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.