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Financial Planners – providing solutions for your financial future

Sep 23, 2021 10:17:56 AM

Financial Planners – providing solutions for your financial future

In Australia, thanks to the mandatory employer superannuation contribution, we are all much better off in retirement. However, with the average balance of men 45 – 54 having $196,400 and the average woman in the same age bracket having $129,199[1], that hardly sounds enough to pay off your mortgage and live comfortably, does it?

Financial planners are not just there to plan for your retirement, but for a whole raft of situations in which we find ourselves moving through in life. From planning a holiday, planning to buy a property, invest in shares, plan for private school education, maybe even look to invest some inheritance to make it count in your future – and this is just a start.

With a high level of experience and a minimum post-graduate education in financial planning, financial planners are experts in how to reduce your household debt levels, increase your wealth and to set you up now for the future.

Financial planners – simplifying finance

A financial planner’s role is to become a mentor of sorts, to sit down with you from your initial consultation, set your objectives now, and into the future based on your current (and future) financial and personal circumstances.

A good financial planner becomes more than a service provider, they come along your life journey with you and provide advice as life changes.

Ever wondered why some people retire early? Why can they afford a family holiday each year and work the same job as you do? They plan their finances.

Aren’t financial planners for rich people?

No way! Financial planners are for everyone, and the money they charge is a tiny fraction of the savings and income they will generate for you and your family over the journey.

Sure, many wealthy people – in fact most – would have financial planners and advisors helping them achieve their financial goals.

But is doesn’t matter if you are on $25,000, $250,000 or $2.5 million per year, your financial planning needs to start somewhere.

What are the steps of getting into a financial planner?

Financial planners provide a full suite of services and advice from the initial planning stages, to assistance with the execution of wills.

However, it’s important that you come into a meeting with your financial planner of an idea of what you earn, how much your ‘realistic’ earning capacity is in the future, an idea of when you may wish to retire and a clear idea of how much you have in the way of assets, liabilities, and superannuation.

From here, the financial planners will work to set out a plan, set financial objectives and start setting you up for your financial future.

Failure to plan is a plan to fail, can you and your family afford to live on what you have now? What happens if you must retire early? Thinking you want a bigger house or a family in a few years’ time? Want a jet ski? A financial planner can help you get there sooner.

[1] https://qsuper.qld.gov.au/super/how-much-super-should-i-have

Financial planning – Why do you need one?

Sep 23, 2021 10:12:32 AM

Financial planning – Why do you need one?

There are many positive benefits of employing the services of a financial planner. Although some people may think they are only for the people ‘with money’, this statement couldn’t be further from the truth – and why? Well, let’s start with a question.  

What is the present value of $1000 today? Simple right? It’s $1000. Although this makes sense…it’s not correct.

As any good financial planner will tell you the present value (PV) of any sum of money is the sum of all its future cash flows or future value (FV). No, this is not technical, financial trickery – you might need a financial planner to assist with getting your head around this concept.

Planning for your future

Financial planning looks not at what you have now but what you realistically can achieve in the future to make you and your family financially secure and comfortable, then works its way backwards from there.

Getting back to our question, a financial planner sees not $1000, but sees the sum of all the future cash flows that $1000 could generate if invested correctly for you over a defined period. Would you like $1000 now or $3000 in the future? Financial planning helps you achieve this.

What do financial planners do?

Accounting for the Financial Planning Association of Australia, a financial planner will be able to help you understand your financial situation, develop a strategy, and give you guidance on things such as funding your children’s education, helping with budgeting and tax planning, having enough money to live comfortably in your retirement, as well as with things such as debt management, insurance, estate planning and so on.[1]

In terms of the benefits you seek, maybe you are looking to pay off your home loan quicker, pay down debt, plan for private school education, build an investment portfolio or plan for your retirement – this is all done through a set of steps.

What are the steps in a financial planning process?

There are three key steps to financial planning that every manager will work with you to achieve on an ongoing basis. These steps include the planning stage, the execution step, and the feedback step.

In the planning stage, your financial planner with work to understand your financial needs, review your income, your assets, and liabilities as well as your time horizon and risk tolerance. In this stage, your financial planner will set objectives, so benchmarks that you both want to achieve. Such as have $100,000 in investments outside my Superannuation by the time I am 50.

Based on this, the manager will then look to the execution stage. This stage focuses on implementation strategies to either pay down debt or have that $100,000 work for you to grow. This growth could be through a wide range of recommended investment instruments such as bonds, bills, funds, ETFs, shares and even term deposits depending on your individual circumstances.

Then finally, the feedback step, which is a regular review of your financial plan, your financial situation, and the performance of your investment portfolio. With potential adjustments to your financial planning strategy should that be required to hit your objectives set in the planning stage of the financial planning process.

Financial planning is not something that is exclusive, on the contrary, the people that can ultimately benefit from it the most is every one of us. Planning your financial future is essentially setting yourself up now, to not put that $1000 into your pocket, but to invest into something that ensures the future and retirement you deserve.

[1] https://fpa.com.au/what-is-financial-planning/choose-cfp-professional/

Market Bubbles and Recovering from a Crash

Sep 10, 2021 10:31:12 AM

Market Bubbles and Recovering from a Crash

So what did we learn from the recent Cryptocurrency market bubble?

Nothing – in short.

Nothing we did not already know...

The first thing to understand is that cryptocurrency is not the first bubble market and won’t be the last.

History repeats itself. As long as there are market participants engaging in the free trade of an asset – financial bubbles will inevitably ensue – some fortunes made with many more lost

A brief history of some notable financial bubbles is below…

Japan’s bubble was characterized by a rapid acceleration of real estate prices (and subsequently stock prices) and an overheated economy. All of this was fuelled by a Bank of Japan monetary policy error, lowering interest rates and allowing uncontrolled money supply and credit expansion. The euphoria phase was characterized by Japanese citizens, traditionally great deposit savers, shifting money from savings accounts into the capital market.[4]

Picture 1-1

*Eerie similarities between the Japanese Asset Price bubble and the current US and Australian Economy – I will examine this more closely in my next article on Modern Monetary Theory

Here are the 5 stages of financial bubbles every investor should familiarise themselves whether they knowingly or unknowingly decide to participate in the next one:

Stage 1. Displacement

An event or innovation occurs that sharply changes expectations. This phase is typically grounded in reality and good intentions.

The idea for distributed digital scarcity-based cryptocurrency was genesised in the 1990s by Chinese computer engineer Wei Dei. This idea was refined and some say mastered on 18 august 2008 by Satoshi Nakamoto with the mining of this bitcoin block.

The genesis block of bitcoin ledger read: The Times Jan/03/2009 Chancellor on brink of second bailout for banks

The time-stamped quotation of the Times headline and an ode to the quintessence of bitcoin – a decentralised alternative to the current central banking system.

A well-intended sentiment which in time would only grow in popularity over the next decade.

Stage 2. Boom

Prices rise slowly at first, following a displacement, but then gain momentum as more and more participants enter the market, setting the stage for the boom phase. During this phase, the asset in question attracts widespread media coverage. Fear of missing out on what could be a once-in-a-lifetime opportunity spurs more speculation, drawing an increasing number of investors and traders into the fold.

Stage 3. Euphoria

Valuations reach extreme levels during this phase as new valuation measures and metrics are touted to justify the relentless rise, and the "greater fool" theory—the idea that no matter how prices go, there will always be a market of buyers willing to pay more—plays out everywhere.

Common for investors to disregard investment strategies and submit to the hype where high valuations are perceived as asset success which is a misnomer.

Many crypto investors telling themselves in 2021 “this time it’s different”…

Stage 4. Profit-Taking

The smart money begins heeding the warning signs and is selling positions to take profits.

Stage 5. Panic

Reality sets in, investors panic, and prices reverse course and descend faster than they increased.

Why do bubbles happen…

I could take this opportunity to dump an excessive amount of academic research as to why financial bubbles occur- referring to the different types of behavioural and cognitive biases which drive them.

However, I would much rather impart a concise explanation of market bubbles from Warren Buffet followed by some practical steps on how an everyday investor can survive the next one…

"People start being interested in something because it's going up, not because they understand it or anything else. But the guy next door, who they know is dumber than they are, is getting rich and they aren't," he said. "And their spouse is saying can't you figure it out too? It is so contagious. So that's a permanent part of the system."[5] -Warren Buffett October 1, 2008…

Key Lessons to Learn from the Crypto Bubble:

  1. Risk-weighted Asset Allocation

The foundation to successful investments is diversification – not just across asset classes but across risk profiles also.

Conservative investments such as property, bonds, Bluechip stocks, should always make the majority of anyone’s portfolio.

Even our managed investments – like our Swing Strategy – which is although high-performing, should only be a 10% allocation of the client’s portfolio due to its assertiveness.

Even I could not ignore the potential for high return in the cryptocurrencies earlier this year – and when many of my clients discussed it as a potential investment I simply told them ‘no more than 1% allocation of your portfolio or only as much as you’re a prepared to lose’.

  1. Avoid Getting-even-itis!

Loss aversions are the tendency of investors to NOT cut losses short, and instead, hold on to losing investments until they can be sold at the break-even price paid for it. This happens because realizing a loss is painful, while it’s easy to feel good about selling something a gain. [6]

An observed continuation of loss aversions is the tendency to increase in an attempt to get even with the market.

There is a temptation for investors who were scorned by the recent crypto crash to chase their losses and take start making wild speculative investments in an attempt to recover their lost monies.

It is vital the investor avoid getting-even-it is making an immediate transition or return to more sustainable investing.

To find out more about Walker Capital’s Managed Investment please schedule a time with one of our staff.

[1] https://www.history.com/news/tulip-mania-financial-crash-holland

[2] https://www.historic-uk.com/HistoryUK/HistoryofEngland/South-Sea-Bubble/

[3] https://www.focus-economics.com/blog/railway-mania-the-largest-speculative-bubble-you-never-heard-of

[4] https://www.investopedia.com/articles/personal-finance/062315/five-largest-asset-bubbles-history.asp

[5] https://www.cnbc.com/id/26982338

[6] https://www.nngroup.com/articles/prospect-theory/

Cryptocurrency | 5 MIN READ

Why Cryptocurrency will never work…

Sep 10, 2021 10:16:44 AM

Why Cryptocurrency will never work…

When the price of something goes up and up, not because of its intrinsic value, but because people who buy it merely do so with the expectation to be able to sell it again at a profit – what is known as The Greater Fool Theory[1] – that is to say its price is solely determined by speculation and confidence… it never ends well.

When this Greater Fool Theory effect is coupled with a mass infection of confirmation bias – that is investors convince themselves intrinsic value is much higher than it is – financial bubbles tend to follow.

Bitcoin continued to sell off this week down to $35,688 USD currently which is nearly 50% less than its all-time high of $64,863.10 only 6 weeks ago.

We hold the belief it will get a lot lower in the weeks and months to come and here’s why…

The main criticism of cryptocurrency – other than price discovery – is its inadequateness to serve the 3 main purposes of currency

3 properties of currency:

  1. Store of Value

Maintains its value over time[2]

The speculative forces which underpin cryptocurrency make it probably the most unstable asset we have ever seen. To be an effective store of value a currency’s volatility must be such that it does not cause significant deviations in its purchasing power.

…Strike #1 for BTC

  1. Unit of Account

A standard unit of numerical measurement of the market value of goods, services & other transactions.[3]

Cryptos do provide a standard unit of measurement, offering exchange rates for USD and other cryptos – however, due to the instability of their prices, it makes the practicality of trading goods and services with cryptocurrency impossible.

Strike #1 and a half

  1. Medium of exchange

Can be used to intermediate the exchange of goods or services[4]

I do not doubt that blockchain technology has its place to be an effective utility in the future. However, as a currency, it will never replace any of our current reserve currencies until it better serves the aforementioned properties.

So, as we can see the inhibiting factor preventing cryptocurrencies, like bitcoin, from being adopted as world reserve currency stems predominantly from its excessive volatility.

The following needs to take place to suppress crypto volatility:

Targeted Price Range

Let’s use BTC as an example as it pertains to trade: The largest participants in the currency markets are countries and large MNC’s who deal in cross border trade which create a need to exchange one currency for another.

For a company or country to exchange in BTC for their goods or even their own currency, they would need to have confidence in the stability of the BTC to use it as a medium of exchange.

In order to stabilise BTC the supply of BTC will need to be controlled by a central body so that the central body could increase and decrease the supply as needed to stabilise price within a targeted range and give market participants confidence to use BTC as a medium exchange (same can be said as a store of value)


Furthermore, the central body regulating the supply of BTC will need to be an independent body that must not only ensure the price stability of BTC but also must make inflationary considerations when adjusting the supply of BTC.

As oversupplying BTC to the market could lead to inflationary pressures…

Who said Decentralised was a good thing for a currency?

Essentially, BTC rode the curtails of an anti-establishment movement which started with many being disenfranchised and discontent with the accommodating nature with which the central banks bailed out the greedy commercial and investments bank during the GFC.

The genesis block of bitcoin ledger written by Satoshi Nakamoto read: The Times Jan/03/2009 Chancellor on brink of second bailout for banks

The time-stamped quotation of the Times headline and an ode to the quintessence of bitcoin – a decentralised alternative to the current central banking system.

What Satoshi failed to realise is that currency must be centralised so that its supply can be regulated and its price stable for it to be effective.

So, Bitcoin deluders can shout ‘Power to the People’ all they want whilst preaching the benefits of decentralisation but the reality is that decentralisation is the antithesis of an effective currency.

Blockchain – not currency

Blockchain technology and smart contracts are truly innovative as a type of business improvement software. Collaborative technology, such as blockchain, promises the ability to improve the business processes that occur between companies, radically lowering the “cost of trust.”[5]

PwC conducted an explorative dissertation on all its potential uses – found here

Blockchain is the technology which allowed allows cryptocurrencies – like BTC – to exist.

The idea for distributed digital scarcity-based cryptocurrency was genesised in the 1990s by Chinese computer engineer Wei Dei. This idea was refined and some say mastered on 18 august 2008 by Satoshi Nakamoto with the mining of this bitcoin block.

Bitcoin hijacked a good technology with real practical uses in an effort to create money from nothing…and people bought it mistaking increasing price as an indication of successful asset performance.

[1] https://www.investopedia.com/terms/g/greaterfooltheory.asp

[2] http://money.visualcapitalist.com/infographic-the-properties-of-money/

[3] http://money.visualcapitalist.com/infographic-the-properties-of-money/

[4] http://money.visualcapitalist.com/infographic-the-properties-of-money/

[5} https://www.pwc.com/us/en/industries/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html

Cryptocurrency | 5 MIN READ

How to start out in alternative investments?

Aug 20, 2021 11:09:17 AM

How to start out in alternative investments?

Like many investors out there, you have decided to ‘start out in alternative investments’. You understand your risk tolerance and you have your objectives in place – if not, you obviously didn’t read the last section, please do!

Now it's time to work through how to get started. As we have mentioned more than a dozen times in this book, it is vital that you get advice first. Speaking to an expert in alternative investments is key to your success, when starting out in the world of alternative investments.

You may think that investing in a managed fund is the best path for you, or maybe a piece of artwork. But which fund? Which piece of artwork? Why?

This is where the experts come into action. They can provide you with factual data on the performance of their funds, of their investments, of what your money ‘could have looked like’ had you invested with them 1, 3, 5, 10 years ago. Often this is very compelling, but always remember, that past performance is not an accurate predictor of future returns!

It must be noted though, that in the wake of the Royal Commission into the Financial Services Sector, new laws require a financial adviser to recommend an investment strategy that best suits the client so the expert should be able to speak about more than just their own strategy or an MDA, but a range of financial products to best identify what will suit your particular needs.

As an investor that is new to alternative investments, it is often easy to get caught up in how well funds have performed, but you need to ask why? What market conditions lead to this?

Although you might feel like a ‘dummy’ before you put your hard-earned money into a fund, you need to understand everything about how it works, you have every right to ask why, what, when, where and how as many times as you need until you feel comfortable.

Should you be investing in a fund or a scheme, there will always be a prospectus or information memorandum for you to review. Take it to your financial planner and/or accountant and ask them to review it, again ask as many questions as you can.

The key is not being caught up in all the ‘smoke and mirrors’ that sometimes-unscrupulous fund operators have. For example, from a sleepy little town in Northern New South Wales, Kingscliff came Gold Sky, voted the #1 fund in a prestigious Hong Kong awards for fund innovations.

The fund claimed to use ‘big data’, ‘social media’ and ‘quantitative analysis’ to deliver returns well beyond market averages. Backed by big named sports stars, and holding lavish events with industries heavyweights such as Mark Bouris guest speaking, everything looked like gold for this little fund.

Then, it all came crashing down as the SEC and ASIC started peeling back the layers of the onion, looking into the director, his fund’s management experience and of course the company balance sheet and realised it was nothing but a Ponzi scheme, leaving investors over $12 million out of pocket.

By definition, the “key elements of Ponzi scheme are as follows: (1) using new investor funds to pay prior investors; (2) representing that the investor returns are generated from a purported business venture; and (3) employing artificial devices to disguise the lack of economic substance or defer the recognition of economic loss”.

In short, where money is involved, unfortunately, there are in many cases a large number of unscrupulous operators, doing a lot of things that are not only bad business but also illegal.

Before you step into investing, be sure to get independent advice from more than one person including your accountant, your financial advisor, and your lawyer. But if you don’t have any of those, maybe consider looking into getting one, as you want to make sure you are always protected.

What type of investor are you?

Aug 20, 2021 9:28:03 AM

What type of investor are you?

Now, having reviewed the multitude of investment opportunities, both in traditional and alternative investments, you should have a grasp of what each investment avenue can provide and where you potentially fit in.

Odds are, as this is a beginner’s guide, then you will be starting your journey into investing. If, however, you are reading this section of this e-book, then you have started your journey in the right way. Getting information and a basic understanding of the different types of investments - both alternative and traditional – is paramount before you start anything.

Once you have finished this book, sign up and attend a few seminars, take a workshop or two, even log in and start trading on a simulator – such as the ASX Game – which allows you to trade in live conditions, but with money that is not your own. Therefore you limit any losses entirely, but unfortunately, you don’t make any gains.

So, now to the million-dollar question, what type of investor are you? The key is to understand first what your objectives are? Are you looking for the thrill of trade, buying and selling quickly and taking risks, or are you looking to invest for the long term, maybe to support or fund your retirement?

Like you would a business plan, firstly, set yourself a series of key goals or objectives. These can include setting up a residual income stream in 5-10 years or turning $10,000 into $100,000 in ten years. Ensure you are being SMART or, Specific, Measurable, Achievable, Relevant and Timely.

For example, by 2025, I want to have a diversified portfolio of shares with a value of $60,000. So, even if you have to put in $12,000 per year, or $1,000 per month into your portfolio and you make no capital gains through the shares, this is achievable.

Once you have 5+ objectives in place, now it is time to understand your risk tolerance. Can you afford to lose everything you are putting in? If the answer is no, then shares, cash and property through the ‘traditional’ investment channels are right for you. Potentially being part of a managed fund, even investing in some art could be of benefit.

On the other hand, if you have come into some money – through inheritance or otherwise – maybe you own your own home, and you are looking to invest money and make a higher return – with little to no consequence to your livelihood or the roof over your head, then potentially looking at investing in a fund, ETFs or even CFDs could be an option.

We will always put a warning in place, that these alternative investment channels are used by experts, as when people with a little knowledge play in this space, they are often taken advantage of and can lose a lot more than you thought you were investing – as mentioned above.

So, the key is to get advice, seek experts to guide you. For example, many MDAs – such as the MDAs at Walker Capital – provide minimum investments of $10,000, and their returns – which you can see for yourself on our website – often buck the trends in the marketplace. It must be noted that the investment strategy used by Walker Capital as part of the MDA includes investing in highly risky and speculative products.

While investing is often seen as a long term strategy to future wealth and sustaining your lifestyle, there is no question that when you put your own money in, you become very interested in reading about company information, market movements and looking for the next play for your portfolio. Stay informed, read the financial papers, websites and blogs from ‘real’ authority figures – and NEVER invest more than you can afford to lose.

So, you could be a risk-averse investor, putting your money only into ‘blue-chip stocks’ such as BHP and the banks, while ensuring that you have your mortgage paid and your kids school fees paid. On the other side of the coin, you may have a high-risk tolerance, happy to risk $1,000, $10,000, $100,000 even $1,000,000 if the payoff is worth it.

The key is to set your objectives, set your limits, get expert advice and stick to your line – the moment you start deviating, getting carried away or ‘straying from your strategy’ this is where mistakes can be made and losses incurred.

Other Investments

Aug 20, 2021 9:25:54 AM

Other Investments


Investing in art has moved from the stuffy collections of the wealthy elite, into the mainstream as investors around the world seek to diversify their portfolios, hedge against risk and collect some beautiful talking pieces for their office or home walls along the way.

In 2019 the Art Basel UBS Art Market Report contended that the global art market was worth close to $US67 billion. Now to many investors, this may seem like something too good to miss out on, however, although the market value increased vs. 2018, the net gain over 10 years is 8.7 per cent, which is lower than the Australian rate of inflation! 

With over 40 million transactions in the global art market, there is an underlying assumption of ‘liquidity’ in the market, as could be assumed with the trading of shares, bonds or other financial instruments. However, this is not the case for all art, the market certainly is a ‘buyer beware’ scenario.

Like with other financial instruments, without prior experience or knowledge an investor wouldn’t simply walk in and buy any art piece off the shelf – unless they had the means to do so and like the work.

There are indeed intermediaries, galleries, and buyers’ agents providing services from simply the buying and selling of the works, through to providing services such as ‘buyers agents’ as you would find in real estate, who scout out particular works or artists. In addition, there are art investment specialists that work directly with clients to purchase high growth prospect works from rising or established artists.

It is often said that beauty is in the eye of the beholder, and no industry is this more apparent than the art world. What some people may see as an eyesore, could fetch astronomical prices at auction; it is simply about investing in the right works at the right time, and like any asset class, knowing the right time to move them.

Transparency and markets are often an issue with art

It is no secret that there are forgeries and many cowboys trading art around the world, and not merely in a Jack Ryan or James Bond thriller. Artworks, especially those considered ‘fine art’ can be sold for millions, tens of millions, even hundreds of millions of dollars, so it is no wonder there are forgeries and fakes circulating out in the marketplace.

The art market as a whole is largely unregulated, leading to a wide range of issues in itself. In addition, the trade in fine art is unpredictable because it depends not just on supply and demand but also on the unmeasurable factor of taste.

Although this is starting to evolve and change, with many art registers and auction houses around the world implementing blockchain technology for the purpose of cataloguing and tracking the movement of art from galleries, through to storage to stamp out forgery.

Like all investments, for those who are entering the market for the first time, or potentially looking to step their investment up a level, seeking expert, certified & professional advice is always the best course of action. As previously mentioned, there is a wide range of experts around the world that specialise in particular art types or even investment art pieces.

These are pieces that are in high demand by private and corporate houses, that seek to lease the asset, providing ongoing and incremental returns, while the owner also enjoys the asset value appreciation. Through the right investment strategy, there are significant opportunities and ROI that can be realised, not only for a capital gain but also for portfolio hedging.


Like art, antiquities have grown significantly in appeal for portfolio diversification in the past few decades. However, before such time, antiquities have been the source of much conflicts, such as the crusades in which the knight’s templar plundered much of the middle east in the quest for the holy grail, said to be the cup that Christ passed around at the last supper.

All that aside, antiquities have a large potential capital appreciation, and many of us don’t even know what we may have in the cupboard. From dinner sets, glassware, pottery, vases, furniture that has been created by famous artists, or production houses – such as Royal Doulton – have huge potential for capital growth.


If you were lucky enough to get your hands on a bottle of 1951 Penfolds Grange Hermitage from your grandparent’s cellar from back in the day, you would be doing ok. Individual bottles of the 1951 vintage are still held by collectors; one sold at auction in 2004 for just over $50,000.

The global wine industry was valued at approximately USD 302.02 billion in 2017 and is expected to generate revenue of around USD, 423.59 billion by the end of 2023, growing at a CAGR of around 5.8% between 2017 and 2023.

Investment in wine most certainly is not a new idea, however with high levels of transparency, accountability and liquidity – unlike say cryptocurrencies – there are huge opportunities to be made at all levels of the spectrum. It should be remembered that we are not suggesting you head down and get a case of 2019 cleanskins from your local bottle shop as an investment.

The fact of the matter is “less than 1% of all wine produced worldwide may be considered investment grade, with the market traditionally preoccupied with the prestigious chateaux of Bordeaux. The finite quantities produced, ever-decreasing through consumption generally ensure predictable growth in the long-term with a perfectly inverse supply curve”.

But in saying that, as new and emerging markets – such as the Chinese & South East Asian middle-class rise in numbers and appreciation of wines, the markets are certainly being challenged in terms of their supply/demand curve.

Like investing in stocks, art or maybe a fund, it is important to not just go it alone. Also remembering that just because you may like a particular wine, it doesn’t make it valuable. There are many wine shows around the capital cities and wine regions of Australia, as well as auction houses – such as Langton’s in Melbourne and Christie's Auction House in Sydney – that run specific wine investment courses, auctions and of course events.

Not only could you make a good investment by attending such a course, but also you will learn a lot and have a great time while doing it.

Other alternative investments

These include Private Equity Infrastructure, Private Equity Real Estate and Private Equity Debt Funds; these are very selectively used and are most certainly not available to any investor off the street.

The investments outlined are highly complex financial instruments that are used by only ‘institutional investors and extremely wealthy individuals.

That being said, it is still very important as you move through your investment journey, especially that into alternative investment opportunities, to understand them – if even from a basic level. As such, we have provided a brief synopsis of each to give you an understanding.

Private Equity Infrastructure

Investing in Private Equity (PE) infrastructure is an investment in utilities, transport, social infrastructure: such as hospitals and schools and of course energy assets. Unlike ‘private equity’, PE Infrastructure is treated differently due to its low volatility and strong cash yield. In addition, infrastructure assets performance is often implicitly or explicitly linked to macro indicators such as inflation, GDP, population growth, and has a very low correlation with other asset classes.

So, why can’t I jump on this asset I hear you say? Well, often the buy-in for such an investment is in the Millions, even hundreds of. Not only that, but they are highly complex in their structure and done through the big end of town. So although it would be great to put your $10,000 savings into, unfortunately, this is not for you.

Private Equity Real Estate

Typically for private equity real estate, the minimum rate of investment is often starting from $250,000. This is often a barrier to many investors.

Private equity real estate is an asset class composed of pooled private and public investments in the property markets. Investing in this asset class involves the acquisition, financing, and ownership (either direct or indirect) of property or properties via a pooled vehicle.

Although very risky – due to the fluctuations in property prices, supply, demand and other both micro & macro-economic factors – the return on investment is not uncommon to realise 8%, 10% even 20% depending on the countries and regions you are investing in, and the types of real estate assets – i.e. hotel, commercial, mixed-use and residential developments.

Private Equity Debt Funds

Created, raised and managed by professional investment firms and managers, a private equity debt fund is used for making investments in various ‘debt’ securities according to one of the investment strategies associated with private equity. At inception, institutional investors make an unfunded commitment to the limited partnership, which is then drawn over the term of the fund.

Similar to other funds, there are passive and active funds, depending on their level of management, however, as a general rule, they offer less attractive returns for investors. “A debt fund may invest in short-term or long-term bonds, securitised products, money market instruments or floating rate debt. On average, the fee ratios on debt funds are lower than those attached to equity funds because the overall management costs are lower”.

Private Equity Buyouts

Aug 20, 2021 9:17:13 AM

Private Equity Buyouts

Often seen as a contentious issue within the Australian domestic & political arena, a private equity buyout is “A situation in which the shares of a public company are bought in order to make it into a private company”.

Throughout Australia’s robust investment history, there have been a wide array of positive and negative news stories when it comes to ‘private equity buyouts. These include the saviour of some companies and the complete and utter failure of others.

There is a wide variety of rationale for private equity buyouts, for both investors and shareholders alike. Private Equity allows the company to be taken out, presumably by a more skilled operator and then essentially take their business underground. Meaning that they can restructure, reorganise and remarket themselves as a ‘new and improved’ business.

How are private equity buyouts funded and how can you invest in them?

Often seen as ‘corporate raiders’ Private Equity Buyouts are undertaken usually through funds, that as previously discussed are created for the purpose of purchasing, getting, restricting and spinning off – selling the whole or the best parts – of the company in the short to medium term.

Other Private Equity Buyouts are done through a fund, but with the long-term play at hand, looking to buy, build and grow the assets, with fund unit holders realising their returns from the successful implementation of this strategy.

So, like an investment in a managed fund, a private equity buyout fund will have a prospectus or information memorandum that is available for investors to review and apply to invest in should they meet the investment criteria.

With these sorts of investments, they can often be risky depending on the nature of the business and the financial and operational state it is currently operating under. As such, they are usually restricted to institutional and sophisticated investors – such as your industry superannuation fund or Gina Rinehart.

An example of these sorts of Private Equity Buyouts are those undertaken by Quadrant Private Equity in Australia, who have a range of funds and portfolios with an asset mix to diversify the risk and provide the best possible returns for shareholders.

Why are Private Equity Buyouts so important to Australian business?

In 2019, “Pacific Equity Partners’ data on the number of deals greater than $200 million suggests activity was relatively stable, with 17 deals done in 2019, up from a five-year average of 15 deals”. “While as a whole, in 2018 private equity registered $28 billion for 72 buyouts, rising 85.2 per cent from the year before with $15.1 billion covering 67 deals”.

As can be seen, the sheer volume and value of these transitions are huge for the business owners and investors of Australia. In addition, being part of a buyout fund is equally important.

In Australia, we have a long list of high-profile casualties, the most recent of which are well-known retailers such as Harris Scarfe and Dick Smith Electronics. However, often, Private Equity Buyouts have significant upsides, and it isn’t just brands or companies in trouble that are being acquired, with the 2019 buyout of Arnott’s Biscuits being purchased for $3.2billion AUD!

What do Private Equity Firms do with companies once they have acquired them?

There are several key reasons private equity firms purchase companies, or they acquire large stakes within companies.

Purchasing distressed assets to build back up is a key reason for a private equity firm’s existence. That is, where the original management has either mismanaged or doesn’t have the skills or capabilities to take the business through the transition it needs to take to become a great company with long term prospects.

As such often, there are ‘fire sales’ in which investors seek to exit the market in a hurry to minimise their losses (through the share market), or are offered a price for their shares – often pennies on the dollar of what they originally paid – to sell their shares to the private equity firm.

The goal is then, for the private equity firms to bring in management consulting companies, administrates and install their own management teams to bring the company up from the brink of collapse – or even long term losses – to being a successful entity in their own right.

Purchasing companies to pull them apart and spin-off

One of the more aggressive strategies is that of private equity firms valuing particular assets or departments within companies, which are able to be cut out of the business and sold off.

Similar to a car wrecking yard - in which the value of the individual parts of a car are sold off, far outweigh the value of the car sold as a whole – the companies are acquired, consultants are brought in to strategically manage the process, and the company is literally carved up and sold off for profit.

This can be most successful when companies have a range of core and secondary offerings, such as an airline that may have a frequent flyer program, the airline operations, the ground staff, catering and more divisions, that can essentially be picked apart and sold off as individual entities.

Strategic purchases companies to gain a competitive advantage

Many companies rely on their supply chain to operate an effective business model. Often, be it a physical asset such as a railroad, port or manufacturing facility; or a technical asset such as Intellectual property, technology or employee skills, a competitor or upstream/downstream company within the supply chain will often look to acquire companies through private equity deals.

For example, a drinks company may be looking to sure up its supply chain and purchase a bottle making company and a small logistics company, to ensure it always has supplies available.

An example of this is Hancock Prospecting purchasing Atlas mining company in 2018, which held a strategic port that Hancock required for its mining expansion and movement of iron ore. As such, shareholders were offered a ‘buyout offer’ at a premium to the current share offering. This then required a minimum acceptance rate by shareholders, and Hancock was able to gain the strategic asset.

Activism investing

One other rationale for private equity buyouts is that of Activism investment. There are a wide number of activism investment firms and funds that seek to purchase outright or portions of companies that they feel require a new set of values.

This is most apparent in the banking sector, mining companies and anything essentially that has an adverse effect on people, the environment or is considered at the ‘behest’ of the community. It should be noted that these funds and companies often ‘bet against’ these companies, such as buying derivatives against them, to push the price down, but there are many instances where the private equity route is perused, and the company is purchased as a whole.

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