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26 Aug 2022 - Hedge Clippings |26 August 2022



Hedge Clippings | Friday, 26 August 2022

Newly minted Treasurer Dr. Jim Chalmers set the proverbial cat amongst the superfund pigeons this week by proposing that an (unspecified) portion of all super balances should be invested in "national priorities" - areas like "housing and energy". To ensure his point was made, he was supported by Paul Keating, the self styled grandfather and co-creator of Australia's compulsory superannuation system.

Hedge Clippings can see some merit and logic in this - in fact we have previously proposed that given super's long-term investment timeframe of up to 45 years or more, and the long-term investment needs and nature of infrastructure, the $3.4 trillion in super (forecast to grow to over $9 trillion by 2040, and $34 trillion by 2061) makes an ideal source of capital. Added to that, infrastructure as an asset has the attractive investment characteristics of steady long term income and growth, and in Australia at least, a stable political environment. Whilst slightly out of date (actually we couldn't find any date on the report, except at that stage the total in super was a mere $1.7 trillion) this report by the Financial Services Council and EY considered the issue in detail.  

However, the difficulty, as pointed out by a number of super funds and their trustees, is that they're responsible for returns, not national priorities such as housing and energy. This argument falls down of course when one considers the emphasis on the ESG credentials of many funds, and the fact that they're the beneficiaries of a government legislated stream of fees akin to Norman Lindsay's Magic Pudding. Chalmers will argue, with some justification, that given the government's role in supplying the pudding's recipe, plus its generous (but complex and changeable) tax concessions ingredients, that they're entitled to stipulate how and where it is invested.

Up to a point Lord Copper, as Mr. Salter would say. The danger of giving politicians of the day the power to direct which "national priorities" are important is obvious. One would imagine Scomo's priorities for instance might be somewhat different to someone (probably anyone) else's.

Moving on.  

Last week we noted that a strategy paper delivered at the Portfolio Construction Forum (PCF) by Marko Papic put forward the view that President Xi would not invade Taiwan as it would cause China itself too much damage - political, military, economic and social. One alert reader of Hedge Clippings (thank you!) pointed out that the same Marko Papic had apparently prepared a similar presentation for the February PCF, espousing the view that Putin would not invade Ukraine as it would cause Russia itself too much damage - political, military, economic and social. Needless to say, as the Russians invaded Ukraine on 24th February, and the PCF was held on the 25th, we understand there was some deft adjustment to the agenda. This time around we hope his thesis is correct, but hope, as they say, is not a reliable strategy.

Which brings us to anniversaries: As above, his week the war in Ukraine passed the six month mark, when most - but particularly Putin - thought his "military exercise" would be over in weeks. Sadly, next week also brings up the 25th anniversary of the death of Diane, Princess of Wales. But on a happier note, (for those old enough to remember) August 24th was the 50th anniversary of one of the greatest rock concerts of all time - Neil Diamond's "Hot August Night" held at the Greek Theatre in Los Angeles. The resulting live recording was made into a double album running over an hour and a half. Here's a link to Crunchy Granola for old time's sake.

It must be the cry of generations: Oh! for the days when music was music!

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