memory, about 70% of it. But you are right, some will underperform, so it’s best to diversify across different fund managers.
Even large fund managers, like my super in Colonial First State, offer diversity for small investments like mine through masterfunds that allow diversification and switching of the balance of market segments without exit and entry fees.
Unless your super fund is very large, or very clued up and confident, they are probably doing the right thing by outsourcing the intelligent investing. They provide you a conduit, an administrative wrap on the diversity they achieve for you, thus saving paperwork. And presumably they research the performance of the people they outsource to.
That’s probably as clear as mud.
It’s known in the trade as the Random Walk theory
TheAccountant is spot on. It is usually recommended that a self-managed fund needs to be at least worth $200,000 because of the cost overheads. The tax return has the characteristics of a company report and will cost.
Steve, I’d say that past performance is some guide to future performance, but never a guarantee.
Bernice, on PM tonight they reported the Jim Chanos of Kynikos Associates incident in detail, then went to some bloke in Manchester, who also gave Macquarie a serve. He said they pay too much for properties, charge unknown fees, package them in trusts and flog them off to idiots like me and then charge the trusts to manage them.
Well they’ve done OK for me. Macquarie Leisure (owners of Dreamworld) are worth more than 4 times what I paid for them in 1998 and are currently Investorweb’s top property trust according to their 6-factor LPT model.
Macquarie Communications also has a ‘buy’ from Investorweb.
On Aspecthuntley’s consensus ratings both of those, contra to what I said above, have a better rating than Macquarie Bank itself.
The latest issue of The Intelligent Investor arrived tonight. They were impressed with Alan Moss’s investor briefing and mentioned his smile.
So there are going to be a lot of disappointed people if Macquarie goes belly up.
But for me, I could always find another broker and the management rights of trusts like Macquarie Leisure would be bought by someone else. Dreanworld is worth more than double what they paid for it and would stay in the trust, presumably.
This is what Investorweb said on 16 May:
Here’s the PM story on Macquarie.
It occurs to me that he is now influential enough to talk a stock down, which is handy.
Kerel Williams from Manchester said:
Yes, but it is real money they make, not flummery.
I can’t comment on Macquarie Airports group and Macquarie Infrastructure specifically.
The following PM item was on Packer pulls out of media empire.
Ok, I agree with some points:
You save money on investing in a super funds / managed funds versus investing yourself, from reduced compliance costs. I agree, (although this could be an indication self managed super funds are overregulated).
Super/ managed funds help you diversify easier. Agree.
But. I can’t see any compelling evidence anywhere that engaging fund managers actually works better than just investing in an index fund, or doing it yourself.
So a solution could be to have lean and mean super funds, which dont pay commissions to fund managers, and which are frugal as shareholders, and generally vote down executive pay.
There is now such an incestuous financial ‘club’ in Australia- interlocking overpaid directors, wealthy fund managers raking off huge commissions, that investors really do need to get wise about the whole thing.
I also wonder if our belief in the ‘fund manager myth’ is also because it comforts us. Its dispiriting to think that basically the markets are unreadable, that the gushing torrents of wealth and poverty can’t be predicted. Much nicer to think a master of the universe can predict it all. Or maybe its crap and we’re all greedy. I dunno.
I don’t think there is much likelyhood of MacBank imploding, but I’m fascinated by the way the market responds to rumour, connection, personal loyalties and the smell of success. In a month where they have had two major bids fail, & questions, warranted or otherwise, asked about their practices by OS brokerage firms or hedge funds (& some financial writers here) - still their share price rises.
The APA bid with its cast of federal regulators, murmurings backbenchers, hearty board members, swashbucking bankers, cautious local fund managers & OS players who remained less than transparent about their intentions had all the makings of some gloriously confusing Restoration drama. Rather fancy Allan Moss in a powdered wig…It’s better than Desperate Housewives.
And in the name of caution, all of Bernice’s info used in this post, is sourced from the print media - so it’s on the public record, and already out there.
Bernice, I’m disappointed that you don’t have any insider goss. But keep up the good work of highlighting the extraordinary behaviour of these characters from info from public sources!
On withholding information, APN News & Media have yesterday found a 20c final dividend to smooge shareholders days after the private equity bid failed. That is 30% up from last year.
The cold hard fact, however, is that they knew about this and didn’t tell us when they were trying to persuade us to sell our shares. (I’m an APN shareholder and am not amused!)
On Chanos, my firewall has suddenly taken a dislike to my ASX data feed, so I can’t check the charts in detail. But Macquarie’s price has pulled back 8.9% in the past week or so. Chanos makes his dough by shorting companies he considers over-priced. No doubt he has big bucks in each deal. If he pulled only a dozen deals like that in a year making 8% in a week or so, then he doubles his money.
Can anyone explain to me how Chanos’ activity adds anything to the common good? By contrast someone needs to own and run shopping centres, Dreeamworld, bowling alleys, boat marinas for the elite, as well as roads, bridges and airports if the government chooses not to.
So Macquarie’s methods may be questionable, but they perform a useful function.
Chanos, by contrast, seems like an unnecessary leach on the system.