The Paul Woolley Centre for the Study of Capital Market Dysfunctionality was scheduled to hold its annual conference at the affiliated University of Technology Sydney late last month. GREG BRIGHT reports on the latest thoughts of founder Paul Woolley – who has proposed a series of remedies for what he sees as the major problems associated with markets.
Surviving micro-caps’ booms and busts
There are no short cuts for micro-cap equity managers. With no obvious risk positions available, they must dig for new information on underresearched stocks to find buying opportunities while keeping an eye on macroeconomic developments that could overwhelm these positions. Their investors must also have the guts to weather the notoriously volatile sector. PHILIPPA YELLAND reports.
Surviving micro-caps’ booms and busts
There are no short cuts for micro-cap equity managers. With no obvious risk positions available, they must dig for new information on underresearched stocks to find buying opportunities while keeping an eye on macroeconomic developments that could overwhelm these positions. Their investors must also have the guts to weather the notoriously volatile sector. PHILIPPA YELLAND reports.
Village life: more than bricks and mortar
Some investors in retirement villages suffered heavy losses during the financial crisis – primarily because they misunderstood the growth dynamics and needs of the market. As institutions again eye this sector with interest, they are refining their approach. SIMON MUMME and PHILIPPA YELLAND report. Pipe Dreams – How Profits and Public Policy Build Australia
Australia’s infrastructure needs are vast, and private investors are negotiating new ways of developing these nation-building assets with governments. Risk is being redistributed, and the sustainability of the current bidding process for greenfield projects is under interrogation. Investment Magazine uncovers the profit and policy interests underpinning new Australian infrastructure. Outlive your survival instincts
Humans are hard-wired to herd. In risky situations, our primal instinct is to seek safety in numbers. Straying from the pack exposes us to the dangers of isolation: predators, injury, disorientation. For professional investors, the chief benefit of herding is the mitigation of career risk. There is no other upside. Herding generates momentum, which fuels asset bubbles that can last for years. Each time, some investors will be convinced markets have reached a new plateau. Others will buy-in because profits – no matter how unjustified – are irresistible. Yet bubbles burst inevitably, and these exercises in herding end in tears for most. Second coming for the Third Age
In addition to Australian Unity Investment’s recent launch of its retirement village property fund, Aviiid, another manager in this market, has announced its A-CARES #1 fund, said Scott Marinchek, managing director of Aviiid Third-age Living. The Aviiid fund would be Marinchek’s second tilt at this market, having exited Mariner Financial’s third-age living fund in late 2008 amid the parent company’s troubles. But his attitude towards the village market remained upbeat. Aviiid’s Care & Accommodation Real Estate Securities Australian Fund would be an unlisted, 10-year closed-ended vehicle specifically established to provide sustainable cash distributions to institutional investment partners.
PanAgora’s risk parity guru warns on misuse
Edward Qian, CIO of PanAgora Asset Management, coined the term “risk parity”, but he said there are misconceptions about how the approach used leverage which, if used incorrectly, undermined its essence – risk diversification. Qian, who is chief investment officer of macro-strategies and head of macro research for the firm, said the concept of risk parity, first and foremost, was diversification and to manage how risk was controlled. “For too long investors have let markets dictate that,” he says, “whether it’s been through capweighted indices and the risks in 60:40 portfolios dominated by equity risk. Portfolios dominated by equities investors have been hit by multiple directions.”
Super funds, say hello to the zero-sum world
For superannuation funds, the membership pie has begun its inevitable decline – and fast. The total number of accounts in the system peaked at 34 million in the last year and will fall as the rate of membership growth falls and the tax office pulls small accounts it deems as ownerless from the system, according to researcher SuperRatings. The rate of membership growth fell from 6.1 per cent in 2005 to 2.5 per cent in 2009 (see table), and shows no signs of abating as account consolidation continued and the tax office claimed small balances with no fixed addresses, Jeff Bresnahan, managing director of the ratings agency told the 2010 Day of Confrontation. The era of automatic membership growth for all funds had ended, he said, and a period in which growth could only be achieved by winning market share from competing funds in a zerosum game had begun. “The free ride is over. Competition is here in a big way.”
Few stars in the very bleak venture capital universe
For venture capital investors, the days of receiving 100-plus per cent internal rates of returns (IRRs) from a broad sweep of managers are gone. But this doesn’t mean investors should give up searching for the few remaining outperformers. During the dotcom fervour of the late 1990s, the boundary marking top-quartile IRRs soared beyond 70 per cent in 1997, and then fell sharply to about 6 per cent in 1999. Since then, returns from managers across the industry “have struggled to recover”, wrote research house Preqin in its special report, The Venture Capital Industry. According to Preqin, which tracks the performance of 70 per cent of venture capital funds, 52 per cent of managers posted IRRs of 20 per cent or more in 1997, the industry’s golden year.
