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Why it's time to get into alternative investing · The Money Puzzle

0:11
Speaker 1: Hello and welcome to the Australian's Money Possle podcast. I'm
0:14
Speaker 1: James Kirby. Welcome aboard. My guest today Kathy Ding I
0:19
Speaker 1: came to know when she was the number one top
0:21
Speaker 1: rated financial advisor female financial advisor in an annual Barons list.
0:26
Speaker 1: She voluntarily hit the ejector button basically on that claim
0:31
Speaker 1: to fame when she joined forces recently with her former
0:34
Speaker 1: colleague at Morgan Stanley Garth Hugh. He's generally known as
0:38
Speaker 1: the King of the Baron's List because he was nominated
0:40
Speaker 1: as the number one advisor in Australia for many years
0:43
Speaker 1: in a row. That together they have formed a new
0:47
Speaker 1: group called Glory House and look, it's an unashamedly upmarket
0:53
Speaker 1: advice and web operation, but it's quickly growing beyond the
0:57
Speaker 1: boutique and apart from Kathy's younk story in financial advice,
1:01
Speaker 1: I want to talk to her about something that has
1:03
Speaker 1: struck me this year with force, and that is that
1:07
Speaker 1: wealthy investors, sort of investors that Kathy and Garth have
1:11
Speaker 1: on the books, they're not just involved in alternative assets.
1:16
Speaker 1: They are committed permanently to investing in this area. Yet
1:22
Speaker 1: it seems to me, the majority of investors that listen
1:26
Speaker 1: to the show are still learning what they are, don't
1:28
Speaker 1: have them in their portfolio, and would like to find
1:32
Speaker 1: out more about them, a pathway towards them, and that's
1:34
Speaker 1: what we have on the agenda today. How are you, Kathy,
1:38
Speaker 1: I'm good at James, thanks for having me. It's great
1:41
Speaker 1: to have you on the show. Has it been going
1:43
Speaker 1: in the world of independent startups and financial we don't
1:47
Speaker 1: have many of them. For all the rich tapestry of
1:51
Speaker 1: francial advice and wealth advice in Australia, there's very few.
1:56
Speaker 1: There are very few people who really have ever made
1:58
Speaker 1: the jump like you have. When Gareth have Glory House,
2:02
Speaker 1: Charlie Viola has made with the Viola Asset Management, you
2:05
Speaker 1: think there would be loose you would think it's right
2:07
Speaker 1: for the taking, but I'm sure it's a hard game
2:10
Speaker 1: to get going on your position being the best, probably
2:13
Speaker 1: the best on Femaie Financial Advisor. Has that made a
2:16
Speaker 1: difference and has it changed the way you talk to
2:19
Speaker 1: your own clients?
2:21
Speaker 2: I think it definitely makes a difference and it gets
2:24
Speaker 2: better every day. I think at the start it is
2:26
Speaker 2: very overwhelming. There's a lot of things to consider in
2:29
Speaker 2: addition to advised clients, we need to pay attention to
2:32
Speaker 2: a lot of the operational side of things.
2:34
Speaker 1: You're building a business at the same time.
2:37
Speaker 2: That's right, yeah, exactly, so your attention is put in
2:40
Speaker 2: all directions. But in this day and age, I think
2:43
Speaker 2: we know what to do, we know the best platforms are,
2:45
Speaker 2: we know what the products are, and we know our
2:48
Speaker 2: clients and AI in this area era, it's only made easier.
2:52
Speaker 2: We've used anthroopic Claude I think subscribed two months ago
2:56
Speaker 2: and it's just a lot easier. A lot of things
2:58
Speaker 2: can be automated and iff and productivity has improved.
3:01
Speaker 1: The routine work. And I suppose in your years at
3:04
Speaker 1: Morgan Stanley and morgaed Standing folks, if you don't know,
3:07
Speaker 1: it's probably the most dominant of the managers in the world,
3:11
Speaker 1: certainly one of them, and it has been This sort
3:15
Speaker 1: of alumni from modern Standing basically goes right across the
3:18
Speaker 1: system like Kathy has. But when you were there all termships,
3:22
Speaker 1: obviously you were tapping into this. You saw the growth
3:25
Speaker 1: of this. Tell us you know investors, your client's highness
3:31
Speaker 1: worth investors do they go about building a diversified portfolio
3:38
Speaker 1: in a different way than the everyday investor who might
3:42
Speaker 1: be this into the show.
3:44
Speaker 2: Yes, definitely, and our clients are big on alternatives. There's
3:47
Speaker 2: just a lot more tools in the toolkit for them
3:49
Speaker 2: to use. I think most people think probably diversification means
3:53
Speaker 2: owning different stops or mixing shares and bonds that worked
3:57
Speaker 2: better when stocks and bonds actually move differently. But in
4:00
Speaker 2: the past few years, as you probably see, the relationship
4:03
Speaker 2: has become less reliable. So what sophisticated capital, sophisticated capital
4:09
Speaker 2: actually does is look for return streams that are driven
4:12
Speaker 2: by completely different engines. You know, alternatives. There's different buckets, right.
4:17
Speaker 2: Private equity doesn't mark to the daily mood of the market.
4:20
Speaker 2: Private credit is negotiated, not traded. Infrastructure is very popular
4:26
Speaker 2: these days. The cash flows are often contracted or regulated,
4:30
Speaker 2: and certain head fund styles deliberately try to make money
4:34
Speaker 2: when traditional assets are struggling when this volatility. So these
4:38
Speaker 2: things don't all pick and through together. That's why you
4:41
Speaker 2: see a lot of the institutions or even big endowment
4:44
Speaker 2: funds will often say, you know, yo, Harvard, they have
4:47
Speaker 2: up to sixty percent in alternative allocations in their portfolio.
4:51
Speaker 1: So these endowment funds, which they kind of some of
4:54
Speaker 1: the sort of brain boxes basically inside in those endowment
4:57
Speaker 1: funds they started or they didn't. They they led the way.
5:01
Speaker 1: Can it for the listener who's just trying to get
5:03
Speaker 1: a grip on this? And you mentioned how bonds and
5:07
Speaker 1: shares don't work in the way they used to, would
5:09
Speaker 1: it be fair to say that until some years ago
5:13
Speaker 1: the diversification the growth part was shares and the defensive
5:19
Speaker 1: part was bonds and cash. Correct. So these alternatives when
5:23
Speaker 1: we talk about alternatives, are they growth or are they defensive?
5:29
Speaker 2: They can be growth and defensive. In the alternatives bucket.
5:32
Speaker 2: There are a few sub subclasses. For example, hudge funds
5:37
Speaker 2: that's growth type because underlying is more equity. But they
5:41
Speaker 2: earn their keep in difficult markets because hedge funds like
5:44
Speaker 2: market movements, volatility, price difference because if the market keeps
5:49
Speaker 2: going up, you're better off just long only equities for
5:51
Speaker 2: buying an ETF and a lot of the hedge funds
5:54
Speaker 2: have many strategies. They have macro market neutral commodities, fix income,
5:58
Speaker 2: et cetera. So they try to keep the net exposure
6:02
Speaker 2: law on purpose to the market.
6:04
Speaker 1: So okay, they could be defensive, they could be growth,
6:07
Speaker 1: but in essence what they are alternatives are an alternative
6:12
Speaker 1: to the traditional major dominant investment forms of shares and bonds,
6:19
Speaker 1: which two great concern A round can fall at the
6:24
Speaker 1: same time. Is that right, and you want to have
6:26
Speaker 1: something that's got nothing to do with that? Is that
6:28
Speaker 1: the product? Is that the often is that the product
6:31
Speaker 1: proposal from an alternative or from alternatives that it is
6:36
Speaker 1: it is it would do what it's going to do
6:38
Speaker 1: in regardless of what happens in the public markets. Is
6:40
Speaker 1: that the core proposal that's correct?
6:44
Speaker 2: And yet in all terms of different as a class
6:46
Speaker 2: a very different. They have their own cycles and they
6:49
Speaker 2: have their own way of adding alpha. For example, you
6:52
Speaker 2: know in private equity you can buy companies the fund
6:55
Speaker 2: manager would add from operational improvement rather than from leverage.
7:00
Speaker 2: The goal is to have risk adjusted return for your portfolio,
7:04
Speaker 2: so everything doesn't pick control at the same time. That's
7:07
Speaker 2: the best as an allocation.
7:08
Speaker 1: I bet some listeners are saying, yeah, well, if it
7:11
Speaker 1: was a crash tomorrow of twenty five percent, did it
7:13
Speaker 1: all fall at the same time. What do you say
7:15
Speaker 1: to the person who says that to you?
7:18
Speaker 2: I think, yeah, because if you look at in mark,
7:22
Speaker 2: when the market force right, a lot of things for
7:24
Speaker 2: at the same time, equity force, bonds force, USD force,
7:28
Speaker 2: and even goal force, an alternative will hold its value
7:31
Speaker 2: because infrastructure doesn't fall when stock market falls, commodities there's
7:36
Speaker 2: less correlation to the equity market. So what we're trying
7:39
Speaker 2: to do is construct a portfolio that's less small, latile.
7:42
Speaker 2: And to be honest, if data shows eighty percent of
7:45
Speaker 2: your return is set by as allocation rather than timing
7:49
Speaker 2: the market.
7:50
Speaker 1: When you say infrastructure doesn't fall, and I understand what
7:53
Speaker 1: you mean, but our listeners might say, oh, you know,
7:56
Speaker 1: I have transurban and it fell listed up So you're
8:02
Speaker 1: so you mean alternas of infrastructure, you mean unlisted infrastructure
8:08
Speaker 1: on listen. Yeah, So if we look at alternatives there's
8:11
Speaker 1: probably a few things.
8:12
Speaker 2: So high fund. I mentioned that exposure to the market
8:15
Speaker 2: is low. That's why when the market like moves, it's better.
8:19
Speaker 2: The volatility is better. Private equity that's unlisted companies, right,
8:23
Speaker 2: so they don't the evaluation doesn't impact it by market sentiment.
8:26
Speaker 2: It's probably more impacted by I guess the multiples your ebbital.
8:32
Speaker 1: I suppose by the correction business.
8:34
Speaker 2: Yeah, correct, exactly, and the good PE fund managers they
8:38
Speaker 2: will take control and then really improve the operations of
8:41
Speaker 2: the business so that the company will grow. So that's
8:45
Speaker 2: less impacted by sentiment or you know, things you can't control.
8:50
Speaker 2: Private credit is even I guess the correlation is even less.
8:54
Speaker 2: And private credit the market has really grown because banks
8:57
Speaker 2: put back in the rising rate cycle, the returns started
9:00
Speaker 2: to pick up, and for the past ten years, I
9:02
Speaker 2: think a lot of the PE exits slowed, so the
9:05
Speaker 2: lenders often take the PE's roll. There's less new money
9:10
Speaker 2: from PE, but the private credit people can fulfill the
9:14
Speaker 2: pool by lending, and they have a better premian because
9:17
Speaker 2: they have a better say. So the structure reflects that
9:20
Speaker 2: it's downside protect there's a lot some downside production baked
9:23
Speaker 2: into that as well.
9:24
Speaker 1: So one of the reasons that the alternative assets have
9:28
Speaker 1: become so important is that banks as we know them
9:35
Speaker 1: have actually shrunk as part of the financial system. They
9:39
Speaker 1: have pulled back from various areas. And is that part
9:42
Speaker 1: of the reason that these old challenges have succeeded. There
9:45
Speaker 1: have been so profitable for those who are in the
9:49
Speaker 1: right place at the right time.
9:51
Speaker 2: Yes, I think that's one of the reasons, especially for
9:53
Speaker 2: private credit as well, the less secondary bond issuing activities,
9:59
Speaker 2: and for the private inside the private credit fund managers,
10:02
Speaker 2: they have a say and they can dictate the terms,
10:05
Speaker 2: and it's just a lot more quicker and smooth the process.
10:08
Speaker 2: And you know, so that's why they can charge a
10:10
Speaker 2: higher credit spread compared to the bonds, because bond spreads
10:14
Speaker 2: to pretas these days.
10:15
Speaker 1: So private credit has this has the win behind it, right,
10:19
Speaker 1: and it has this new power because the banks, as
10:22
Speaker 1: you see, don't participate in business as widely as they
10:26
Speaker 1: used to. Look at our own banks, our own big
10:28
Speaker 1: four banks for instance, they don't do anything internationally. They
10:31
Speaker 1: are largely mortgage banks, despitets in various ways. Okay, so
10:35
Speaker 1: people would understand that that's private credit, private equity. I
10:39
Speaker 1: had always thought that private equity, and we understand that
10:43
Speaker 1: to be the investment funds that invest in businesses that
10:46
Speaker 1: are not listed. I had always told that they must
10:51
Speaker 1: that their lifeline is the successful floating your IPO of
10:57
Speaker 1: those businesses. Is that's a sim reading I imagine? Is
11:01
Speaker 1: it true? Is it partially true? And I'm missing it?
11:05
Speaker 1: It is true? I think if you look at the exit.
11:07
Speaker 1: I FO is definitely a good word.
11:09
Speaker 2: Another one is trade sell emergenal acquisitions. But for these days,
11:14
Speaker 2: I think the private the liquidity for the primary private
11:18
Speaker 2: market is getting better. There's a lot of secondary cells
11:21
Speaker 2: as well. If the LP wants to exit, he can
11:24
Speaker 2: sell the shares to the new LP at the market value.
11:27
Speaker 1: Just to explain that, Sorry, it's really interesting, but we
11:30
Speaker 1: need to live in terms of the terminology. Is what
11:33
Speaker 1: you're saying. Is what you're saying this, I could be
11:36
Speaker 1: in one of these funds and I could sell it
11:40
Speaker 1: and move on and someone else would buy my stake,
11:43
Speaker 1: regardless of whether they ever I p O or not.
11:47
Speaker 1: Is that what you're saying. Yeah, that's GP, that's LP LAD.
11:51
Speaker 2: There's also GP led secondary cells to create a bit
11:54
Speaker 2: more liquidity in the private market.
11:56
Speaker 1: So this is the advancement of this business and this
12:00
Speaker 1: area has come to the point. But people used to
12:02
Speaker 1: be terribly worried that if something wasn't listed, it wasn't
12:06
Speaker 1: liquid that is, you couldn't sell it if things went wrong.
12:09
Speaker 1: You're saying it's easier now to buy and sell this.
12:13
Speaker 2: It's easier to create a liquidity market for the private market.
12:16
Speaker 2: Because companies these days tend to stay private for longer
12:19
Speaker 2: if they can keep raising money in the private market.
12:21
Speaker 2: Some companies choose to stay private, and for individual investors
12:26
Speaker 2: it's more friendly for private equities because in the past,
12:30
Speaker 2: all the private equity funds is ten year lock up,
12:33
Speaker 2: so the liquidity is not good at all, Whereas these
12:35
Speaker 2: days there's a lot more open ended private equity funds,
12:39
Speaker 2: which gives you liquidity on a quarterly basis because the
12:42
Speaker 2: companies are valued on a monthly basis, so you can
12:45
Speaker 2: axit at the market value if people are willing to buy.
12:49
Speaker 1: All right, So yeah, you couldn't do it on the day,
12:51
Speaker 1: but you could do it coarsely once upon a time.
12:53
Speaker 1: You just have to wait by semi liquid structures. Yeah, okay,
12:56
Speaker 1: this is really good. Now. What we might do here
12:58
Speaker 1: is we might take a break. I hope we come back.
13:00
Speaker 1: What I'm going to ask Kathy is how the everyday investor,
13:04
Speaker 1: whom may have started their portfolio with shares and cash
13:10
Speaker 1: and perhaps have taken baby steps into other areas, how
13:15
Speaker 1: they could gradually change the mix to include this alternative
13:21
Speaker 1: assets area, and what are the pathways into it. We'll
13:25
Speaker 1: be back in a moment. Hello, Welcome back to The
13:46
Speaker 1: Australian's Money Puzzle podcast. I'm talking to Kathy ding di g.
13:51
Speaker 1: She is with the Glory House Group, best known as
13:55
Speaker 1: the number one ranked female advisor in the Baron's List.
13:58
Speaker 1: Previously with Morgan's Stanley until she did this very adventurous
14:03
Speaker 1: move into her own outfit called Gloryhouse with Garth You.
14:08
Speaker 1: We were talking in the first part, okay, conceptually about
14:11
Speaker 1: alternative assets. Why wilt the investors have them? And maybe
14:15
Speaker 1: everyday investors don't. Why I think it is. I think
14:18
Speaker 1: we are. I think it is commonly seen now and
14:20
Speaker 1: certainly I'm convinced that it's no longer a fashion. It's
14:23
Speaker 1: permanent because there's been some permanent structural change. So I
14:27
Speaker 1: try and do in this section is give you just
14:30
Speaker 1: an introduction as the pathways to it, and we're going
14:33
Speaker 1: to take just the main ones right, private credit, private equity,
14:37
Speaker 1: and we'll also just take a look at infrastructure and gold. Okay,
14:41
Speaker 1: keep that in mind. Okay, private credit For most people, Kathy,
14:45
Speaker 1: private credit meant going into an unlisted fund that was
14:48
Speaker 1: on liquid that promised high rates. There was some terrible
14:51
Speaker 1: incidents for people. Last money in the past, the liquidity
14:54
Speaker 1: that basically people were terrified about poor liquidity, that would
14:59
Speaker 1: seem to have improved a lot. It's advanced now. We
15:02
Speaker 1: talked about how the banks have withdrawn, so the business
15:06
Speaker 1: is there to be taken. How wouldn't a listener to
15:09
Speaker 1: the show if you begin to enter this area.
15:13
Speaker 2: Your private credit, the liquidity is not as good as bonds,
15:16
Speaker 2: and a lot of the semi liquid bonds in the
15:19
Speaker 2: liquidity mismatched, so in extreme circumstances, it's not a bank
15:23
Speaker 2: that you can withdraw cash at any time.
15:25
Speaker 1: But the private credits.
15:27
Speaker 2: I think the area is good for investment is because
15:30
Speaker 2: the credit spread is a lot more attractive compared to bonds,
15:33
Speaker 2: and for bonds, if you don't hold the bonds to maturity,
15:36
Speaker 2: the bond price will still move in the rising reate cycle.
15:39
Speaker 2: In twenty twenty two, we've still seen bonds for like
15:42
Speaker 2: ten percent or more.
15:43
Speaker 1: So for private credits.
15:45
Speaker 2: For Australian private credit, the unit price doesn't move that
15:48
Speaker 2: much unless there's a bad loan they will write it off.
15:50
Speaker 2: So it's when you see the investment. The return is
15:54
Speaker 2: a lot more stable and most private credit managers would
15:58
Speaker 2: have collateral they will protect themselves first, they did take
16:01
Speaker 2: the terms.
16:02
Speaker 1: Is the collatorate mostly property? Yes? In our market, in
16:05
Speaker 1: our yeah, yes, it's asset back, all right, we will
16:10
Speaker 1: recommend as a back correct.
16:11
Speaker 2: But but some you know, global direct lending may not
16:14
Speaker 2: be asset backed. It's probably private equity as collateral or
16:18
Speaker 2: other assets in direct in the direct lending world may
16:21
Speaker 2: not be hard asset. But then those private credit managers
16:25
Speaker 2: in the direct international direct lending world, they're very experienced
16:28
Speaker 2: in writing loans. They've done it for different cycles, so
16:31
Speaker 2: they know how to protect themselves as well. So private
16:34
Speaker 2: credit we do see it as I guess, relatively defensive
16:38
Speaker 2: asset class compared to your equities to private equity.
16:42
Speaker 1: But for the beginner, the asset back obviously property backed
16:46
Speaker 1: quality property backed funds, yes, would probably be the best
16:49
Speaker 1: way to stop, to begin to to to familiarize yourself
16:53
Speaker 1: with this area. I agree. Okay, definitely, okay. In private equity.
16:58
Speaker 1: Now let's move to private equity funds. M what's the
17:02
Speaker 1: difference there? What's their unlisted business and are they riskier?
17:08
Speaker 2: Private equity is riskier because the companies before the list
17:13
Speaker 2: tend to be at the early stage. There's different private
17:15
Speaker 2: ary funds. There's very early stage venture funds, so that
17:18
Speaker 2: seed privately serious a Series B, and then the growth
17:21
Speaker 2: is expansion stage private equity funds. There's also pre ipo
17:26
Speaker 2: stage private equity funds. And because it's private, it's not
17:30
Speaker 2: as transparent. If you are a listed company, you need
17:33
Speaker 2: to report to the market either a quarterly basis or
17:36
Speaker 2: on a six months six monthly basis.
17:37
Speaker 1: Right, you're going to tell everybody everything.
17:40
Speaker 2: Correct, correct, So it's less transparent in the private space.
17:43
Speaker 2: But the less transparent is actually easier to make money,
17:47
Speaker 2: especially for the good fund managers. A lot of them
17:49
Speaker 2: would not only give the company money, they would give
17:52
Speaker 2: them strategies. They will give them, you know, client based resources,
17:56
Speaker 2: help the company grow. They would be really hands on
17:59
Speaker 2: to increase the company's gross and then make a better return.
18:03
Speaker 1: So we see, I just want to use an example.
18:04
Speaker 1: Bank capital has come into Australia, you know both for
18:07
Speaker 1: rgin Aire Lines, took it off the market, reshaped it, refloated,
18:10
Speaker 1: it seemed to make a lot of money, bought Esta Health,
18:13
Speaker 1: seemed to put it into a could shape sell it again.
18:16
Speaker 1: And that's the sort of thing that private equity does
18:19
Speaker 1: exactly how does an investor sitting at home listening to
18:22
Speaker 1: this show, how do they how the funds. It's not
18:27
Speaker 1: like they can go to their sex talk to one
18:29
Speaker 1: of them and look at the companies. How do they
18:30
Speaker 1: even begin to find them. It's a good point, James.
18:34
Speaker 2: I think it is harder for everyday investors to invest
18:39
Speaker 2: into private markets because it's less transparent. There's no exchange.
18:42
Speaker 2: You can just you know, buy from any broker.
18:45
Speaker 1: It's the only pathway a financial advisor, who in turn
18:48
Speaker 1: those the market, or is there any other way?
18:51
Speaker 2: I think financial advisors most these days they understand the
18:54
Speaker 2: private equity space, so they would definitely keep an allocation
18:56
Speaker 2: to private equity. If I were every day investor, probably
19:00
Speaker 2: look for some SEMIL liquid vehicles or even listed vehicles,
19:04
Speaker 2: or those funds for LICs or l t is listed
19:07
Speaker 2: investment companies or list the investment trust which has a
19:09
Speaker 2: blended strategy. Sometimes include a sleep in the private equity
19:14
Speaker 2: in the private equity.
19:15
Speaker 1: Sleep so that you don't have any again. The everyday
19:19
Speaker 1: listener might say, hey, on a second, I taught this
19:21
Speaker 1: stuff was private, but you don't have any problem with
19:25
Speaker 1: a listed fund accessible through the AX actually being specialized
19:31
Speaker 1: in unlisted that it seems like a contradiction, but you
19:35
Speaker 1: seem to have no problem with that.
19:37
Speaker 2: So that's the best way to access on this stuff
19:40
Speaker 2: is by listed vehicle.
19:42
Speaker 1: But isn't that a bit ironic that the best way
19:45
Speaker 1: to access is unlisted is through listed? Is there something
19:48
Speaker 1: sort of something doesn't quite sit there? I mean, what's
19:51
Speaker 1: the danger? I mean, wouldn't they follow the stock market crashed?
19:55
Speaker 1: So that's the thing.
19:56
Speaker 2: If you that's not a listed vehicle, then your share
19:58
Speaker 2: price can be the discount, traded at a discount or
20:01
Speaker 2: a premium to the net asset value, so you're not
20:04
Speaker 2: buying the net asset value. But I think for every
20:06
Speaker 2: day investor, the liquidity is very important. I don't want
20:09
Speaker 2: to lock someone's money for a long time.
20:12
Speaker 1: Yes, I take your point. That's a really good point. Okay, folks,
20:16
Speaker 1: here's loud and clear, all right. I've always been I'm
20:19
Speaker 1: continually skeptical about this notion of access up to unlisted
20:24
Speaker 1: funds by by a listed markets. But I see your point, Kathy.
20:27
Speaker 1: It's not it's good things and bad things, but be realistic.
20:31
Speaker 1: It's your main way.
20:32
Speaker 2: In Yeah, But I mean, if you read wisely, there's
20:35
Speaker 2: a lot of financial news talking about this are semi liquid,
20:38
Speaker 2: evergreen or those funds that can give every day investors
20:41
Speaker 2: access to the private world. That could be an option
20:44
Speaker 2: as well.
20:44
Speaker 1: Thank you. On infrastructure. Traditionally, again most listeners would say, okay,
20:49
Speaker 1: well infrastructure, and I know what infrastructure is. It's listed
20:51
Speaker 1: totros like transurban, et cetera. But I noticed that there
20:55
Speaker 1: is quite a range of unlisted infrastructure funds now. They
20:58
Speaker 1: see to pay about nine percent year year, and they
21:01
Speaker 1: seem to be very steady because they because they in
21:04
Speaker 1: turn are very steady things like toll roads or as
21:08
Speaker 1: you say, regulated payment streams which allows them to keep
21:14
Speaker 1: going regardless of markets. Is it as simple as that?
21:18
Speaker 1: I mean, there's no perfect investment, okay, so tell us
21:21
Speaker 1: about the unlisted infrastructure would seem to be very strong,
21:25
Speaker 1: seems to me. The main thing is how deier it
21:27
Speaker 1: is to get into these funds. Are the best consoles?
21:29
Speaker 1: Seemed to be a hunder grand up? Is that undergrund
21:32
Speaker 1: edgy point? Is that fair to say? That's fair to say?
21:35
Speaker 2: Yeah, I think infrastructure has moved from a niche to
21:37
Speaker 2: oc core holding for many high networks families. The traditional
21:41
Speaker 2: infrastructure like you said, you know the toll roads, the airports,
21:45
Speaker 2: those are good. That's very stable and every day we'll
21:48
Speaker 2: use it is necessary. But these days there's demand drivers
21:52
Speaker 2: tod infrastructure in the AI world, like your power data
21:55
Speaker 2: centers or energy transition decarbonization. Those type of infrastrcres are
22:00
Speaker 2: very popular as well, and the trend is multi decade.
22:03
Speaker 2: It's not ciclical. So we would normally access infrastructure by
22:07
Speaker 2: ulic funds because there's many of them, and a lot
22:10
Speaker 2: of them are really big names. If you just look
22:12
Speaker 2: at the top five funds that do most invest most
22:15
Speaker 2: many into infrastructure, and there's some meat infrastructure assets as
22:19
Speaker 2: well because they can sell it to a larger funds
22:21
Speaker 2: get a better premium. So use a p style to
22:24
Speaker 2: invest into infrastructure and hard assets.
22:27
Speaker 1: I think you could safely say again, I'm just trying
22:30
Speaker 1: to help people, plug anybody or promote anyone, But who
22:33
Speaker 1: are the main players in global infrastructure? Brookfield who else
22:36
Speaker 1: would be there? Brookly is the largest one.
22:37
Speaker 2: Yes, o KKR areas this Goldment's at has an inforduential
22:42
Speaker 2: fund as well.
22:43
Speaker 1: Okay, sorry, I wanted to I just wanted to put
22:48
Speaker 1: some names on the table for people to explore. Okay,
22:51
Speaker 1: I know we're whistling through these folks, but it's good
22:53
Speaker 1: and I hope and imagine it's very useful to you.
22:56
Speaker 1: Now we're going to take a look at just briefly
22:58
Speaker 1: look at gold, and then the next segment. Hang on
23:02
Speaker 1: to your seats because we're going to go a little
23:03
Speaker 1: bit more advanced than this helicopter tour of all. Challenge
23:07
Speaker 1: Groops Gold, Kathy. That will c to be the easiest
23:10
Speaker 1: one of all for our listeners is say, well, God
23:13
Speaker 1: is the alternative? Gold is non corelea. Gold goes up
23:16
Speaker 1: when markets go down. See for like your former employer
23:19
Speaker 1: and more than standing their chief investment officer. Yes, Mike
23:24
Speaker 1: five thousand target price. Of course, what's your view on
23:29
Speaker 1: gold and is it maybe the easiest the alternative of
23:32
Speaker 1: all for the everyday investor to access? Yeah.
23:36
Speaker 2: I think previously I personally I don't really like gold.
23:39
Speaker 2: I found there's no intrinsic value and there's no cash flow.
23:42
Speaker 2: But these days I think gold's role is more and
23:44
Speaker 2: more important as a portfolio diversifier. It's probably a ten
23:48
Speaker 2: twenty year story, not a month to month one. If
23:51
Speaker 2: you look at the macro environment, I think a lot
23:54
Speaker 2: of the tailwinds are here to stay. For example, there's
23:58
Speaker 2: sustained the central back buying gold, structurally high physical deficits
24:02
Speaker 2: if you look at US just an interest on government
24:06
Speaker 2: deficits like one trillion a year. That's pretty shocking, right,
24:09
Speaker 2: and we're still the war hasn't even finished yet.
24:12
Speaker 1: We have wartime deficits, and there is no war basically
24:15
Speaker 1: in the US. I mean anormously the results issue the
24:18
Speaker 1: resubviously erect Iran, but that's not a war on the
24:20
Speaker 1: scale of city Vietnam or something. Yeah, right, that's right.
24:23
Speaker 2: Yeah, But whether there's war or not, there's always ongoing
24:26
Speaker 2: geopolitical risk. So those are the good tailwinds for gold.
24:30
Speaker 2: This year, I think gold price pulled back mainly because
24:33
Speaker 2: gold is inversely correlated with real interest rates. In a
24:36
Speaker 2: curting reate cycle, gold tend to do better this year
24:39
Speaker 2: given high inflation or WAH doesn't really give you know,
24:42
Speaker 2: specific guidance or gold price has pulled back a bit,
24:45
Speaker 2: but even at the current level of like say four
24:47
Speaker 2: thousand dollars and once gold still screens as a reasonable
24:50
Speaker 2: entry point for long term portfolio diversification. So I think
24:54
Speaker 2: especially most of my client's portfolio. A lot of them
24:56
Speaker 2: is in growth type of investments, in equity, private equity.
25:00
Speaker 2: I think golds just act as a good hatch when
25:02
Speaker 2: things goes wrong. I think definitely keep a small percent
25:06
Speaker 2: allocation to gold.
25:07
Speaker 1: It sounds like you're not comfortable with the notion of
25:10
Speaker 1: twenty percent in gold.
25:14
Speaker 2: At the moment, we're probably in our clients portfolio is
25:16
Speaker 2: around up to five percent.
25:18
Speaker 1: Of the five Yeah, okay, very clear, thank you, all right, Okay, okay, folks,
25:22
Speaker 1: Now we're going to just throw some ideas that you
25:24
Speaker 1: that you've probably never heard before in this area, but
25:27
Speaker 1: they're really interesting. Okay, back in the moment. Hello, Welcome
25:50
Speaker 1: back to the Australians Money Positive Podcast. James Kirby here
25:53
Speaker 1: with Katy Thing of the Glory House Group. Now we've
25:57
Speaker 1: done a sort of helicopter tour. I hope it's useful
26:00
Speaker 1: to you about all Channa shows. Not just more than
26:03
Speaker 1: an introduction because we have talked about them before. But
26:06
Speaker 1: I'm trying to get from Kathy why wealthy investors are
26:11
Speaker 1: so committed to them, Not just because they make money
26:13
Speaker 1: out of them, they make money out of lots of things, right,
26:15
Speaker 1: but why they are here to stay. They're the basic
26:21
Speaker 1: the main stays, if you like, of aut ternative investing,
26:24
Speaker 1: which we have covered now, private credit, private equity, infrastructure,
26:28
Speaker 1: and gold. Now let's pick it up a little bit
26:32
Speaker 1: and just talk about two areas that are also in
26:37
Speaker 1: this also classified as all challenge shows, and they share
26:42
Speaker 1: with the earlier subjects we talked about in that they
26:46
Speaker 1: are not conventional assets in the way of shares or
26:53
Speaker 1: bonds or cash. Okay, here we go. The first one
26:56
Speaker 1: is relatively easy to understand. It's royalty income. So we
27:01
Speaker 1: know that like very wealthy some of about these people
27:03
Speaker 1: on the rich list, particularly from mining, they get royalty income. Gina, right, No, right,
27:08
Speaker 1: she gets royalty income. Okay, so they iron ore this.
27:11
Speaker 1: It's very dependable, right. Iron Ore costs xtigue out of
27:14
Speaker 1: the ground. They sell it overseas regardless of how particular
27:19
Speaker 1: stocks are going, that commodity is going to have an
27:22
Speaker 1: income stream. So royalty streams. The one I love, everyone
27:26
Speaker 1: loves the course is the famous David Bowie royalty stream.
27:29
Speaker 1: Where David Bowie was in all sorts of difficulty years
27:32
Speaker 1: many years ago, and his brilliant manager came up with
27:35
Speaker 1: an idea of securitizing David Bowie's copyright on all his
27:39
Speaker 1: songs and creating Bowie bonds, and they were royalty streams
27:43
Speaker 1: and they were quite successful. So just give us an
27:46
Speaker 1: idea how some of your clients would have royalty streams
27:52
Speaker 1: as an income flow. How does it work. We really
27:55
Speaker 1: like royalties as a class.
27:56
Speaker 2: It provides your equity like upside with robustic downside protection.
28:02
Speaker 2: Like you mentioned, I think in Australia the mining royalties
28:05
Speaker 2: because we're very strong at mining. So the mining royalties
28:07
Speaker 2: is actually a really good asset class because your return
28:10
Speaker 2: is revenue driven. It's not profit driven because in Australia,
28:14
Speaker 2: I think labor costs expensive and if you buy mining
28:16
Speaker 2: stocks you're getting the operational risk of those companies as well.
28:20
Speaker 2: Whereas for royalties, your return is pretty much linked on
28:24
Speaker 2: the commodities. So because you get a percentage of the
28:27
Speaker 2: output in a Gaulish commodity cycle or for Australia there's
28:31
Speaker 2: a lot of.
28:31
Speaker 1: Good minds with good long mind life.
28:34
Speaker 2: And really good quality commodities, that's actually a very favorable
28:38
Speaker 2: way to invest. We found, you know, those other managers
28:42
Speaker 2: are very clever. In addition to the mining or the
28:45
Speaker 2: energy resources royalties, which is not cheap, right because the
28:48
Speaker 2: commodity press is very expensive. So they've also discovered the
28:52
Speaker 2: diversified royalty portfolios with healthcare and pharmaceutical with entertainment and
28:57
Speaker 2: music because each sector has its own cycle, so it's
29:01
Speaker 2: less correlated and it's a lot more diversified.
29:04
Speaker 1: I like that. That does sound good. Diversified wordy portfolio. Okay,
29:08
Speaker 1: well just put that to one side, folks. Wasn't that interesting? Okay?
29:11
Speaker 1: The other one, which is this is something that we've
29:14
Speaker 1: talked about Kathy and I. It's the new thing, if
29:17
Speaker 1: you like, and there's always a new thing in finance,
29:20
Speaker 1: but perhaps it does suit current markets where they are.
29:25
Speaker 1: We've had a long we've had a long run of
29:27
Speaker 1: good times on the market, but there's no reason to
29:30
Speaker 1: believe that, certainly in the immediate turn. The earnings coming
29:34
Speaker 1: out of the US at the moment are so strong
29:36
Speaker 1: and so convincing that perhaps there's some bit to go.
29:40
Speaker 1: For instance, in this market, and we've covered we have
29:42
Speaker 1: covered in previous shows. If you're worried whether there's going
29:45
Speaker 1: to be a crash, you can crash proof your portfolio.
29:47
Speaker 1: But let's be a little bit more optimistic and look
29:49
Speaker 1: at what is a moderately bullish market. Tell us about
29:52
Speaker 1: coupon notes and what they are briefly and how they
29:56
Speaker 1: work for someone who knows nothing about them.
29:59
Speaker 2: Struck to product is what we do for our clients
30:02
Speaker 2: for a long time. I found it quite popular with
30:04
Speaker 2: a lot of ancient banks in Hong Kong and Singapore.
30:07
Speaker 2: It is trading to some extent, but it gives you
30:10
Speaker 2: a good buffer, so you don't have to really time
30:12
Speaker 2: the market, but you do have to select the good stocks.
30:15
Speaker 2: So it's actually we're using derivatives to trade, so for
30:19
Speaker 2: the most popular one.
30:20
Speaker 1: So there's a lot of structure products.
30:22
Speaker 2: There's fixed coupon notes, there's booster notes, there's beings, there's
30:25
Speaker 2: a lot of them. But so the fixed coupon notes
30:27
Speaker 2: is our clients really like. And in this current market,
30:30
Speaker 2: when the volatility picks up, when the markets are arrange
30:33
Speaker 2: bound or moderately bullish, is actually a very good way
30:37
Speaker 2: to generate income because the fixed coupon note pays you
30:41
Speaker 2: a fixed income no matter what. And then essentially you're
30:46
Speaker 2: selling a put option on a basket of stocks. You
30:49
Speaker 2: can do one stock, three stocks, you can even do
30:51
Speaker 2: index so the fixed coupon payment is guaranteed. But what
30:55
Speaker 2: the downside is when the underlying stocks jobs below a
31:00
Speaker 2: predetermined lower barrier, we call it the strike price, you
31:04
Speaker 2: get stock delivery at the strike price, right.
31:08
Speaker 1: Okay, so you're getting you're kind of locking in an
31:13
Speaker 1: income from these stocks as they go, and as long
31:18
Speaker 1: as they don't drop below a certain point, that the
31:21
Speaker 1: whole correct. Okay. So and in that respect, it's something
31:25
Speaker 1: very different. It's a sort of a trading aspect to it.
31:28
Speaker 1: As opposed to something like rolling dividend or rolling in.
31:31
Speaker 1: It's more dynamic. It's more dynamic.
31:34
Speaker 2: So the key thing is to select the stocks that
31:37
Speaker 2: you are willing to own, even because when you own
31:41
Speaker 2: the stock, you might lose money because you're buying the
31:43
Speaker 2: stock at a higher predetermined price compared to the market price.
31:47
Speaker 2: But a lot of the times the stock our clients
31:50
Speaker 2: get delivery, they actually hold the stock, and then later
31:54
Speaker 2: on when the stock bounce back, they make money from
31:56
Speaker 2: the appreciation in addition to the figure school pop.
32:00
Speaker 1: Okay, I see. So it's a very best spin on
32:03
Speaker 1: on options trading putt in call options, put in distract.
32:07
Speaker 1: But an interesting variation on it if you want to
32:09
Speaker 1: find out more about that, you can find out more
32:14
Speaker 1: by reading about it. I'm sure folks that haven't seen
32:17
Speaker 1: much on it myself. In fact, Garth and Kathy were
32:19
Speaker 1: the first people to talk about it to me. I
32:22
Speaker 1: haven't seen a single word about it in our own
32:24
Speaker 1: local financial media or indeed from all the many broking
32:28
Speaker 1: and wealth management notes that I read, so something just
32:31
Speaker 1: to keep an eye on. Kathy, that was terrific. Thank
32:34
Speaker 1: you for your whirl wind tour of alternatives. I needless
32:37
Speaker 1: to say, I won't say you did your homework because
32:39
Speaker 1: you didn't have to. You know all this stuff already,
32:41
Speaker 1: but it was very good to have you on the
32:43
Speaker 1: show to do this. I've been wanting to do it
32:45
Speaker 1: for a long time. Thank you so much, James, thanks
32:48
Speaker 1: for having me. Thank you. That was Kathy Ding of
32:52
Speaker 1: the Glory House Wealth Management and Advice Group. Okay, folks,
32:56
Speaker 1: any questions on that, If you'd like to hear more
32:58
Speaker 1: of that, if you'd like to see more of and
33:00
Speaker 1: so on that, If you'd like to explore that further,
33:02
Speaker 1: drop an email The Money Puzzle at the Australian dot
33:05
Speaker 1: com dot AU. Today's show was produced by Leah Sam
33:08
Speaker 1: mcloup talk to you soon.