Related-Party Asset

I have been trying to invest in a fund on the AngelList venture capital platform. But my SMSF administrator flagged that there might be issues because the fund is organized as a limited partnership. The auditor has now provided the following information:

"A partnership can elect to be taxed as a Limited Liability Company (LLC) in USA or a partnership under the tax law due to the elections that the LLCs make with the US Internal Revenue Office. It is common for such partnerships (US) to be taxed as a company.

To support compliance with SISA/SISR for investments in Limited partnerships we note the following potential scenarios and information for audit purposes:

1. Where the entity is taxed as an LLC, this supports that the LP should be treated as a company where the members of the Fund are not members of the LP and the investment therefore is considered as an investment in an unrelated entity. This is usually able to be ascertained from the financial report of the LP. 
2. Where the entity is taxed as an LP, and the members of the fund are not members of the LP, and the investment is in within a limited capital account arrangement. This is usually able to be ascertained from the financial report and the application agreements. 
3. Where the entity is taxed as an LP, and the members of the fund are members of the LP.

If the investment falls into scenario 2 and 3 then the investment would classified as an in-house asset which would mean it needs to be below 5% of the SMSF’s total assets."

It seems that this falls under scenario 3. I just sent AngelList an email to check. The problem is that the minimum investment required, let alone subsequent hoped for appreciation, would take us over the 5% limit. So, it seems it is not really true that you can invest in anything you like through an SMSF. It seems silly to me to treat a fund where I am only investing through the SMSF along with 1500 other investors as a "related-party asset". Probably, I will need to invest in this fund using my own name and pay higher tax than I would through the SMSF.

Still Trying to Transfer Shares

So, I have been trying to transfer our holdings of listed investment trusts from our SMSF's Interactive Brokers account to a new account I set up with Commonwealth Securities. I first sent the required form to Commonwealth Securities 6 weeks ago. After nothing happened for three weeks I emailed them again. They then sent me the next day a text message telling me to phone. They told me that I needed to change some details on the form. I sent a new form in. Again nothing. Yesterday, I again emailed them. Today, they again texted me and I phoned them. They said that Interactive Brokers were not accepting the transfer and I should initiate it at that broker instead. I have just done that. All online of course, no paper forms required. Let's see if it works. I don't want to have to sell and rebuy the shares again as there is a AUD 34k capital gain plus two sets of commissions and slippage. 

But this service from CommSec where they just forget about the request for 3 weeks until they are reminded again is really not good!

P.S. 6Apr22

Success! The shares have arrived at CommSec.

Another Sale and a Failed Auction

Following the recent record gain on a townhouse, a freestanding house sold in our development last Thursday but the price hasn't been disclosed yet. On Saturday, there was an auction of another townhouse. I went to the auction and there were no bidders. The condition of the property wasn't that great. 

P.S. 29 March

The townhouse has been listed at "offers above $829k".

URF Selling Property Portfolio

The U.S. Masters Residential Property Fund (URF.AX) announced they are selling their property portfolio at a discount. As a result, they will pay out URFPA holders at the AUD 100 face value of the units, but ordinary equity owners of URF.AX will only get 22 cents per unit.

I didn't manage to get out in the initial auction and the price is now at 20 cents. I am down AUD 25k for this month and a AUD 15k loss overall at this point. This is my 5th worst trade or investment ever at this point.

However, this is a 10% return from here and so I guess I will hold for the moment. That will turn it into the 10th or 11th worst investment.

This was always a speculative investment and so I didn't invest too much in it. It represented 1.36% of net worth not including our house prior to this announcement. However, there are still some lessons to be learned:

1. When they recently said that they were likely going to sell the portfolio at a discount I should have sold then.

2. I should have invested in the URFPA units all along. I was put off investing in them because of their complicated structure/conditions. But they were safer than URF.AX and had a lot of potential upside.

3. There's often a good reason why the market seems to undervalue an investment. Turns out it didn't undervalue it enough, though!

4. Still, the 5th and 10th best investments have made roughly 10 times what this has lost at the moment.

In other bad news, Domacom settled the dispute for only AUD 2.5 million. That will only last them 6 months...

New Record Gain for our Development

 This townhouse sold for AUD 835k:

That is a 101% gain on its original 2008 sale price, the largest gain to date in our development. This is also more than the AUD 740k we paid for our house. I added all the townhouse sales to my valuation model and it comes up with a value of AUD 1.307 million for our house for 2022. Of course, this is based just on this single sale for 2022. But there is another auction coming up later this month, which will provide another datapoint. I use a single value for our house for a year at a time. This new value also pushes us over another big round number networth wise, which I once thought we wouldn't reach till the end of 2024.

February 2022 Report

World markets fell but the Australian market rose with the MSCI World Index (USD gross) falling by 2.55%, the S&P 500 by 2.99%, and the ASX 200 rising by 1.66%. All these are total returns including dividends. The Australian Dollar rose from USD 0.7063 to USD 0.7248 reducing Australian Dollar returns and increasing USD returns. We lost 1.10% in Australian Dollar terms but gained 1.49% in US Dollar terms. The target portfolio fell 2.38% in Australian Dollar terms and the HFRI hedge fund index is expected to fall 1.09% in US Dollar terms. So, we under-performed the ASX200, outperformed the other benchmarks.

It was a bit calmer month despite war breaking out in Ukraine at the end of the month. We continued to work on setting up a second brokerage account for the SMSF and transferring our holdings of listed investment trusts into it.

Here is a report on the performance of investments by asset class (currency neutral returns in terms of gross assets): 

All the equity categories lost money, while all the others gained. Gold both performed best and added the most to returns. US stocks was the worst performer while hedge funds detracted most from performance.

Things that worked well this month:

• Gold gained AUD 26k. WAM Alternatives (WMA.AX) and URF.AX were the next two best performers, gaining AUD 10k and AUD 6k, respectively.
  

What really didn't work:

• Hearts and Minds (HM1.AX)  and Cadence Opportunities (CDO.AX) were the two worst performers, losing AUD 13k and AUD 11k, respectively.
  

The investment performance statistics for the last five years are: 

The first two rows are our unadjusted performance numbers in US and Australian Dollar terms. The following four lines compare performance against each of the three indices over the last 60 months. We show the desired asymmetric capture and positive alpha against the ASX200 but not so much against the other two benchmarks, which are measured in USD terms.

Our asset allocation did not change much. Private equity is still the most underweight asset class and real assets the most overweight. Our actual allocation currently looks like this:

70% of our portfolio is in what are often considered to be alternative assets: real estate, art, hedge funds, private equity, gold, and futures. We receive employer contributions to superannuation every two weeks. In addition we made the following investment moves this month:

• As the gold price rose, the share of gold in gross assets went over 10% and following policy I sold 500 shares of PMGOLD.AX to bring it back to 10%. 
• I sold 1,000 shares of Fortescue Metals (FMG,AX). Should have sold more...
• I opened a new position in WAM Leaders (WLE.AX), buying 20,000 shares so far.
• I bought 6k shares in Pengana Private Equity (PE1.AX) when the price was low.
• I sold 3k shares of Regal Funds (RF1.AX) to fund this.
  
• I heard that our investment in Doyle's farm through Domacom will be wound up and sold. The majority of holders voted to do this. This is my only active investment through Domacom, so a bit disappointing. Hopefully, we won't lose too much considering selling costs and that we have had very little upside so far in this investment. The management company, Domacom (DCL.AX), also doesn't look like relisting on the ASX any time soon.
• On the other hand, Masterworks sold their second painting, which turns out to be one I hold.