March 2025 Report

March was a second down month in a row. The Australian Dollar rose from USD 0.6208 to USD 0.6240 meaning that USD investment returns are a bit better than AUD investment returns. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): -3.90%

S&P 500: -5.63%

HFRI Hedge Fund Index: -0.91% (forecast)

Australian Dollar Benchmarks

ASX 200: -3.12%

Target Portfolio: -2.04% (forecast - depends on HFRI result)

Australian 60/40 benchmark: -1.41%

We lost 3.20% in Australian Dollar terms or 2.72% in US Dollar terms. So we out-performed the international stock indices, roughly matched the ASX 200 but underperformed HFRI and the target and 60/40 benchmarks. The SMSF lost 3.94%. Better than the previous month but still bad.

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and do not include investment expenses such as margin interest, and so the total differs from the Australian Dollar returns on net assets mentioned above. All asset classes lost money apart from gold, which gained 7.4% in AUD terms. Australian small cap was the worst loser, down 16.5%.

Things that worked well this month:

• Only gold gained more than AUD 10k. It was up AUD 48k.

What really didn't work:

• Eight investments lost more than AUD 10k. The worst was Pershing Square Holdings (PSH.L) down AUD 53k.

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give the same statistics for three indices. The middle block gives our performance relative to the indices. 

Because these are measured from the pandemic crash bottom in March 2020 the numbers have changed significantly from last month. Both our performance and that of the benchmarks jumped strongly. But the ASX performance was particularly strong and we now underperform the index. We still have much lower volatility, resulting in a Sharpe ratio of 1.24 vs. 0.98. Our alpha relative to the ASX200 fell to 3.65% (from 4.48%) with a beta of only 0.49. We capture much less of the downside moves than the upside moves in the market. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of much higher volatility. Our USD volatility is at least less than that of the MSCI index, but our return is three percentage points lower.

We moved away from our target allocation in large part due to the switch out of TIAA Real Estate but also due to losses at Pershing Square and other hedge funds. Our actual allocation currently looks like this:

About 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think.

We receive employer superannuation contributions every two weeks. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. I am now receiving TTR pension payments from both Unisuper and our SMSF and contributing more than the total of these to the SMSF (around AUD 4k net contribution per month). I made quite a lot of additional moves this month:

• I did a trade in shares of Metrics Income Opportunities Fund (MOT.AX). Buying 15k shares for a couple of days generating around AUD 1,400 in profit.
• I sold 50k shares of URF.AX (US residential real estate fund) to fund the trade. Wilson Asset Management (via WAR.AX) exited this fund, thinking that the potentially gain going forward was not that great. We still have 150k shares.
• I bought 16k shares of CD3.AX (private equity) with the proceeds of these first two moves. It is trading very far below NAV.
• I sold 17k shares of TGF.AX (Tribeca Global Resources) and bought 5k shares of Regal Partners (RPL.AX). That has not been a good move so far.  
• I did a couple of trades in Bitcoin futures for about a breakeven.
• I started a trade in James Hardie (JHX.AX) shares. It's not gone well so far. 
• I did some tax loss harvesting trades, selling in some names and buying in others. That resulted in a net sale of around 3k Cadence Opportunity Fund (CDO.AX) shares.
• I switched all my holding of TIAA Real Estate to CREF Social Choice (a 60/40 balanced fund) in my US retirement account. From the perspective of April, this was not a good move!

Investment Action Plan

This is the action plan resulting from the Investments Review:

Immediate Action

1. Stop re-investing distributions at Winton Global Alpha.

2. Stop re-investing distributions at Aspect Diversified Futures. 

3. Stop re-investing distributions at ASADPF.

4. Switch from TIAA Real Estate to CREF Social Choice in my US retirement account.

Longer Term

5. Monitor and sell: Bitcoin, URF, Defi Technologies, TGF

6. Monitor and reduce: WAR, CDO, WMA

7. Add? CD3, WCMQ, Domacom if the management company looks more stable. 

 

Investments Review 8: Developing Alternative Investments

The last installment of the Investments Review, though, actually, there will be an action plan coming up!

Bitcoin Portfolio share: 11.9% IRR: 40%. We hold Bitcoin across the SMSF and our individual Interactive Brokers accounts. I first got into Bitcoin in 2019 when CME futures were introduced, thinking it would be good to trade it. I made some money and gave some back. Then last year, when the spot ETFs were launched I decided to do longer term trading. I got in a bit late and made things worse for myself by buying more when the price had already risen into the $70k range. Then the late 2024 surge generated some profit, which has been partially given back at this stage. The current game plan is to sell the ETFs sometime this year, based on market indicators. I am beginning to think of switching then to shorter term trading again, we will see.

Winton Global Alpha Portfolio share: 3.3% IRR: 4%. This is my larger managed futures investment. We hold it in the SMSF as it is not tax efficient. It didn't do well when interest rates were low and especially going into the pandemic. Then there was a big surge, as interest rates increased. These investments do well in high interest rate/high inflation environments. Recently, I redeemed some of the investment. Possibly, I should set distributions to be paid out rather than re-invested.

Masterworks Portfolio share: 2.6% IRR: 3%. I started investing through this fractional art investing platform in 2018. I have had a three profitable "exits" but the remainder of the portfolio is mostly down and I haven't added more. The IRR is pretty low. I will wait for this to gradually wind down I think.

Aspect Diversified Futures Portfolio share: 1.9% IRR: 12%. I invested in this (through Colonial First State) to diversify my managed futures holdings. We hold this in the SMSF too. The period of rising interest rates was good, but it is not doing so well since interest rates started to decline. Possibly, I should set the distributions to be paid out rather than be re-invested.

CD3 Portfolio share: 1.6% IRR: 13%. This ASX listed fund mostly invests in US private equity. It is also in the SMSF. It is trading at a large discount to NAV and has a good IRR. The portfolio is quite mature and exits are occurring. So, I think this is a good investment that I will continue to hold and maybe add more to.

Investments Review 7: Developing Real Estate Investments

The smaller investments have done better here, which is not optimal...

TIAA Real Estate Portfolio Share: 3.3% IRR: 4%.  I don't have a chart for this one. Currently this is the only holding in my US retirement account (403b). I would have done better investing in a balanced fund instead. The advantages of this fund are that it has very low volatility and it is possible to predict when it is going to go up or down. So, I have switched between this and the CREF Social Choice Fund. But just sticking with the latter would have given a better return. So, perhaps I just should switch back to that.

ASADPF Portfolio Share: 1.9% IRR: 3%. This fund was originally run by Australian Unity, had a fair degree of leverage and had performed well. It was one of the initial investments in our SMSF. It also has low exposure to office property. Most Australia property funds are office-centric. But profit peaked in February 2023 and the unit value has declined 14% since then. Australian Unity made a various attempts to sell or merge the fund. In the end. ASA took it over. It is very illiquid, though we could get the distributions paid out instead of reinvested. I have been thinking of doing that.

 

URF Portfolio Share: 1.0% IRR: 10%. This is a listed fund invested in residential real estate in the New York metro area. The managers are gradually selling off the assets. The original investors in the fund lost lots of money. I came in when it was already distressed. The fund continues to trade a lot below net asset value but has caught up quite a bit recently and so we have reduced our holding. The fund NAV does not take into the selling costs of the inventory. So probably fair value is near 50 cents rather than the stated 60 cents per share. It currently trades at about 40 cents. I would sell the rest if it got nearer to 50 cents.

 

Domacom Investments Portfolio Share: 0.8% IRR: 13%. Domacom is a platform for making fractional investments in real estate etc. The company, which I have also invested in, has struggled to build a big enough portfolio to be profitable and is perpetually on the brink of bankruptcy. It is in the process of re-inventing itself as Assetora. But some of the investments on the platform, which are in segregated funds, have been quite profitable. I have bought into investments after they traded below their original offer prices. Initially, I invested in a farm, which has now been sold, then in two properties near the new Sydney airport, and two NDIS properties in Perth and the Sunshine Coast. All of these are doing well.

James Hardie and Regal Partners Trades

 

 

James Hardie (JHX.AX) announced that they are acquiring US company Azek and the merged company will have a primary listing on the NYSE, though still listed in Australia. James Hardie is actually incorporated in Ireland and so the Australian listing is a "CHESS Depositary Interest". Azek shareholders will have 26% of the total company. In reaction, Australian investors have heavily sold the company today on the ASX and it is down more than 12%. I bought shares on the following basis:

1. US analysts were upbeat on the merger on the investor call according to the AFR and US trade will be happening tonight after whatever happens today in Australia.

2. Having a primary US listing means the stock can be included in US indices with subsequent buying by passive index investors.

I'm down on the trade right now, but not too badly... 

Regal Partners (RPL.AX) got trashed again today. I think this is related to the story about Merricks' (a subsidiary) loan to a development in Sydney that is in trouble. Given, this loan is in a private credit fund and not on the balance sheet, I think this reaction (down 15%) is exaggerated. I bought more shares. 

P.S.

There is another negative story on Regal. Again, this doesn't justify such a large fall in the management company. It's a 1-2% fall in assets under management. However, it turns out that Opthea was 5.6% of assets at Regal Investment Fund (RF1.AX), which I am invested in. That is big for what is otherwise a super-diversified fund.

What it Takes to be in the Top 1% in Australia

Interesting article in the AFR on what it takes to be in the top 1% in Australia currently by both income and wealth. You can go to the free article to see lots of charts, so I won't post them here.

To be in the top 1% by income, you need a household income of AUD 532k. The top 5% is above AUD 306k. The top 10% starts at AUD 235k. I predict that our taxable income will be AUD 263k for this tax year. So we fall within the top 10%.

The wealth data are also broken down by age group. For the 41-64 age bracket the top 1% starts at AUD 7.7 million, while the top 5% starts at AUD 3.8 million. At AUD 7.4 million we are just outside the top 1%. Our average adult age is 55. The top 1% for 65+ starts from AUD 10.9 million!

There are also breakdowns by type of asset. The top 5% by home equity for our age band starts at AUD 1.42 million. So we are well below that. The top 25% is AUD 650k and above. We are within the top 25%.

A top 1% household superannuation balance is one of more than AUD 2 million. We are definitely in the top 1% by this criterion. Moominpapa alone has almost 1.9 million and Moominmama more than 900k. The top 1% of individuals starts at 1.4 million.

Investments Review 6b: More Developing Stock Investments

Because of the delay in completing this review, the last of these is now an unprofitable investment!

WCM Global (WCMQ.AX): 1.7% of net worth, 1RR 15%. This is an actively managed ETF that targets global "quality" stocks. It is managed by US manager WCM but is listed on the ASX.

There is a history of using this stock to fund other new investments (Bitcoin I think) and then more recently re-investing in it as it has a good track record:

 

The ASX gained 66% in this period and the MSCI 90%. Seems good to me.

WAM Strategic Value (WAR.AX): 1.6% of net worth, IRR 1%. This fund specializes in mainly investing in other listed funds that trade below NAV. We invested at the IPO (a mistake):

While overall it has done nothing much, it has done well in the last 1-2 years. I think this should be monitored. Maybe can be a source for investing in other things...

Regal Partners (RPL.AX): 1.4% of net worth, IRR -8%. This is a leading Australian alternative asset manager, which I normally include in the Australian small cap asset category. I thought this company was doing well, but since the release of the most recent earnings report, the market doesn't agree:

 

I think in the long-term they should do well or be acquired by a larger fund manager, so am inclined to hold. Of six analysts who follow this stock, five rate it a strong buy. Morningstar Quantitative value it at $3.16, about 10% above the current stock price.

Investments Review 6a: Developing Stock Investments

I decided to rename this category "developing" as opposed to the mature investments we considered earlier. This section covers five Australian funds and stocks. The first two are in this post. Graphs are all in Australian Dollars.

First Sentier Imputation Fund: We now have 1.6% of net worth in this fund. This is the last remaining investment in an account, which was once my core investment. The fund aims to combine long-term capital growth with tax-effective income by targeting Australian growth companies with a high level of franked dividends. It aims to outperform the S&P/ASX 300 Accumulation Index over rolling three year periods before fees and taxes.

The fund has consistently outperformed its benchmark:

Our IRR is 16%. The only downside of this fund is that the unlisted unit trust structure is not very tax efficient, as all gains are paid out in distributions. An alternative is Wilson Asset Management's Leaders Fund (WLE.AX), which is more tax efficient. We have held that for a while in the past but ended up selling to raise cash for other investments. It has done better over three and five years than FS Imputation but much worse in the last year.

This was one of my earliest investments but then I didn't hold any for 20 years until 2021 when I began to consolidate other funds in the account into it. Distributions gradually pay back our investment.

Cadence Opportunities Fund (CDO.AX): 2.5% of net worth. IRR is only 3.5%. It is a long-biased listed Australian equity hedge fund. I recently consolidated my investment in sister fund CDM.AX into this one. 

CDO has more flexibility to quickly trade in and out of positions. Initially, the fund did extremely well. Then it became practically a twin of CDM. However, recently it has again begin to diverge in a positive way from CDM. It's not really doing well though. It's still way below the 2022 peak, unlike CFS Imputation above. Unless it starts to do a lot better soon, I don't think there is a good reason to hold it.

Metrics

Count Financial told clients to sell private credit funds managed by Metrics Credit Partners. This crashed the share price of MOT.AX, one of their funds that I have owned before. So, I bought some on Wednesday for a trade as I think the sell-off is exaggerated even if the true NAV of the fund is less than the stated $2.14. The share price rebounded a bit. Wondering whether to close the trade?

P.S. 22Mar25

I did sell the shares, booking about AUD 1,400 in profit.

Another Perspective on the UK Pension

Here is another way of looking at the UK pension, which I have applied to contribute to. Our net worth not counting our house is about AUD 6 million. Using the 4% rule, we could withdraw AUD 240k per year. Currently, our spending is below that, which is why I have been thinking about retirement. The pension would add almost AUD 20k per year to that.* And the contributions would only be around 1/2% of the 6 million.

* This depends on how much tax we end up paying in retirement. Based on last year's tax return, if I stopped working I would earn AUD 56k p.a. So, my marginal tax rate would be 32%, which would apply to this additional income. That seems like a really high rate at such a nominally low income.

UK Pension

 

This was totally not on my radar. When procrastinating on Wednesday, I saw an article in the Fin Review about how Australians who had worked 3 years+ in the UK could claim a UK pension by making extra contributions from overseas. The article explained that UK citizens in Australia could also do this. You need a minimum of 10 years of contributions to get the pension. If you have 35 years of contributions, you get the full pension of £11,500 per year currently. Unlike Australia, there is no means testing.

More than 35 years ago, I got letters from National Insurance in the UK, (I was living in Israel most of the time then) asking whether I wanted to make voluntary contributions to the UK pension. At the time, I was an undergrad student and the payment was a good chunk of money for me. I discussed it with my father. He argued that I could make more payments later and anyway who knew if there would be a state pension when I was ready to retire. So, I didn't make any contributions. So, I knew about voluntary contributions, but didn't realize I could be making them now. Most importantly, I didn't realize what a fantastic investment this is!

The main point in the AFR article is that up to 19 April this year it is possible to make contributions for the 12 years between 2006 and 2018. After this date, it will only be possible to contribute for the previous six years.

So, Wednesday evening I set up a digital ID on Government Gateway - the UK's equivalent of Australia's MyGov. It turned out that I could use my Australian passport to identify myself. My UK passport expired in 2024... This allowed me to check my record of contributions. Then, this afternoon, I submitted my application to make voluntary contributions. They will process the application and then send me payment details. Mainly, I had to enter information about my last UK employer and the employers I have had since I left the UK. Luckily, there are only three of these and I have a good idea of the dates I started and finished at each one.

Who knows whether they will process the application by the deadline for adding the extra 12 years of contributions, but at least I tried.

It turns out that I have 7 full years of contributions. They even counted years when I was over 16 and in high school! So, if I could add the 12 extra years, the most recent 6 years, and the 7 years till I am 67, I will have a total of 32 years, which will give me 91% of the full pension! Even without the extra 12 years I would have 57% of the full pension.

OK, so why is this such a fantastic investment? Each additional year of contributions buys £11,500/35 per year in extra pension or £329. The most recent years cost only around £900 in contributions! So, you are buying an annuity that starts at age 67 paying an annual dividend of 37%! All your contributions will be paid back by the time of your 70th birthday, and the payments after that are pure profit! If I live to the same age as both my parents did then the internal rate of return would be a real (i.e. assuming zero inflation) 17%. That's not far behind our track record with 3i (III.L).

This is a no-brainer investment.  

P.S. 21 March 2025

My brother says that if they get back to you after the deadline they will still let you pay as long as you lodged before the deadline. Good news if true.

Market Update

My call for a continued bull market in stocks is looking a bit crazy at this point, but note the drawdown at the beginning of 1997. Nothing goes straight up. Oscar Carboni has published his year end targets for the S&P 500. His initial target is 7,512 and the extended target, if that is exceeded, is 8320.

February 2025 Report

February was the first down month after positive months. In dollar terms it was our third worst investment result after June 2022 and March 2020. The Australian Dollar fell from USD 0.6237 to USD 0.6208 meaning that USD investment returns are slightly worse than AUD investment returns. Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): -0.57%

S&P 500: -1.30%

HFRI Hedge Fund Index: 0.77% (forecast)

Australian Dollar Indices

ASX 200: -3.60%

Target Portfolio: -0.97% (forecast)

Australian 60/40 benchmark: -1.44%

We lost -4.11% in Australian Dollar terms or -4.40% in US Dollar terms. So we underperformed all benchmarks.

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and do not include investment expenses such as margin interest, and so the total differs from the Australian Dollar returns on net assets mentioned above. Gold gained most while RoW stocks, futures (including bitcoin), and Australian Small Cap all had terrible performances.

Things that worked well this month:

• Gold was the only investment to gain more than AUD 10k. Domacom Investments also did well with a property in Perth being radically up-valued to 57% above the IPO. I bought post-IPO after the price had already declined. There have also been large distributions. Profit is now  AUD 9k on an initial AUD 7k investment.

What really didn't work:

• Bitcoin, Defi Technologies, and Regal Partners were all terrible. The latter was surprising as I felt their earnings report was good and it only slightly missed forecast earnings. Unisuper also lost more than AUD 10k.

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give the same statistics for three indices. The middle block gives our performance relative to the indices. Our rate of return remained higher than the ASX200 despite such a disastrous month and we have much lower volatility, resulting in a Sharpe ratio of 0.99 vs. 0.58. Our alpha relative to the ASX200 fell to 4.46% (from 4.94%) with a beta of only 0.47. We capture much less of the downside moves than the upside moves in the market. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of much higher volatility. Our USD volatility is at least less than that of the MSCI index, but our return is more than three percentage points lower.

We moved towards our target allocation due to the poor performance of the overweighted asset classes, which previously had performed well. Our actual allocation currently looks like this:

About 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think.

We receive employer superannuation contributions every two weeks. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. I am now receiving TTR pension payments from both Unisuper and our SMSF and contributing more than the total of these to the SMSF (around AUD 4k net contribution per month). I made the following additional moves this month:

• I sold 10k shares of Hearts and Minds (HM1.AX) as it neared the after tax NAV.
• With the proceeds I bought 3k shares of WCM Global (WCMQ.AX), which is a global stock actively managed ETF.
• I also bought another 100 shares of FBTC, Fidelity's bitcoin ETF. 
• I did a follow on investment of USD 2,500 in Chowdeck, a Nigerian food delivery app. This is their Series A investment round. Previously, I invested in the seed round at a lower valuation.

Where We Are at With the VSS

The latest episode. I met the director on Thursday. They didn't try to discourage me from doing it (I didn't expect they would). They even noted that they have at least a couple of other people who teach and research in my exact field. We are the top place for this in Australia. We also discussed other options included a transition to retirement plan, where you work part-time till a set retirement date at a maximum 3 years in the future. The director saw this plan as tied to a specific "project", which isn't something in the plan as described by the university. The key aspect in the university description is that the university keeps paying employer contributions to Unisuper at the full time rate even though the worker is now working part time. This is critical for people on the defined benefit scheme who otherwise lose a lot of money if they switch to part-time work.

The other option we discussed is simply working part-time. The director wouldn't commit to a specific reduction in salary that I need to take in order to reduce my teaching load. Instead, they said I should talk to my department head (HoD).* But they did say that all expectations needed to be adjusted and not just the teaching expectation. What does this mean? Academic staff are allocated a nominal percentage workload. In my case it is 40% teaching, 40% research, and 20% service. So, the director is saying that each of those percentages need to go down, not just the teaching one. This is totally expected. Having been a HoD myself, I knew that they couldn't make this decision by themselves. But what they can do is look at their teaching plans and see how it would work.

So, on Friday I talked to the HoD on the phone, who was very positive about the part-time plan and said there are two people who would be interested in teaching one of my courses. The HoD will now go back to the director to negotiate the percentage cut in FTE. The HoD is going to argue for a 30% cut. I think the director wants 50% but wouldn't say so. Maybe I'll end up at a 40% cut?

On Tuesday, there is an information session on the VSS, which I'll attend.

I have discussed this a lot with Moominmama. At one extreme we talked about taking the VSS and moving somewhere cheaper and doing homeschooling. In Australia, the lower the cost of living the worse the quality of public schools and there might not be a suitable private option.** At the other extreme we are looking at doing the part-time option.

I've debugged my simulations more and the VSS is equivalent financially to working part time to the end of 2028. After that, one year of part-time work adds 1.1% to net worth. Full time work adds 0.8% per year on top of the part-time option. The differential is because of progressive taxation.

So, why not just take the VSS? The main reason comes down to going cold turkey from an AUD 200k plus salary to depending entirely on investment returns.*** This month has been our worst in investment returns since June 2022. I have been very stressed out by the combination of that and the need to make this career decision. Moominmama thinks I will be very stressed out and maybe make bad decisions if I take the VSS. So, the lowest stress path is to ease into retirement gradually. In theory, the VSS gives you a pile of cash, so that you don't need to depend on investment returns for more than a year. But the temptation is to chase yield on that too...

* The director heads a "school" that comprises 4 academic departments. 

** In particular, coastal areas outside the big cities are notoriously areas of low socio-economic status and high unemployment. Here are the socio-economic profiles of our nearest public high school in Canberra:

and Bateman's Bay High School, on the coast near Canberra:

These numbers are relative to Australia as a whole. The main private school tbere only has 28% of its students from the top quartile and its performance is similar to the average school in Australia. At our children's school 80% of students are from the top-quartile! I think that is likely too far in the opposite direction 😀
 

*** Around AUD 245k pre-tax including employer superannuation contributions.

 

VSS Update

I now have a meeting lined up with my boss and discussed the whole thing with a colleague who took a similar package in 2020. He said that there weren't anything to know really that isn't on the website and the main thing are the psychological issues involved in retirement in general but also the sudden and fast pace of retiring under a scheme like this. I have been debugging and improving my simulation. Now there is no financial difference between taking the package and working half time from the middle of this year till the end of 2027. After that, each additional year of half-time work adds 1% to net worth!

The university has an existing "transition to retirement scheme" as well. Under this you commit to retire at a date not more than 3 years out and then step down your hours while the university pays your superannuation contributions at the full time rate. That wouldn't be much different to taking the package. Maybe 0.5% extra net worth and a lot of work....

The website mentions that there might also be an early retirement scheme but that the ATO needs to approve of it still. So, I sent an email to HR asking what that would be like.

 

VSS

VSS stands for "Voluntary Separation Scheme". The details were announced this afternoon. There are three weeks to apply for it from today. They are offering 3 weeks pay per year of service as a severance payment. That means I'd get about 3/4 a year's pay in a tax advantaged way. So maybe a year's after tax pay. I estimate now that net worth in 2029 would be only 5% lower than it would otherwise be. It's beginning to look like a no-brainer. Next step would be meeting with my director.

P.S. 8:50pm

I sent the email to my director about discussing the VSS and other options. Apparently, there is also a retirement scheme they are progressing with the ATO and the FAQ discusses working part time etc. I ran the numbers on the payout calculator they provided. Including annual leave and long-service leave, my estimated pay out is AUD 269k. There would be an estimated AUD 40k of tax on that.

1997

I feel that 1997 might be a good analogy to 2025. After an aborted recession in 1994 (2022) the stock market went up strongly in both 1995 (2023) and 1996 (2024). But when I left the US in 1996 for Australia the mood was that the economy was struggling and maybe another recession was coming. There was also a feeling that the stockmarket was overvalued. Alan Greenspan first mentioned "irrational exuberance" in December 1996. But the stockmarket, or at least tech stocks, went up for three more years to crazy heights in 1999 (2027) before the tech wreck. Then the boom was mainly internet related stocks, now AI and maybe quantum computing. Oscar Carboni, who is very slightly older than me, often says: "This boom is just getting started." 

So, does that mean we should go all-in on tech stocks? There are no guarantees, and so I always diversify. My largest exposures to tech are through my venture capital exposures. If I am right, venture capital should do well for a while and maybe we can get some exits. And then I have WCM Global (WCMQ.AX), Generation Global, and Hearts and Minds (HM1.AX). Pershing Square Holdings (PSH.L) has investments in Google and Uber. Unisuper has some exposure through the Sustainable Balanced Option I am mainly invested in. But overall it would only add up to around 15% of net worth (and less of gross assets). On the other hand I have 18% of net worth in crypto-related assets that tend to move with tech stocks. Given that, perhaps my exposure is big enough?

Voluntary Redundancy

So my employer announced a couple of days ago in the weekly newsletter that there will be a voluntary redundancy scheme. The details won't be announced until next week. Up till now they said that redundancies would be based entirely on determining work needs and budgets going forward and there would be no voluntary redundancies. Moominmama might also be made redundant mid-year, as her employer is also cutting and she is under-employed in her organization currently.

So, I did a simulation of what would happen if we both quit mid-year,* I got an AUD 75k payout (1 week's pay per year of service + 25k for long service leave etc.) and retired putting my transfer balance cap into pension mode. At the end of 2025 there is no real difference, as my pay is largely replaced by the payout. At the end of 2029 our net worth is 7% lower than it would otherwise be if I followed my original plan to work half time from next year until then.**

At first, when I told Moominmama this result she said: "Why are we working anyway then?" When I mentioned that I needed to stress test the result for different rates of return etc. she began to say it was too scary that we wouldn't have a salary coming in and I shouldn't take voluntary redundancy. But with that attitude I wouldn't retire till our youngest child completes grade school in 2037 when I will be 73!

In any case, I might yet be made compulsorily redundant. Our school (group of departments) has been given a salary budget for this year that is around 10% lower than the salaries we are paying... 

* To get a rough estimate you don't need a simulation. Just work out the after tax salary and superannuation you are giving up by retiring now net of the redundancy payment and divide it by current net worth. That tells you how much more % you would have in net worth at the end of the period of foregone salary.

** Net worth in 2029 would still be AUD 1 million higher in real terms than at the end of 2025 despite being retired. This is because our current spending is only 2.9% of our net worth (not including housing equity), which is well below the classic 4% rule.

P.S. 21 February 2025

Heard today that the window for applying for voluntary redundancy will only be three weeks from 25 February when the details will be released.

Investments Review 5: Mature Stock Investments

We usually classify the first of these investments as a hedge fund and the rest as stock investments, but here we can bundle them together as stock investments. The first two are very successful while the second two are questionable. 

We start with our fifth biggest investment currently, Pershing Square Holdings (PSH.L) managed by Bill Ackman:

Scale: Pounds Sterling

We gradually ramped our investment up to 5,000 shares and then have let our net investment decline with dividend payouts. In the meantime, profit continued to increase. The fund trades 28% below NAV. So, part of our investment thesis is that the gap to NAV will reduce over time. Pershing Square went through a period of under-performance in the years before we invested. Since then they revised their strategy and have done very well. Our IRR is 24%. The question here is whether we should add to the investment. On the one hand, it is 7% of net worth already. On the other hand, it has performed well, is below NAV, and our net investment is only about 1/3 of the total value.

Our sixth largest investment (6.1% of net worth) is Defi Technologies (DEFI.NE and DEFTF):

Scale: US Dollars

This shows that a mature investment is not the same thing as an investment held for a long time if you get lucky! Our IRR is a crazy 378%. We invested roughly 2% of net worth in this company.

We first invested in Generation Global Share Fund, which is a Colonial First State offering, back in 2008 when it was called the Generation Global Sustainability Fund. The fund is closed to new investors, which is one reason why I never sold out of it, but also it has performed well historically returning an above average 13% IRR. However, at the previous review in 2021 it had an IRR of 16.5%. So what happened since then? I ramped up our investment in 2021. This was good timing as you can see profit soared. However, it round-tripped back to 2020 values in 2022. We have let our net investment decline since then as distributions were paid out. But profit has rebounded to new highs.

Scale: Australian Dollars

This is now the only remaining investment in the Colonial First State account I set up for Moominmama in 2008 soon after we moved to Australia. We now have 1.8% of net worth in this investment. So how is this fund doing now compared to benchmarks?

While it outperformed the benchmark over the last 10 years, it has underperformed in more recent periods. So, this isn't a clearcut decision. We need to compare this to our other international share funds. One reason to hold would be to maintain diversity of managers.  Maybe this manager will increase performance in the future again while others will decrease... Because funds like this end up distributing most gains we don't need to worry about CGT.

Finally, we have Hearts and Minds (HM1.AX). This is an Australian listed investment company that invests globally using the highest conviction ideas of an array of fund managers. 35% of the holdings are based on stocks spruiked by fund managers at the annual Australian Sohn Investment Conference. The positions are then closed by the next conference. That is a good idea, but one year may be too short for all these investments to work out. And, sometimes, the conference has strayed off the path of sensible investments. Also, the management fees are donated to charity. I invested at the IPO.

Scale: Australian Dollars

I have been gradually reducing our exposure and moving the money to what I perceived as better opportunities. We have only 1.1% of net worth in this stock now. On the other hand, the fund has improved its performance in the last couple of years:Overall, our IRR has been 9%. Our net investment is now close to zero, so I am inclined to hold our position and see what happens. On the other hand, we could simplify things by eliminating this small position.

Investments Review 4: Mature Private Equity Investments

3i (III.L) is one of our more successful and larger investments with an IRR of 24% and a net worth share of 4.4%. Note that the scale on the graph is in Pounds Sterling. They are a UK based private equity manager. Most of the capital they manage now is proprietary capital and so you are investing in the combo of fund manager and fund. I first invested in 3i in 2008 but the position was very small until we started ramping up our investment in 2018 peaking at 5,000 shares in 2022. Since then, I sold off 1,500 shares because I was concerned that the majority of their portfolio was in a single company - Action, a European chain of discount stores. This took our net investment down to zero. A classic mature investment.😀 Obviously in retrospect we would have done better by just sticking with 3i.

 

Pengana Private Equity (PE1.AX) did well for a while but then went sideways since early 2023. Overall it has achieved an IRR of 19%. With good timing, I reduced my investment dramatically at the start of the sideways period. The money was redeployed in another undervalued PE fund - CD3.AX. Since then I have added some back when it seemed a lot undervalued relative to NAV. It's now at 1.6% of net worth, which isn't that big. Hopefully, it will close more of the undervaluation gap and private equity will again do better.

Aura VF1 is a conventional Australian venture capital fund that preceded Aura VF2. Net worth share is 2.8% and IRR is 15%. Both the ramp up and now down in invested capital is dictated by the fund manager. The fund has one big success story - Shippit - and a mix of smaller successes and failures. Management fees will erode the value gradually if there are no mark ups... So we just need to wait for an exit from Shippit to get our money back. Unfortunately, exits from venture capital are still relatively few and far between.

Investments Review 3: Mature Alternative Investments

We start with our best investment ever in dollar terms: gold. 

I first invested in gold back in 2006. Then there was a long period where there was no gold investment or trading till 2018 when I inherited a gold sovereign. Maybe this sparked my interest in investing in gold again starting in 2019. We invest via gold ETFs. We gradually ramped up our investment as cash became available to the end of 2021. Since then we have maintained the gold allocation at around 10% of gross assets and withdrawn cash of around AUD 350k in total. This has gone primarily to funding venture capital investments. Total AUD profit has been almost $500k and it now constitutes 9.9% of net worth with an IRR of 16.9%. At this point this beats our venture capital investments hands down. So, on a short-term basis we should have stuck with gold. In the long term, who knows? On the other hand, this remains a large investment.

Next is our investment in Regal Investment Fund (RF1.AX). It now includes hedge funds, venture investments, real assets, and private credit. We bought at the IPO and then doubled our investment a little while later. We cashed out around the post-pandemic peak and then bought back in. However, the fund has not replicated its amazing performance of 2020-21 but on the other hand has not done badly and so we have been content to let our net investment drift down with dividends and occasional trades. More recently we have added to our position again including through a share placement:

At this point, I am happy to wait and see, as it has gained 26% over the last year. Lifetime IRR is 26.5% and net worth share is 3.6%. 

Wilson Alternative Assets (WMA.AX) is another diversified alternatives fund. Unlike RF1 it continues to trade at a large discount to NAV. We ramped up our investment into 2021 and then let it drift down with distributions paid out. As a result the value of the investment has been constant for a few years but profit has slowly increased. Here I am waiting for some more closing of the gap to NAV, as when Wilson took it on they promised to close the gap or put the future of the fund to a vote.

IRR has been 10.7% and currently it makes up 3.0% of net worth.

Investments Review 2: Mature Superannuation Fund Investments

We each have an employer superannuation fund. Moominpapa has Unisuper (Sustainable Balanced Option) and Moominmama PSS(AP) (Balanced). Each is a diversified fund. PSS(AP) has more private equity, hedge funds, and real assets, while Unisuper is more public stock focused, particularly international stocks. These are two of our biggest investments. Unisuper is 10.0% of net worth and PSS(AP) 8.3%. And they have performed fairly well. Unisuper has an IRR of 10.5% and PSS(AP) 8.9%. We need to keep making contributions into these funds if we want to get the full employer superannuation contribution (I think). But we could roll over some of the money to our SMSF if we wanted. In fact, I have begun to do that using a transition to retirement pension. You can already see the effect in this graph:

 

That's the move down in the red line (net investment) on the right. This is classified as a mature investment, because profit (golden line) exceeds the red line. Back in the 1990s I contributed to Unisuper (or SSAU in the early days). You can see that saving at the left. But then I rolled it over into Colonial First State's retail fund, which allowed me to invest in a geared share fund, greatly expanding my investment. Eventually, I rolled that over into the SMSF. As will usually be the case, almost all the profit has been made since 2012 and the majority since the pandemic low.

We have "only" been investing in PSS(AP) since 2007. Again, we made no money till 2012 and the majority since March 2020:

 

The net investment or input curve is now sloping down because:

• Moominmama is now working part-time
• We only make employer contributions to the fund and make additional contributions for her to the SMSF.
• Profit is computed pre-tax and in order for the value (green) to be equal to the sum of profit and input we need to deduct the imputed tax from the input series.

So, we are kind of divesting from this fund too. 

This is what mature investments will look like - profit is still climbing though we are pulling money out of them.

Investments Review 1: Unprofitable Investments

We have six unprofitable investments:

• Tribeca Global Resources Fund (TGF.AX)
• Unpopular Ventures
• Aura VF2
• Dash Technologies/IPS
• Domacom (DCL.AX)
• Pershing Square Tontine Holdings (PSTH) 

We can only sell the first of these... You are going to see a lot of graphs like this during this investment review:

 

The red line is the net cash we have invested, the green line is the current value of the investment, and the golden line is profit. I bought this investment at the IPO (a mistake). I reviewed TGF in the previous investments review here. The investment was marketed on the basis of the high returns the team got with this strategy prior to launch. But unfortunately that performance has not been replicable. Instead, their performance has been erratic to the up and down side. I ramped up my investment by "buying the dip" until 2021 but then missed the chance to cash out at the top. Since then, net investment has declined as dividends have been paid out. But net profit has also drifted down. I guess I am hoping the managers have another bout of erratic out-performance allowing me to cash out at a profit, but I seriously wonder if I should just sell instead. Our internal rate of return (IRR) is -0.5% and the investment is 2.8% of net worth

What's up with all the other unprofitable investments that we can't do anything about?

Unpopular Ventures is a venture fund on Angellist. We contribute USD 10k per quarter to their "rolling fund" and occasionally invest in some of their syndicates. The investments have so far generated a little net profit. But the fund is managed on a 2 and 20 basis and you pay ten years of 2% annual management fees up front! So, each investment in the Rolling Fund is immediately marked down by 20% or so.

Our internal rate of return is -7% indicating the underlying profitability. And their funds from the years immediately prior to our initial investment have done very well. So, we could stop making new contributions here, but I think we can continue until the fund is at 5% of net worth say. We are now at 3.5%.

Aura VF2 is a conventional Australian venture fund that is still making capital calls. One of their early investments, Lygon, went bust but has been restructured. This is the main reason the investment is down. Some of their other investments are doing well. The IRR is -3% and the investment is 2.6% of net worth.

Dash Technologies took over Integrated Portfolio Solutions, which was an Aura Venture investment. Unfortunately, IPS didn't manage to make the breakthrough they hoped for when we invested in the syndicate. The takeover was for a mix of cash and shares in Dash. Half the cash has been distributed, the rest is coming later this year. The remaining investment is 0.6% of net worth. The IRR has been -5%.

Domacom provides fractionalised investments in real estate in Australia. It is currently suspended from the ASX. My investment thesis was that the company was likely to be acquired by a larger financial institution that could leverage the investment through its distribution network. But that never happened and I missed the opportunity to get out during the previous period when the company was relisted on the exchange. It has gone through a lot of recapitalizations and things are again looking up. It is only 0.1% of net worth with a -36% IRR!

Finally, PSTH was a SPAC vehicle set up by Pershing Square Holdings. It tried to acquire Universal Music Group but was blocked. Ackman has restructured the company and claims to be still looking for targets. So, it has zero carrying value and it is a case of wait and see. The IRR has been -13%.

Investments Review: 2025 Edition

I have been closing some investments that I wasn't happy with, but it's several years since I systematically reviewed my investments. Currently, we "only" have around 30 investments if we bundle micro-investments with Unpopular Ventures and Masterworks into two single investments. But it could still be too many. This time I want to look at things in a different way. Instead of looking at asset classes, I will look at investments based on their maturity.

A mature investment has total profit that is greater than the net cash invested. This could be because either it has been super-successful or because we have pulled out part or all of our original investment. The remaining investments are either profitable or unprofitable. It looks like we have 12-13 investments in each of the mature and profitable baskets and 6 in the unprofitable basket. I think I'll start with the unprofitable basket as it is easiest to deal with.

January 2025 Report

In January, the Australian Dollar rose slightly from USD 0.6196 to USD 0.6237 meaning that USD investment returns are a little better than AUD investment returns. It was our second best month ever in absolute Australian Dollar terms (after November 2024). Stock indices and other benchmarks performed as follows (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 3.38%

S&P 500: 2.78%

HFRI Hedge Fund Index: 1.35% (forecast)

Australian Dollar Indices

ASX 200: 4.57%

Target Portfolio: 2.82% (forecast)

Australian 60/40 benchmark: 2.47%

We gained 4.59% in Australian Dollar terms or 5.12% in US Dollar terms. So we outperformed all benchmarks.

The SMSF returned 6.11%, compared to Unisuper at 2.16% and PSS(AP) at 1.72%.

Here is a report on the performance of investments by asset class:

The asset class returns are in currency neutral terms as the rate of return on gross assets and do not include investment expenses such as margin interest, and so the total differs from the Australian Dollar returns on net assets mentioned above. RoW stocks (mostly Defi Technologies) gained 8.4% and made the largest contribution to returns followed by gold. Several asset classes lost money, futures including bitcoin lost the most and made the most negative contribution to returns.

Things that worked well this month:

• Bitcoin (AUD 65k), Defi Technologies (DEFI.NE, 53k), gold (44k), Pershing Square Holdings (PSH.L, 39k), 3i (III.L, 26k), Unisuper (14k), US Residential Masters (URF.AX, 11k).
  

What really didn't work:

• WAM Alternatives (WMA.AX) was the worst performer but only lost 3k.
  

Here are the investment performance statistics for the last five years:

The top three lines give our performance in USD and AUD terms, while the last three lines give the same statistics for three indices. The middle block gives our performance relative to the indices. Our rate of return is now higher than the ASX200 and we have much lower volatility, resulting in a Sharpe ratio of 1.01 vs. 0.53. Our alpha relative to the ASX200 increased to 4.95% with a beta of only 0.46. We capture much less of the downside moves than the upside moves in the market. But as we optimize for Australian Dollar performance, our USD statistics are much worse. We do beat the HFRI hedge fund index in terms of return, but at the expense of much higher volatility. Our USD volatility is at least less than that of the MSCI index, but our return is more than two percentage points lower.

We moved further away from our target allocation this month as "futures" and rest of the world stocks allocations continued to grow. We are now most overweight rest of the world stocks followed by futures, which includes bitcoin. Our actual allocation currently looks like this:

About 70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. A lot of these are listed investments or investments with daily, monthly, or quarterly liquidity, so our portfolio is not as illiquid as you might think.

We receive employer superannuation contributions every two weeks. We contribute USD 10k each quarter to the Unpopular Ventures Rolling Fund and less frequently there will be capital calls from Aura Venture Fund II. I am now receiving TTR pension payments from both Unisuper and our SMSF and contributing more than the total of these to the SMSF (around AUD 4k net contribution per month). I made the following additional moves this month:

• I sold out of our remaining position in Cadence Capital (CDM.AX). I got tired of waiting for something to happen in this fund. We still have a position (about 2.5% of net worth) in Cadence Opportunities (CDO.AX), which sometimes performs better than CDM. 
• I bought 200 shares of the Fidelity bitcoin ETF (FBTC).
• I sold 1,000 shares of the Perth Mint gold ETF (PMGOLD.AX).
• I bought 3,000 shares of the WCM Global Quality active ETF (WCMQ.AX).
  

Performance of Individual Investments 2024

This post breaks down the investment returns for 2024 at a very granular level. Other costs and benefits like interest and fees and exchange rate gains and losses are not included here. I also don't go down to the level of the very small individual investments inside the Masterworks and Unpopular Ventures boxes. All numbers are in Australian Dollars.

The grey shaded investments are ones we no longer hold (some were short term trades or investments). The numbers in yellow are total wins and losses and in green the total investments return. Last year's results are here. Some of the same investments were again major winners this year: 3i (III.L), gold, Unisuper, and PSSAP. Pershing Square Holdings (PSH.L) moved down the league table a bit this year. There are two newcomers in the top three: Defi Technologies (DEFI.NE) and Bitcoin. Gold also returned nearly three times the amount it did in 2023. These pushed 3i down from the top spot to fourth place.

Some of the same investments were again losers this year. On the other hand, the Cadence funds, Regal Partners, Aura VF2, and APSEC moved from losing last year to gaining more than $10k this year.

The top investments are mostly our biggest. 3i is relatively small though at 4% of the portfolio and our Pershing Square position is slightly bigger than our Defi Technologies position but did not perform as well this year.