Challenger Infrastructure Fund Removes FX Hedging

Challenger Infrastructure Fund (CIF.AX) announced today that it has closed its foreign currency hedges yielding a profit. As it is now unhedged and invested entirely outside of Australia (mainly in the UK) I will now regard this investment as part of my "global currency" investments (not AUD or USD). This is good as our AUD exposure is rising (though the investment is just 1.3% of net worth). The investment is included in our "real estate" investments and under the "passive alpha" category as I don't expect it to be highly correlated with the stock market in the long run.

Fellowship Program in Stasis

I just heard today that the fellowship program I was planning to apply to may not actually run again. If it doesn't I wouldn't be too surprised. Last November was the first year it ran and they won't announce the results till this September (Many grant programs here have similarly long processing times). They planned on giving out a surprisingly large number of fellowships over the next five years. So they may be rethinking that commitment of funding and maybe the quality of the first round of applicants wasn't as high as they had hoped for. I was told that the government minister responsible hasn't decided whether to run another round of applications or not. I'm going to meet with my research officer as soon as possible to discuss what opportunities I have.

Shopping my Proposal

We accidentally bumped into a former colleague who is now a professor in another department at my university while shopping. Actually, this guy was originally hired to replace me after I didn't re-apply for my job back in 2001. We then overlapped for a year as I searched for the position that eventually took me to upstate New York. Anyway, he agreed to take a look at my proposal. He already got back to me and says it has all the elements needed for a successful proposal: "It's in a key area, you clearly have published on the topic and there are important gaps that you identify that should be funded." I agree that these are the key things a proposal needs. They want to give money to people with good track records of doing research in the areas that are of interest to the funders. The bit about identifying gaps refers to discussing recent top level research on the subject and pointing out where it could be extended. A weak proposal would come from someone who doesn't have a strong track record in the area, shows that they aren't really up to speed on the debates in the area, and is anyway in an area that is somewhat peripheral to what the funders are interested in.

I still don't know if I am actually eligible to apply for grants in these areas. I'm having a hard time tracking down the liasion guy.

Anyway, I now have more confidence in approaching a big name person who might be able to collaborate and/or provide feedback. Hopefully, I can raise awareness that I am doing research in areas of interest whether I am eligible for a specific grant or not.

Some Funds in the Black

This month is shaping up as another good one with three trading days to go. Several of the funds we invested in in Snork Maiden's Colonial First State account have now returned to profitability:

CFS Geared Share Fund: $A190
Platinum International: $A131
Souls Small Australian Companies: $A72
Generation Global Sustainability: $A30
CFS Diversified Fixed Interest: $A80

Overall the account is still down $A260 but it is now worth $A15,291. So that's not too much of a percentage loss given what we've been through. We started investing in April 2008. I guess it's the power of dollar cost averaging.

I just got the annual tax statement from CFS, so soon I should be able to do Snork Maiden's taxes.

OK, I Exaggerated a Little...

When I wrote in yesterday's post that I'd need to have enough cash to buy a house to be happy to do so if my income was very uncertain. On a single slightly above average salary it's a bit of a stretch to afford to pay rent and live a nice lifestyle here for two people. At least we found that to be the case until I started my current job. You have to be reasonably frugal. Forget international travel and the like (remember our parents and most other relatives all live in the neighboring large continent). Paying a typical mortgage is out of the question. To get your housing costs down to the same level as paying rent you need to put down a downpayment of 50% approximately. So you do need $A250k for that purpose and after that you're living paycheck to paycheck more or less. So I don't really think this is still a very wise financial decision.

Of course if you have secure employment consisting of either two average salaries at least or one salary at twice the mean (say a full professor) then you can go for homeownership without too much concern. It might not be good economics, but if that's what you want to do you can. I'd still put down the traditional 20% and have cash reserves for repairs etc.

Houses are really expensive in major cities in Australia.

How Long Can We Live without Working?

Asked Snork Maiden today (at our current standard of living). If we don't make any big expenditures like buying couches or travelling we spend about $A4,000 per month. Half of that goes on rent. Our net worth outside of superannuation and retirement accounts is $A156,000. $A10,000 of that is our car. So the rough answer is 3 years. A couple of years ago it was nearer 5 years. I don't believe in the idea of a 6 month or whatever "emergency fund". The more savings we have the better. If we wanted to buy a house we'd need to make a $A100,000 downpayment probably (as houses cost at least $A500,000 around here). That's only leave us with $A40k in savings. As neither of us has a long term employment contract. We couldn't maintain the mortgage payments for long if either one of us didn't work or we both worked at lower salaries than today. Our salaries are near the mean for Australia, temp work or whatever will pay less. So we either need to have permanent contracts or really in my opinion enough is savings up front to buy a house outright, though we'd still buy it with a mortgage. The latter would make me feel much more comfortable with such a purchase...

Pension Funds, Endowments, and Us

I've been thinking whether anything needs to be done with Moominmama's portfolio and benchmarked the broad asset allocation against a bunch of pension and endowment funds:



UniSuper Balanced and PSS(AP) are the default choices for two Australian superannuation funds. The Future Fund is an Australian Sovereign Wealth Fund. CALPERS is of course the California Public Retirement system and then there is the average US university endowment and three Ivy League endowments. Excepting the Ivy's the average for the two US funds is very close to that for the three Australian funds: 42% equity, 23% bonds and cash, and 35% alternatives (hedge funds, real estate, private equity etc.). Retrospectively the Ivy's had too much in alternatives and too little in cash to meet their needs. Nobody though has as much as Moominmama has in bonds and cash. As I've often said, it's hard to imagine bonds performing as well in the future as they have in the past when they were boosted by capital gains due to declining interest rates since the early 1980s. She receives government pensions and even if she didn't she has many years worth of expenses in cash alone let alone bonds. Even if her medical costs rise I still think there is plenty of cash. Long term I think it'd make sense to head to say 30% in bonds and cash. Some time soon I think it would make sense to sell some shares in bond funds and increase other investments.

What am I Doing on the Investment Front?

I haven't posted much on investments recently. We're in recovery mode from the GFC and will likely be for a couple of years before making any really major moves or changes. The last new investment we made was AOD. We continue to invest $A500 per month in each of Snork Maiden's and Moom's Colonial First State accounts. These are diversified investments across Australian and foreign stocks, real estate, fixed interest, and in Snork Maiden's case hedge like funds. We also invest in our superannuation funds - Unisuper and PSS(AP). Again these are very diversified investments. Otherwise I have added some extra money to Snork Maiden's CFS account and paid down some of my margin loan with CommSec. I also have bought back a couple of investments that I had to sell in margin calls for less than I sold. One is 200 shares of 3i - the UK private equity firm and the other is a $A5,000 in CFS's Global Resources Fund. The latter isn't quite all the units I sold but good enough for the moment. We are underweight foreign stocks so these investments make sense. I expect there'll be a little more of this kind of thing going forward. Our automatic investments are increasing out foreign stock exposure in any case.

Wikinvest Data Platform

Wikinvest have a new finance data platform. It looks pretty nice in terms of graphics etc. though they exaggerate how much this improves things over platforms like Yahoo. Yahoo does have a competitors analysis as well as an industry page that provides some context of how a company compares to others in the industry. To tell the truth though I mainly have used it just to find alternative potential investments.

1 July 2010 Planned Start Date for Post-FIF Regime

The Australian government hopes to have new foreign investment rules in place by 1 July 2010. This will include new more targeted anti-tax-avoidance rules to replace the abolished FIF rules.

Final Hedge Fund Performance for June 2009

Final hedge fund returns are now in for the month and they largely confirm the earlier HFRX results. In other words, performance was flat overall. HFRI returned 0.23% and Credit Suisse/Tremont 0.43%. Managed futures and systematic trading did poorly (as did short-bias). Convertible and related arbitrage strategies did best.

Next Steps in Job Search/Creation

As I commented on the last post, I didn't get the job I interviewed for on Monday in a major Australian city. The chairman already phoned me on Tuesday to tell me. They decided to go with people who could cover their areas of particular need in teaching (at the graduate level). At first he said they liked everything else about me. But when I said I wasn't surprised because I think I messed up the presentation he then said that I was right that it was rushed and confused people and they didn't get a strong idea of what I was doing though they were impressed that I was energetic, enthusiastic, and knowledgable.

Back here a friend/colleague has been talking with someone in a position of authority to see what can be done about creating a position for me or extending my current position. This would be on the basis that I could raise money from students or grants in this position. While junior teaching positions are almost always advertised in academia that isn't true of research positions (including my current position) and to some degree more senior positions. As in other industries, if you know the right people you have some opportunity to be creative in this regard.

I'm sitting in the airport terminal on my way back from my interview here today. The process was very traditional on the British model of academic interviews - presentation, lunch with other candidates, and panel interview. The American model has no panel interview and involves many one on one meetings with faculty or groups of graduate students over a two day period. My previous interview in Canberra was a hybrid of the two models. Those guys recruit heavily on the American market. I met a new faculty member at lunch who just completed a PhD at a US university, but the department can't be systematically trying to recruit new PhDs from the US. Three candidates were interviewed today. The other two both came from New Zealand. As they told me they will complete the interview process today that probably means, given how fast this process has moved, that there are only three candidates for two positions, unless there are also internal candidates. The reason for the huge rush is that they have two more searches to conduct this semester.

My presentation was OK-ish - I tried to cover too much stuff and due to a misunderstanding on the timing we ran out of time for questions at the end. There were questions along the way though, as is usual for economics seminars. People seemed skeptical which wasn't surprising as I tend to do unorthodox things. And I had maybe the top guy in the field in Australia sitting in the front row and a specialist in some of the techniques I use in the back row (and on the selection panel). The panel interview went better. I didn't have any problems answering their questions or asking them questions.

I should hear today or tomorrow. If I get an offer we'll have to figure out how to move Snork Maiden workwise. I didn't raise that at the interview because I don't want to put any obstacles in their way before they make a decision.

Another Interview

I just got an e-mail inviting me to interview on Monday for the job I applied for last week. This is one of the top departments in the country. The university is on this list. I've never seen an academic job search move that fast. It probably won't be much work to update one of my presentations. I've asked for more details of what kind of presentation I need to give. I also want to be back home for a local one day conference on Tuesday. We'll see what can be worked out.

HFRX Performance for June 2009

The HFRX Global Hedge Fund Index was flat for June, returning 0.04%. Macro and 'Systematic Diversified" did poorly losing more than 3%, while convertible arbitrage and event driven strategies did relatively well. HFRX is, however, based on a small sample and may not reflect the performance of the broader indices which will be available around mid-month.

Phoned Unisuper

So I phoned Unisuper and told them I'd sent the form in twice to switch to defined contribution (or "accumulation" as they're calling it) and I'm wondering why I'm still in the defined benefit scheme. The guy I got on the phone told me that everyone starts in Defined Benefit (so they just ignore the initial membership form despite it asking which plan you want to be in) and that they got my switch form in May but "it takes a long time for the switch to happen" and he doesn't know why that is.... He said it was "fair enough" that I was wondering what was happening. So I suggested I'll check in another month whether the switch has happened. Which he said "makes sense".

June 2009 Monthly Report

The following is based on the available data as a couple of funds as usual won't report till near the end of the month and as 30th June was the end of the financial year here in Australia we're waiting for the final reports from Australian mutual funds which should improve a bit the data reported here due to the distribution of tax credits - even though there were big capital losses this financial year most large companies continued to pay dividends with the attached "franking credits" for Australian profits or "foreign tax credits" from non-Australian firms. As usual everything is in US Dollars unless otherwise stated.

The MSCI World Index lost 0.52% in USD terms and the SPX gained just 0.20%. The Australian Dollar appreciated at a slowing rate against the USD from 79.91 US cents to 80.54 US cents. So foreign exchange rate changes did not have a big impact on this month's results. At one point during the GFC the Aussie fell to 60 US cents. That was probably undervalued and today's exchange rate is likely a little overvalued. We gained 3.67% in USD terms (2.85% in AUD terms and 3.07% in currency neutral terms).

Performance was strongest in Australian stocks both small cap (ror = 6.09%) and large cap (3.86%). Commodities (estimate = -3.7%) and real estate (-3.27%) probably performed worst - I only have very partial data on hedge funds at this point. Alpha measured against the USD MSCI was 3.6% with a beta of 1.14 currently. Though performance for the month was above the risk-adjusted expectation.

We spent $5,843 ($A7,255). Major expenditures were new couches ($A3,054) and a suit ($A683). The couches arrived today and they are very nice. So apart from that we only spent $A3,500 which is good (as our rent is $A1,955):



After a month where Snork Maiden's employer managed to stuff five contributions into her retirement account this month they only managed one. They are very erratic.

Net worth reached $270k ($A336k). Asset allocation moved away from our target but there were no dramatic changes this month:



Hedge fund allocation increased due to buying AOD and private equity allocation fell due to the AEP capital return.

Sorry that there are again no pretty charts in this month's report. I don't fell like posting them until we have a substantial rebound in net worth to report or something dramatic happens. At this point we're making a nice but moderate rebound from the worst of the GFC inflicted damage. In AUD terms net worth is currently 36% below its all time high in August 2007. That turns out to be exactly the average financial loss suffered by Australians from the GFC.

Update on Carbon Planet

Last year I wrote about a company called Carbon Planet that was raising funds. I didn't like the look of the information provided and decided not to invest. Now an anonymous commenter has updated me on Carbon Planet and it still doesn't look good. What kind of CEO just says "he isn't having this conversation"?

Unisuper "Fail" (so far)

They still haven't switched me to defined contribution despite me requesting this on my initial application and then sending the switch form in again, weeks ago. I'll phone them tomorrow and investigate.

Moominmama Performance June 2009

Moominmama had a 1.06% gain in June while the MSCI all country stock index fell 0.52% (beta to this stock index is estimated at 0.47). US stocks were the worst performer closely followed by commodities while bonds and hedge funds did well. Part of the bond performance is due to the rise in Sterling, which along with Asian and Brazilian stocks were solid performers. The loss in USD cash is due to investment management fees being charged in US Dollars on one of the accounts.

Moom and Snork Maiden's rate of return is currently looking to be about 3.7% due to the strong performance of Australian stocks this month.

Career Update

Am applying for another academic position here in Australia. I only saw it advertised this morning and the deadline is Friday! The rank is Associate Professor which is I believe the appropriate rank for me (I'm currently at the equivalent of Senior Lecturer level) and they are looking for two people. The preferred specializations are not in my area but they encourage all areas of economics to apply and the economist I most admire in Australia is on the faculty there.

I'm still also working on developing a grant proposal but the deadline is still way off on that and it still isn't clear if I'm even eligible to apply. Also I have started a professional blog with the aim of attracting more traffic to my professional website and getting more people to download and read and cite my papers... As a result there'll be a bit less general economics content on this blog. But I'll still post personal finance and investment stuff on this blog.