HFA Symposium

Sydney - Wednesday 21 May 2014; 12:00 - 2:00 pm

The Hedge Fund Association, in conjunction with Pricewaterhouse Coopers, is pleased to present an update on key regulatory matters currently affecting the alternative investment industry. A panel of Pricewaterhouse Coopers senior executives will provide a detailed overview of the following topics, as well as allowing for questions and commentary from attendees:

• Introduction: Ken Woo
• Market trends and insights: Joe Sheeran
• Hot topics - Regulatory framework for an inbound hedge fund manager in Australia: Andrew Wheeler
• Other regulatory updates, including IMR, FATCA and GATCA: Darren Mack/Jodie Bosler

Attendees will enjoy a light lunch, an informative and interactive panel discussion on important regulatory matters, as well as being provided with the opportunity share experiences with industry peers.

Space is limited, please select a link below and RSVP now:

Please direct any questions regarding this event to Adriana Kostov, Australian Regional Director, HFA

Wednesday, 21 May 2014

• 12:00pm-12:30pm Registration, Light Lunch and Introduction
• 12:30pm-1:30pm Panel Discussion
• 1:30pm-2:00pm Q&A/Concluding Remarks

PricewaterhouseCoopers

Darling Park 201 Sussex Street
Sydney NSW 2000
Australia

HFA Contacts:

Global Executive Director - Lara Block
[email protected]

Global President - Mitch Ackles
[email protected]

Australia Chapter Director - Adriana Kostov
[email protected]

Firstly an apology for an error in our Hedge Clippings two weeks ago (May 2^nd) where it was stated that the Federal budget would be handed down last Tuesday, May 6^th. We were a week early, based on our misguided view that "budget night" was traditionally the first Tuesday in May.

Secondly, an apology for suggesting that the pre-budget leaks were designed to be softening us up, and that the news on the night would not be as bad as expected, and we would all thank the Treasurer for being so kind. The fact is that by and large everything on the day was well telegraphed, and therefore planned, perhaps with the exception of the Treasurers' cigar chomping, disco dancing images that somehow made it into the media.

There's no doubt there needs to be some changes made and medicine to be taken on both the revenue and expenditure side, but we can't help feel the PM's "more pain, more gain" mentality is better suited to his sporting attitude than the gentle art of persuading an electorate that the solutions that have been suggested in the budget are acceptable.

As indicated in the previous Hedge Clippings, the risk is that the spending and welfare cuts will damage consumer confidence which is the lifeblood of the economy. Added to that risk is that the PM's and his government's political goodwill has been damaged to the extent that if the budget bills are blocked in the senate, and a double dissolution is called, he might go down as one of the shorter serving PM's in history.

OK, so enough empty opinion. What's the collective remedy of the kitchen cabinet that met today after the early morning swim at LPAC over a cup of coffee?

GST:

Get on with it! Increase it to 12.5% or 15%, possibly in two tranches. OK a broken promise, but only one, as opposed to many. And it would be a brave opposition that tried to block such a move as it would prevent them increasing GST themselves down the track. The decision on widening the GST to include food, health and education was split 50/50 and therefore deferred as I didn't have a casting vote.

The joy of the GST from the government's perspective is the system is already in place, the revenue would flow almost immediately, and there would be virtually no incremental collection costs. And the higher a persons income the more they are likely to consume, which is why it's known as a consumption tax.

2015 GST revenue estimate: $54 bn. Cost of exemptions for food, health and education etc $17 bn.

Revenue benefit: $27bn in 2015 if raised to 15%, and another $15 to $20bn if broadened to include food, health and education.

Income Tax:

Increase the tax free threshold to provide relief for those on lower incomes as a result of the added costs of the increase in GST. By all means tighten eligibility for some benefits to ensure welfare is delivered to the needy, not the greedy, remembering JFK's inaugural address in 1960 "If society cannot help the many who are poor, it cannot save the few who are rich."

We assumed the tax free threshold increase would cost $10 bn, leaving the net increase from GST at 15% between $17 and $37 billion.

The new tax levy for those earning over $180,000 a year is insignificant, reportedly costing $7 a week, or two cups of coffee at that level, and an insult to those lower down the salary tree feeling the pain. GST at 15% would collect far more from the well off than the new tax levy, as well as being permanent.

Budget estimate for individual income and withholding tax is $178.8 billion.

Company tax:

Budget estimated income: $71.6bn. As a thought, why do higher earning individuals pay higher tax rates, but there's a flat tax rate for companies?

Negative Gearing on Investment Property:

Scrap it, to be phased out over 5 or 10 years to ease any sudden fall in property values. It currently cost the government $4 billion a year and is claimed by 1.2 million tax payers. Possibly retain it on newly built homes only.

Added benefit: Improves housing affordability, especially for first home buyers.

Fuel tax:

No need to break that promise, the increase in GST on petrol sales would generate far greater revenue.

Superannuation:

Now it gets tricky!  

Tax concessions on "super" cost the budget $35bn.  However, properly implemented super should result, as originally intended (over time) in the government not having to fund as many retirees.  Estimated cost of income support for seniors (aged pension) is currently $42 bn, so provided super could only, or mainly be taken as an annuity pension rather than a lump sum, the demand or eligibility for aged welfare would reduce significantly.

As an aside, the kitchen cabinet proposed a portion of all super should be invested in Infrastructure Bonds, paying a defined income stream. More on that another day.

Conclusion:

Would all that fix the deficit estimate of $24 billion?  With some adjustment we thought so, even if the calculations were on the back of an envelope, although with the benefit of the Budget Estimates provided by the government's web site.

Would it fix the PM's credibility?  That might be a tad tougher, but on balance we thought he'd have a better chance with the Senate, and possibly the electorate as well.

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

The Supervised High Yield Fund returned 0.21% for March and 7.74% over the prior twelve months with a vol of 0.74%.

Optimal Australia's Absolute Trust returned 0.57% in a choppy market with annual returns of 4.62% and a volatility of 1.6%.

The Bennelong Kardinia Absolute Return Fund recorded a return of -0.63% during April with the 12 month result 7.53% and a volatility of 3.70%.

Morphic's Global Opportunities Fund returned 0.75% in April, slightly under-performing it's benchmark (MSCI ACWI in $A) and recorded 25.08% over the previous 12 months with notable Sharpe and Sortino ratios.

The Laminar Credit Opportunities Fund returned 1.03% during April and 11.81% for the year, strong returns in a low interest rate environment.

FUTURE EVENTS

19-20 May in Sydney, IBR Conferences presents the Unit Pricing Forum. This is a 2 days forum exploring Unit Pricing operational challenges for 2014 & beyond. Topics include new APRA reporting requirements & implementation; impacts on unit pricing reporting and more.

Wednesday 21 May in Sydney: The Hedge Fund Association, in conjunction with Pricewaterhouse Coopers, is pleased to present an update on key regulatory matters currently affecting the alternative investment industry. A panel of Pricewaterhouse Coopers senior executives will provide a detailed overview of topics, as well as allowing for questions and commentary from attendees.

28-30 May 2014 in Sydney: IBR Conferences presents the Asset Allocation Conference. This event has been designed to both update and educate investors by taking an in-depth look at these more adaptive asset allocation strategies and practices and where the best opportunities for high return lay in the current climate.

If you would like your Event listed in our calendar, please contact us.

And now for something completely different this week, maybe you saw this on the news, Tara the cat, latest American hero, I wonder if she has some budget suggestions?

On that note, I hope you have a safe and happy weekend.

Best wishes,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy.  For more information visit www.cpresearch.org.au or contact me by email.

UNIT PRICING 2014 FORUM, 19th - 20th May, Sydney

This 2 days forum will be exploring Unit Pricing operational challenges for 2014 & beyond

• New APRA reporting requirements & implementation: impacts on unit pricing reporting
• Comparison of unit pricing in Australia to Europe
• Tax benefits of rolling from accumulation to pension phase - How to pass these to the members
• Unit Pricing operational risks & unit pricing errors
• Custodial unit pricing embracing change whilst driving improvement in the client experience
• Trustees new after-tax investing responsibilities under stronger super and the fund operations can help.
• Bottom up Versus top down tax provisioning
• Juxtaposition between an increase in unit pricing complexities alongside the desire for more simplified unit pricing process
• Internal Controls - How to minimise the risk of a unit pricing error & operational efficiency

Dates: 19^th-20^th May 2014
Time: 8:30am - 5:30pm
Location: Grace Hotel, Sydney

Click here to view the Agenda and more information on the event.

To register for the conference please download the brochure and fax the form to us or you can email us on [email protected] or give us a call:

Registrations Manager
IBR Conferences Pty Ltd
Tel: +61 (0) 2 9896 0776 | Fax: +61 (0) 2 9896 0796 | [email protected] | http://www.ibrc.com.au

I have always been of the view that politicians, and probably prime ministers in particular, should fade gracefully from the public eye on retirement, and just be happy with their generous entitlements, and excessively generous travel benefits.

My view is normally compounded whenever I hear Malcolm Fraser holding forth on what should be done by the current government. Having secured the largest majority (55) in federal history in 1975, and the second largest (48) in 1977 at the following election it is often argued that he did little with either prior to losing office in 1983. Notwithstanding that, and inexplicably losing his trousers in Memphis in 1986, he continues to snipe from the sidelines, well into his eighties, some thirty years later.

There are exceptions of course for exceptional PM's, and although Paul Keating has been known to air his views liberally, one has to take notice when he's commentating on Australia's superannuation system, of which he was the architect.  So his comments on the ABC's Lateline program this week on superannuation, the pension age, and the need for a Commonwealth insurance scheme for those who live between 80 and 100 are such an exception.

That interview is 24 minutes long and might be beyond the time limits of our readers, so this brief two minute excerpt from the Guardian.com might give you a flavour. In essence Paul Keating makes eminent sense. Not only did he call for an increase in the superannuation guarantee levy to 12% (in reality it probably needs to be 15%), but he also argues against the current call by Treasury and others for a reduction in the taxation benefits of super contributions.

Keating argues that a large majority of the population will not retire with a large nest egg, and that this will be the domain of those relative few with sufficient foresight and fortune to be able to make additional (tax friendly) contributions. His argument that they should be encouraged, rather than discouraged, stems from his belief that whilst it might be a benefit for the better off, at least it is producing an overall benefit to the economy by reducing their dependence on the system in later life.

More radical however is his proposal to have a national insurance scheme for those over 80. I have heard it quoted that 50% of the children born today are likely to reach 100, and no matter how high the current Treasurer wants to make the retirement age, the demographics of longevity, and the cost to the system, are massive. While not necessarily being the greatest fan of Keating when he was in office, it is hard to fault his logic, or his vision.

The reality is that for the majority of the population a 9% contribution by their employer to superannuation will simply not be sufficient to replace their dependence on welfare when they retire. Hence the attractiveness of not only making additional contributions, but also establishing a Self Managed Super Fund in an attempt to have some degree of control and independence over their financial affairs in retirement. It is little wonder therefore that many such self-directed retirees are supporters and investors in absolute return funds.

And on a slightly different Paul Keating note, one of my favourite little books, published way back in 1992 is a small paperback compiled by a Bookman Press containing 96 pages entitled "Paul Keating's Book of Insults". It's a gem, the colour and shape of a banana in memory of Keating's famous Banana Republic comment. I'm sure the current Speaker of the house Bronwyn Bishop would not have let him get away with many of his Parliamentary insults, but they still raise a chuckle.

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

The Monash Absolute Investment Fund returned -1.3% in a volatile equity market. The Fund's 12 month record is strong at 24.77% with a vol of 9.11%.

In its fourth month of operation, and in a choppy equity market, Bennelong's Alpha 200 Fund returned -0.57% during April.

Updated FUND REVIEWS released this week included:

Insync's Global Titans Fund shows the Fund delivering  an annualised return of 10.36% and annualised standard deviation of 8.53% (since inception in October 2009) with sound risk-reward statistics.

Morphic Global Opportunities Fund - returned an annual return of 27.63%. Morphic's philosophy is that only funds with flexible investment and hedging strategies will be able to deliver acceptable, steady, real, absolute returns over the investment cycle.

Supervised Investments High Yield Fund is characterised by positive returns and very low risk. Since inception (April 2009) the Fund has returned 11.16% pa with a volatility of 2.22%.

FUTURE EVENTS

19-20 May in Sydney, IBR Conferences presents the Unit Pricing Forum. This is a 2 days forum exploring Unit Pricing operational challenges for 2014 & beyond. Topics include new APRA reporting requirements & implementation; impacts on unit pricing reporting and more.

Wednesday 21 May in Sydney: The Hedge Fund Association, in conjunction with Pricewaterhouse Coopers, is pleased to present an update on key regulatory matters currently affecting the alternative investment industry. A panel of Pricewaterhouse Coopers senior executives will provide a detailed overview of topics, as well as allowing for questions and commentary from attendees.

28-30 May 2014 in Sydney: IBR Conferences presents the Asset Allocation Conference. This event has been designed to both update and educate investors by taking an in-depth look at these more adaptive asset allocation strategies and practices and where the best opportunities for high return lay in the current climate.

If you would like your Event listed in our calendar, please contact us.

And now for something completely different this week, while we talk of our politicians, at least most of us know if our previous leaders are dead or alive. Unlike these Americans.

On that note, I hope you have a safe and happy weekend.

Best wishes,

Chris
CEO, AUSTRALIAN FUND MONITORS

Connect with me on LinkedIn Twitter Facebook

Last weekend one of our staff members participated in the Sutherland Shire 24 hour Relay for Life and walked a marathon to raise money for her team (Netty Girls) in memory of family members who have died from cancer. Click here to make a donation or watch a short video to see what all the fuss is about.

1 in 2 Australians will be diagnosed with cancer before the age of 85. All money raised through Relay For Life makes a difference in helping fund Cancer Council's critical research, prevention, education and support services. Relay For Life is a fun, outdoor overnight fundraising event that brings communities together to celebrate and remember the lives of those who have battled cancer. Teams take turns to walk or run around a track whilst enjoying entertainment, activities and heartfelt ceremonies.