No pity for Citi Some say that Justin
Hemmes’ Ivy Bar
on George Street
in Sydney is
the height of bull market folly, up there with Neil Perry’s second Rockpool
(due to open in the buoyant economic times of January 2009).
Indeed, many would
be hoping that the successor to The Establishment, with its daft pool and its
beautifulpeople- only door policy, gets comprehensively smacked down by the
looming global recession. But trust Hemmes to have it both ways. When Citi
chief exec Vikram Pandit announced last month that 52,000 of his workforce were
no longer required, it was inevitable that in Australia, the Park Street crowd’s all-staff Christmas
party would be canned.
Back in happier months, the entire Ivy had been booked
for the event, which last year was said to have cost $400-500,000. But there
was no way the bar’s management were going to cut Citi’s demoralised employees
a break. The $110,000 deposit won’t be returned, leaving the bar well ahead if
it finds a replacement hirer, even at recession-inspired prices. The price
ain’t right if it’s rising Here’s another reason not to worry about inflation
any more.
An operations manager at one of the big funds told Unbalanced that
his custodian’s head of sales and relationships had phoned him up for the annual
fee negotiation last month, and requested an increase in line with CPI. The
response of our operations guy is not printable here, but let’s just say it was
enough to have us piling into Treasury bonds. Security slapstick at Deloitte,
ATO The markets might be stealing everybody’s money but the real thieves are also
getting a leg-up, thanks to sloppy security breaches at some organisations you’d
expect to know better.
Back in September, a Deloitte auditor in London had a laptop
stolen from their handbag which contained personal details of 150,000 members
of the Railway Pensions scheme, including national insurance numbers. Vodafone employees’
pension details were also on the laptop, which was security encrypted but is
yet to be found, which must be scary for those involved. But our own ATO takes
the cake.
The Tax Office lost an unencrypted CD last month, containing the tax
file numbers and personal information of over 3000 self-managed superannuants, when
its approved courier company managed to lose the disc – supposedly before it
even reached one of the guys in lycra. The disc still hadn’t turned up at presstime,
but the ATO has offered everyone on the disc a new TFN. We reckon they should
throw in a refund as well. Praemium chairmen forge a bond The chair of
Praemium’s UK
board, Lord Norton Brabourne, visited these shores last month and his local
equivalent, Don Stammer, wanted to get him a gift that epitomised the
‘Australian’ sensibility.
Stammer could think of no better example than an old
paper $10 note, which he presented to His Lordship in a commemorative black
slipcase. So what did Don like about the old tenner? “You might be too young to
remember this,” Stammer told Unbalanced (we were flattered), “but before the
polymer notes came in, Francis Greenway used to be on the $10 bill.” Now we all
know that Francis Greenway was the convict who became one of Australia’s greatest architects,
but it’s seldom remembered what crime he was transported for. “It was currency
forgery,” Stammer delighted in telling a bemused Lord Brabourne.
“I believe Australia
is the only nation to have ever immortalised someone committed of this crime by
putting them on the currency itself.” Lord Brabourne, of course, was born on
the fortunate side of that class system which Australians so enjoy subverting in
Greenway-esque ways. But Don’s gift prompted a surprising revelation – his
Lordship had a distant uncle transported to Norfolk Island,
who was eventually hanged for murder in a case which inspired the first laws
around reduced culpability due to insanity.
Lord Brabourne was quick to promise
that homicidal tendencies don’t run in his family, which owns the 4000 acre Broadlands
estate that was famously home to the Mountbattens. Indeed, the only thing to be
murdered in His Lordship’s presence of late is the Praemium share price, but in
this market we don’t think that’s a hanging offence. Mo’ hopers IFSA has put
$100 behind this mo’. For the second year running, Harvey Kalman of Equity
Trustees has grown a ‘tash to raise money for men’s depression and prostate
cancer research in the global Movember movement. Last year he raised approximately
$7000.
Now, one year, and a big downturn later, he has cracked the $5000 mark
with the help of backers including the IFSA Economics Savings and Tax Board
Committee. “I was the only one in the room doing Movember. And if they’re not
going to do it, they have to support it,” he said. Kalman describes his
handlebar mo’ as “a Chopper Read one”, while his family say he looks one of the
ice road truckers, of TV fame. As Unbalanced went to press, Kalman was running
strong in the Movember fundraising rankings at 17th place nationally and 34th
internationally.
For a two-mo’ team, Harvey Kalman and fellow EQTer Boyd Peters
are punching above their weight in the rankings, positioned 84th against teams with
more mo’ power. There are a few other industry mo-bros out there. For instance
Chris Briant and Ty Thurgood have been adding a touch of Magnum P.I to the Russell
salesforce. The myth of diversification At a global research conference in Sydney last month,
Sebastien Page of State Street Associates rather eloquently likened the
financial engineering of the past decade to early years of the automotive
industry:
“We have built some really fast cars, but haven’t spent much time on
the safety,” he said. No doubt the financial instruments created recently carried
a lot of risk; in many cases more than most people assumed, and investors
became overexposed. But being diversified, as in crises before, would have
provided little protection. According to State Street’s research, when markets are
up by 7 per cent or more, the correlation between assets tends to be about 30
per cent. But when markets are down by 7 per cent or more, the correlation
between assets rockets to around 70 per cent.
Because of the asymmetrical
nature of the way assets tend to correlate, diversification ends up providing
as much shelter as Mark Twain’s banker; a fellow who lends you his umbrella
when the sun is shining, but wants it back the minute it begins to rain, Page
said. “We as an industry have failed at risk management, because we have failed
to realise that risk changes over time. Diversification doesn’t help because
what we think is safe today may not be safe tomorrow. An event may be an
outlier of four standard deviations, but it can still happen, and when it does it
will be unexpected; as that is the very nature of an outlier event,” Page said.
