Aurora Funds Management IPO

As I have shares in the Aurora Sandringham Dividend Income Trust, I just received a prospectus for the IPO of the manager. Investors in the funds get a $A5,000 "priority allocation" of shares in the IPO. They pay exactly the same price as all other investors though. So this is only an advantage if the IPO is oversubscribed. The company does not seem to think this is likely as they have specified a minimum offering of $A2 million and a maximum offering of $A5 million. Why list two limits if you were confident of raising the $A5 million?

The prospectus provides 2 1/2 years of accounts. In the 2007-2008 financial year they made $A400k in profit and in 2008-2009 they made $A1.3 million on a pro forma basis. However, in the first half of 2009-2010 they lost $A400k. Both management and performance fees were below those of previous years and costs were up. So it is hard to value the company. The IPO values the firm at $A20 million. So this is a P/E of about 20 based on the three years but the income volatility is huge.

In the 2008-2009 financial year the company paid shareholders $A590k in dividends which is entirely reasonable. But in the first half of 2009-2010 they paid out $A1.1 million despite actually losing money. This seems to be a case of the directors taking a last chance for fat dividends before going public.

The prospectus also claims that all the funds will be used for operations including product development, debt repayment, regulatory capital, and offer costs ($A340k if the offer only nets $A2 million which is big bite). But existing shareholders will receive $A750k in cash for shares they hold. The prospectus states that this will be paid out of pre-offer cash, but of course cash is fungible.

So at this point I'm leaning towards passing on this one. Any thoughts?

Accepted

Back in March I wrote that I was nominated by the Australian government for a UN scientific advisory body. I just heard today that the UN group accepted my nomination and so I will be participating for the next few years. Now if only I can convince someone here that this shows I should be worthy of getting a job! :) There are hundred of people involved in this effort but still there are not that many from any one country.

National Emergency?

Wow, if this is even somewhat accurate this is both outrageous and crazy. Using national emergency powers to campaign for the RSPT? If it is really political then the Labor Party or the Unions etc. should fund it. The opposition doesn't get to spend public money on this.

I haven't said much about the RSPT, but, yes, I am against it. I happen to think the royalties regime makes sense but I can see some of the arguments against it. I would accept some introduction of a tax along the lines of the PRRT (Petroleum Resource Rent Tax) at a high enough level to replace the state royalties and the reduction in corporation tax on mining companies with the funds going back to the states probably. IN theory though I think royalties that are then invested in a sovereign wealth fund are the best option.

Rebalancing

I just switched this back again. At least my average price is lower now...

Sign of the Times

HSBC (USA) is converting my checking account from "Interest Checking" to "Basic Checking" because the former product is being discontinued, which is no surprise given the level of US interest rates. It's good news for me as the fees on the new account are a quarter of what I was paying on the old account and will be waived for 6 months after the conversion...

Booked Europe Trip

Today we booked at paid for our flights to Europe and Israel. We'll also be staying in Thailand for a couple of nights. Hopefully, conditions will be more stable by the time we travel. It's our first trip overseas for a couple of years and is crazily long. Cost came in at just under $A6,000. That's just the flights. We should be able to recover at least half the costs - my trip to Europe will be refunded by the people I am going to work for in Sweden and maybe Snork Maiden can get something if her paper is accepted at a conference.

P.S.
We don't only need good luck in Thailand but also Iceland :)

Bought Some Shares...

I bought some shares in CHN last night. Price 25.13. It closed a little below that. Had been planning on that for a while and this seemed at least like an opportunity...

Snork Maiden's Funding Confirmed

Some good news. Snork Maiden heard that the funding her team got for the next two years is no longer contingent on them raising additional matching funding. On the other hand, they'll be able to employ one less person without getting more funding but her salary is funded by the confirmed money.

Hedge Fund Performance April 2010

The hedge fund performance figures for April from HFR and Credit Suisse/Tremont are in. Credit Suisse/Tremont reports that funds overall gained 1.24% in April. HFRI (preliminary) was at 1.29% and HFRX 0.80%. according to Credit Suisse/Tremont most strategies did well apart from short bias which lost 3.89%. Equity strategies that involved shorting performwed weakly. Equity market neutral made 0.43% and long-short equity 0.29%. HFRI reported similar results for strategies except that equity hedge came in at 1.37%. HFRX reports losses in macro and much more variability across strategies than the other two sources. It is based on a smaller sample of funds that report daily and seems to be less reliable.

Article on NetWorthIQ in NYT

Interesting article on NetWorthIQ in NYT. The article takes a negative angle on net worth tracking. Personally, I get a feeling of security to some degree from the net worth number when it is heading in the right direction and when it's not I know something needs to be done... I think it is essential to know how much you are saving and whether you can meet retirement and other financial goals. For these purposes, tracking net worth is necessary.

Indirectly Informed of Rejection

They just announced today who got the positions in my department. So, I find out that I won't get an offer (there was a chance of a second round offer). I haven't received formal notification of rejection yet. So it is annoying to find out this way. By not appointing me and instead appointing a more junior candidate they have been able to partially fund a couple more very junior positions... Now all my focus will be on my upcoming interview (date not specified yet) at another department here...

Rejection...

Today, I got the rejection e-mail for the job in Brisbane that I applied for. We didn't want to go to Brisbane anyway and I didn't want to do this job, particularly, anyway so no big deal. Still haven't heard the outcome for the job I most recently interviewed for here though.

Crazy Chinese Property Prices

As everyone knows by now property prices are crazy in many parts of China. When compared to incomes they are far far higher than in countries like Australia where property prices are already ridiculously high. My mother in law reported that in their neighborhood (picture above) prices have reached RMB 14,000 per square metre. This is the usual way of measuring prices in China. This price is AUD 2300 per square metre or USD 190 per square foot. A 100 square metre apartment is, therefore, about $200k. This would be cheap in Australia and a decent price in cheaper areas of the US. But incomes in China are much lower. She claims that her apartment is 170 square metres. So it would sell for USD 350k or AUD 390k. This is in the suburbs of Tianjin, which is one of the wealthier cities in China (after Shanghai, Beijing, and Shenzhen). But still. When they moved there in 2002 prices were RMB 3400 per square metre so the unit would have cost USD 85k. They didn't actually pay this. My stepfather's workplace gave them the apartment as part of a retirement package which involved them giving up their old apartment.

Dishlex

The motor on the Bosch dishwasher in our apartment died and we had to get a new dishwasher. As the landlord is in another country the local agent paid organized this. So far it seems to be that this new machine is total junk. The brand is "Dishlex" which I'd never heard of. It claims to be "made in Europe (Albania?)". Just feeling the door closing you know it is lower quality. The inside space appears much smaller though the outside of the machine takes up as much space. And several dishes are not cleaned properly each time. I've been using the regular setting. I'll try the "pots" setting - next time.

Moominvalley April 2010 Report

As usual, everything is in USD unless otherwise stated. I've estimated returns for hedge and commodity funds that haven't reported yet. The monthly income/expenditure report follows:



Our spending was low at $3,257 ($A3,501). $1,860 of this is rent. The rate of return in USD terms was 0.10% vs. 0.22% for the MSCI World Index. In AUD terms we lost 1.17% as the Aussie Dollar rose against the US Dollar. Aussie small cap stocks, hedge funds, and commodities gained this month, while Aussie large caps dragged down returns:



These figures are currency neutral. There were no big shifts in allocation apart from about a 1% decline in Aussie big cap stocks and leverage. Net worth reached $448k (AUD 481k) an increase of $3k.

On the whole it wasn't a very eventful month.

Moominmama Performance April 2010

Moominmama beat the MSCI index this month for a change. It only rose 0.22% and she gained 0.88%. Hedge funds, bonds, other investments, and the gain in Sterling all helped and seems like her US stocks must have performed better than average.

BHP

BHP's stock price is down 3.7% so far. Alan Kohler said yesterday that the resource rent tax would reduce their profits by 19%. So, so far, investors can't think the government is serious or most of the loss was already built into share prices? Rio Tinto is down 5.56%. Kohler's estimate was 30%. So that is proportional.

Mean and Median "Ordinary Time Earnings" in Australia

"[The mean is] $62,400 per year. Around half of workers earn less than three–quarters of AWOTE [$46,800]."

Government Response to Henry Review

The government will do three main things - raise the compulsory employer superannuation contributions to 12% from 9% of salary over time, reduce the corporation tax from 30% to 28% over time, and introduce a 40% mining rent tax. For the latter state royalties already paid can be credited against the tax. The first of these moves was actually ruled out by the Henry Review. The second is more timid than the Henry Review (they proposed 25%) and the latter probably more aggressive. No bold tax reform is planned.

The first move will have no effect on Snork Maiden or me as our employers already contribute more than 12%. The second is rather marginal. The latter move could have negative effects on stock prices to the degree that a lower rate of resource tax was expected.

There are quite a few other provisions but I see them as being more minor. Superannuation taxes are unchanged as is the $A25k p.a. cap on concessional contributions for under 50s. Over 50s will be able to contribute up to $A50k p.a. if they have less than $A500k in super.

P.S.

"The Henry review recommended abolishing the tax on super contributions and halving the rate of tax on fund earnings to 7.5 per cent, neither of which was adopted by the government."

P.P.S.

It seems that they meant to abolish the super contributions tax and instead tax super contributions at normal rates. So yes that would be a move towards the Roth IRA model. The government just ignored this of course (like 136 other recommendations).

P.P.P.S.

The Review actually proposed a 20% "offset". This means that people on the 15% bracket would pay -5% on super contributions and people on 45% would pay 25% on super contributions. But, the full contribution would actually go into the fund. So this would have effectively increased the superannuation guarantee to 10.575% from 9%.

Superannuation Co-Contribution

I just contributed $A1,000 to my superannuation (Australian retirement account) in order to get the government's co-contribution. Last year, I got a $A1,500 "match" from the government for putting in the money. This year the maximum match is down to $A1,000 and as I earned more money I won't get the full match. I still look set to getting something though.

Henry Review Predictions

Based on all the leaks some things seem clear about what the Henry Review to be released Sunday will contain.

I do expect that we'll move one step closer to the Roth IRA model where super contributions are fully taxed but earnings are not. One guess would be that super contributions will be taxed at 15% below your marginal rate. So 0% for those in the 15% bracket, 15% (the current rate for everyone) for those in the 30% bracket, and up to 30% for those in the 45% tax bracket. Maybe with that they can relax the $A25,000 a year contribution cap. I'm likely to be exceeding the cap myself next year, will be interested to learn how that is dealt with by my employer.

The Henry review will if anything reduce overall taxation on capital from all the sounds it has been making. First, they may reduce the corporation tax in return for the resource rent tax. They might fiddle with capital gains tax discounts but doubt they will eliminate them. The aim overall is to lessen the gap in tax treatment between different forms of savings and to increase the tax burden on immobile land and reduce it on more mobile capital.