Masterworks "Redesigns" Secondary Market

I recently invested USD 5,000 in paintings I bought at large discounts on the Masterworks secondary market. I was thinking to do more such purchases now and then and gradually build up a more diversified portfolio. I targeted offerings that had appreciated since their initial offering and so were more likely to have a near term exit, which were selling at large discounts - up to 50% of appraised value.

Bracco di Ferro by Basquiat

Masterworks was only allowing buy orders to be placed for one day at a time. I think the idea was to force buyers to buy at the offer price and so maybe push prices up. But the result was that someone casually looking at the site saw piles of sell orders and no buy orders and would conclude that this was not a good investment. 

Then today we got an email from Masterworks saying that in future sellers will need to discuss their planned sales with Masterworks and buyers will be offered curated offers. You need to sign a new agreement to participate. From my reading of the agreement, they will charge an extra 2% p.a. AUM fee for participating. I've emailed the firm for clarification on that. If so, I won't participate. I am guessing they plan to buy shares at a discount from sellers and then sell them at a marked up price to buyers.

Recently, I talked to their sales guy who offered me investments in funds. These funds consist of shares in paintings which Masterworks has received as annual management fees. They are offered at a 10% discount to appraised value. The minimum investment for one fund was USD 100k and for the other 25k. I told him I preferred to buy in the secondary market. I guess a bunch of people have told them that. Now maybe the 25k fund looks a little attractive but it also includes paintings that are trading way below their initial offering price that I think might never be exited.

Masterworks

Masterworks are a fairly new firm offering securitized investments in artworks. They buy paintings by recent and living artists and then sell shares to investors. They charge a 1.5% per annum management fee and plan to charge 20% of profits when an artwork is sold. They also get a markup on the price that they pay, presumably to cover acquisition and offering costs. I am interested in investing a small amount and have scheduled an interview to talk to them. They interview all new clients. One thing that interests me is our family connection to art. My father's family were antique and art dealers before the Second World War in Germany. My brother is an amateur artist who has sold a couple of paintings, I think, and my mother painted as well. But this doesn't give me any particular insight on the financial side of the art market. I'd aim to diversify across the paintings they are offering.

This investment is more equivalent to private equity buyout rather than venture capital. It doesn't make sense for the firm to buy a painting for $10k or $100k by an unknown artist hoping that it will appreciate because they make a separate special purpose vehicle filed with the SEC for each of their offerings. So they are buying paintings at around $2 million or so a piece.

P.S. 25 August

I had my interview today with a representative from Masterworks and was approved to start investing. I learnt that there is a USD10k minimum investment for the primary offerings. I now made my first purchase and have transferred the money using OFX. Based on the spot exchange rate, it cost 1.45%. I tried using my US bank but couldn't work out an online method that works.

Masterworks Sells First Painting, Investors Make 32% in One Year

Masterworks sold a Banksy Mona Lisa for $1.5 million after holding it for one year. Investors gain 32% after all fees and costs. I don't think this would be typical but nice to see that this first deal worked out.

I've now invested in four paintings through Masterworks.

Hockney Sold

Masterworks sold the Hockney painting I invested in. Profit after fees is 23% and the IRR was 6%. They are giving the option to reinvest in another paper or receive the cash. Overall, my Masterworks investments only have a 2% IRR. 

Art has been in a slump while stockmarkets have rallied in the last 3 years. Who knows if it is going to recover now? I'm not inclined to tie up the money again for an unknown period. This is especially given that I am retiring now. So, for now, I am going to withdraw any money I can from this portfolio. I have investments in nine paintings remaining.

Good and Bad News: Masterworks Sells Doppelbild by Oehlen and Domacom Goes to Court with AustAgri

 

It's one of the paintings I invested in. The price uplift is 43%. They are claiming a 33% IRR after fees. My original investment was in early January 2021. US investors will receive payment in their "Masterworks Wallet". Don't know how foreign investors will be paid yet. I still have shares in 11 paintings I have invested in.

To counter this good news, Domacom (DCL.AX) announced today that AustAgri haven't onboarded Cedar Meats to the Domacom platform. Domacom is, therefore, demanding the AUD 8.5 million break fee, but AustAgri is disputing that they owe anything and it is going to court. This deal always sounded strange. If they have the funding to acquire Cedar Meats from other sources why would they need to pay fees to Domacom? I expect that Domacom will remain suspended from the ASX. I am pretty sceptical of recovering any of this investment at this point.

September 2020 Report

Stock markets fell and the US Dollar rose this month. The Australian Dollar fell from USD 0.7380 to 0.7156. The MSCI World Index fell 3.19%, the S&P 500 3.80%, and the ASX 200 3.51%. All these are total returns including dividends. We gained 1.09% in Australian Dollar terms and lost 2.07% in US Dollar terms. The target portfolio is expected to lose 0.70% in Australian Dollar terms and the HFRI hedge fund index 0.17% in US Dollar terms. So, we outperformed the stock market indices and the target portfolio but not the hedge fund index. Here is a report on the performance of investments by asset class (currency neutral terms):

 

Hedge funds added the most to performance and gold detracted the most.

 

Things that worked well this month:

• Bluesky Alternatives (soon to be Wilson Alternative Assets) gained AUD 13.5k followed by Regal Funds (AUD 10.4k) and Cadence Capital (AUD 7.4k).
  

What really didn't work:

• Gold fell the most (- AUD 16.6k).

The investment performance statistics for the last five years are:

 

The first two rows are unadjusted numbers in US and Australian Dollar terms. The following four lines compare performance against each of the three indices. We have the desired asymmetric capture for all three indices now and positive alpha compared to two of them.

 

We moved further towards our long-run asset allocation. Bonds are still the asset class that is furthest from their target allocation:

 

 

On a regular basis, we invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Other moves this month:

• I bought 100k of Australian Dollars by selling US Dollars.
• Woolworths (USD 25k) and Nustar (16k) bonds matured.
• I invested USD 10k in a painting at Masterworks.
  
• I bought 22,136 Domacom shares (DCL.AX) at 6.6 cents each. The company announced a deal that might get them about halfway from here to profitability.
  
• I bought 25,000 Bluesky Alternatives shares (BAF.AX). 
• I bought another 1,000 shares of the IAU gold ETF.
  
• I was stopped out of the short 10 year treasuries futures position.
• We reduced our Commonwealth Securities margin loan by another AUD 90k to AUD 92k. Ultimately, I plan to borrow mainly from Interactive Brokers who have a much lower interest rate and only use the Commsec margin loan or our home mortgage facility when there are particularly good opportunities.
  

Two More New Investments

We're still in the process of reinvesting after the most recent reorganization, which centred on rolling over my Colonial First State superannuation fund into the SMSF. I bought the first "tranche" of a position in Fortescue Metals (FMG.AX) replacing the just closed Treasury Wines position. By the way that position made around AUD 15k in profit with an internal rate of return of around 90%. Fortescue is expected to pay out an enormous franked dividend very soon. The interim dividend was AUD 1.47, which was double that in the previous year. Brokers expect the final dividend to be around AUD 2.50 per share plus franking. This is around a 16% annual yield. The reason the share price isn't higher is that brokers also expect profits to fall in the following years. The thinking is that the iron ore price can't remain this high for long. My thesis is that retail investors will continue to buy the stock to get the dividend and that maybe future profits won't fall as much as expected. In the last 90 days they have increased their forecasts of 2022 profits but the share price is below where it was a the beginning of the year.

The second investment is in Contango Income Generator (CIE.AX). This is a listed investment company (closed end fund). It has been a failure, losing money since inception. Wilson Asset Management got involved, buying up shares and agitating for change. The company switched to a new strategy managed by WCM Investment Management who are based in California. This is a global long-short equity strategy, which supposedly has performed extremely well:

Of course, it is trading below net asset value. It's not that liquid, and so getting a full position will take a little while.

We now have 40 different investments not including cash in various currencies, our house etc. And that's counting the eight paintings at Masterworks as one investment. I still have a couple more investments in mind.

August 2020 Report

The US stock market continued to rise as the US dollar fell. The Australian Dollar rose from USD 0.7159 to 0.7380. The MSCI World Index rose 6.16%, the S&P 500 7.19%, and the ASX 200 3.09%. All these are total returns including dividends. We gained 3.03% in Australian Dollar terms and 6.03% in US Dollar terms. The target portfolio is expected to gain 1.89% in Australian Dollar terms and the HFRI hedge fund index 2.46% in US Dollar terms. So, we outperformed the latter two benchmarks and almost matched the stock market indices. Here is a report on the performance of investments by asset class:

The returns reported here are in currency neutral terms. Small cap Australian stocks performed best and hedge funds contributed the most to overall return.

 
Things that worked well this month:

• Regal Funds (RF1.AX) was the top performer, up AUD30k, closely followed by Bluesky Alternatives (BAF.AX, 22k), and Hearts and Minds (HM1.AX, 19k).
  
• Domacom (DCL.AX) doubled in price from 4 to 8 cents. Half my position was bought at 2 cents a share. But then the company voluntarily suspended its quotation pending an announcement about a major transaction. The trading halt started on 19 August and there is still no news, though the company did release its annual report.
  
• The Aura Venture Fund reported that it performed very well in the June quarter. In retrospect, it was easily the best performing investment that month.
  

What really didn't work:

• Winton Global Alpha Fund continued to lose money. The fund announced that a special meeting of unitholders will consider broadening the strategy and lowering the fees.
  

We moved further towards our long-run asset allocation. The share of hedge funds rose most while the shares of bonds fell the most:

 

On a regular basis, we invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Other moves this month:

• I bought small positions in URF.AX, CDM.AX, RF1.AX, TGF, AX, and PE1.AX in my Commsec account (for a total of 1% of net worth roughly) with the aim of getting better tax information on distributions than provided by Interactive Brokers.
• I bought 13,719 shares of Platinum Capital.
• I bought 25,000 shares of Bluesky Alternatives and 1000 shares of 3i to increase our private equity position a little.
• I opened an account with Masterworks and bought 500 shares in my first painting for USD 10k.
• USD25k of Goodyear bonds, USD25k of Safeway bonds, and USD28k of Xerox bonds matured.
• I bought net AUD 60k and GBP 14k and sold net USD 61k.
• I closed the 2 year-10 year US treasuries September futures spread and shorted 1 contract of December 10 year bonds  futures.
  

June 2025 Report

I waited for all investment returns for the financial year to be in before posting this report, though, in the end, it didn't make much difference. In June, the Australian Dollar rose from USD 0.6431 to USD 0.6559 meaning that USD investment returns are better than AUD investment returns. Stock markets rose (total returns including dividends):

US Dollar Indices

MSCI World Index (gross): 4.53%

S&P 500: 5.09%

HFRI Hedge Fund Index: 2.36%

Australian Dollar Benchmarks

ASX 200: 1.47%

Target Portfolio: 1.95%

Australian 60/40 benchmark: 1.79%

We gained 0.68% in Australian Dollar terms or gained 2.68% in US Dollar terms. So the only benchmark we beat was the HFRI. We under-performed the target portfolio because our returns for private equity and US stocks were a lot below the benchmark returns.

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 but gold and Australian small cap had positive returns with the strongest rate of return and the largest contribution from Australian large cap.

Things that worked well this month:

• More than AUD 10k gain: Unisuper (19k), Regal Investment Fund (RF1.AX, 12k), Australian Dollar Futures (10k). Also at all time high profits:  PSS(AP) (9k for the month), CREF Social Choice (7k), Acadian (6k), WCM Global (WCMQ.AX, 2k), CFS Imputation (2k).

What really didn't work:

• Gold (-14k). At all time low profits: WAM Capital (WAM.AX, -1k).

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 four benchmarks. This month, we have added the Vanguard 60/40 ETF portfolio to the set of benchmarks. The middle block gives our performance relative to the indices. 

These are now measured from the end of June 2020. Our alpha relative to the ASX200 fell to 3.0% with a beta of only 0.48. We still have much lower volatility, resulting in a information ratio of 1.41 vs. 1.09. We capture much less of the downside moves than the upside moves in the market. We also have very good performance relative to the Vanguard 60/40 portfolio with the same volatility but almost 4% p.a. more return. 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 four percentage points lower.

We moved towards our target allocation as I again tweaked the allocation. Our actual allocation currently looks like this:

About 65% 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 liquidity, so our portfolio is not as illiquid as you might think.

We receive employer superannuation contributions every two weeks. We make an annual concessional contribution to Moominmama's superannuation to reach the annual cap on contributions. 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 back to my superannuation accounts. (around AUD 4k net contribution per month). I made the following additional moves this month:

• Closed investments in Generation Global and Aspect Diversified Futures and switched the money to the Acadian Global Long Short Fund.
• Invested USD 2,500 in a syndicated start up at Unpopular Ventures. In my reporting, all these small investments are reported together with the UV Rolling Fund. Similarly, individual paintings I invested in at Masterworks are all reported together, as are individual property investments at Domacom.
• Sold 1,000 shares of James Hardie (JHX.AX) closing this trade for about an AUD 600 loss.
• Bought 500 shares of the gold ETF (PMGOLD.AX). 
• Net sold 3,250 shares of WCM Global Quality (WCMQ.AX). 
• Bought AUD 45k of the First Sentier Imputation Fund. 

January 2021 Report

The rallies in the Australian Dollar and the stock markets continued this month. The Australian Dollar fell from USD 0.7725 to USD 0.7663. The MSCI World Index fell 0.43% and the S&P 500 by 1.01%, but the ASX 200 rose 0.93%. All these are total returns including dividends. We gained 0.59% in Australian Dollar terms or -0.22% in US Dollar terms. The target portfolio is expected to have lost 0.09% in Australian Dollar terms and the HFRI hedge fund index is expected to lose 0.24% in US Dollar terms. So, we outperformed all benchmarks apart from the ASX 200.

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

Hedge funds added the most to performance and gold detracted the most. Things that worked well this month:

• Tribeca was the best performer in dollar terms. Treasury Wine was maybe the best in percentage terms.
  

What really didn't work:

• Pershing Square Holdings was the worst performer, giving back AUD 11k of gains. Gold was second worst, losing AUD 9k.
  

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. We have the desired asymmetric capture for all three indices now and positive alpha compared to all of them. 

 

We moved further towards our long-run asset allocation. Real assets (real estate and art) are the asset class that is furthest from their target allocation (7.4% of total assets too little) followed by hedge funds (3.6% too much): 

 

 

On a regular basis, we invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Other moves this month:

• I invested USD 10k in another painting with Masterworks.
• USD 50k of HSBC bonds matured.
• The remaining USD 3.75k of General Finance baby bonds were called.
• I sold 2000 shares of the Boulder Income Fund (BIF) closing our position and buying 100 shares of Berkshire Hathaway (BRK/B) instead. 
• I also closed our position in Pendal Property Securities and switched the funds to Generation Global. Both are funds offered by Colonial First State.
• To then rebalance a bit towards real estate I bought 50,000 shares of URF.AX.
• As part of a long term plan to not hold US stocks directly, I reorganized my holdings in my Interactive Brokers and CommSec brokerage accounts. In the end, the CommSec account ended up holding gold (PMGOLD), unlisted funds from Colonial First State and Macquarie, and small positions in each of our listed Australian funds. The latter are so we get the correct tax information from the share registries as IB isn't strong on this. My main holdings of these funds are now at IB, which has a much lower borrowing rate. IB has all my other stock positions in Australian, UK, and US markets. The latter will eventually move to the new SMSF. There are also some bond positions there which we will hold to maturity.
  

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.

February 2021 Report

The month ended quite turbulently, but stock markets were still up for the month. The Australian Dollar rose from USD 0.7663 to USD 0.7737. The MSCI World Index rose 2.35%, the S&P 500 by 2.76%, and the ASX 200 rose 1.65%. All these are total returns including dividends. We gained 1.65% in Australian Dollar terms or 2.68% in US Dollar terms. The target portfolio is expected to have gained only 0.23% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 1.05% in US Dollar terms. So, we outperformed or matched all our benchmarks. The S&P 500 isn't a benchmark.

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

 

Hedge funds added the most to performance and gold detracted the most. Things that worked well this month:

• Tribeca Global Resources (TGF.AX), Regal Funds (RF1.AX), and Hearts and Minds (HM1.AX) were the top three performers gaining AUD 20k, 18k, and 11k, respectively. In other notable gains, we gained AUD 5k in Treasury Wine (now a 2% of net worth position) and Winton Global Alpha gained for a change, up AUD 3k.
  

What really didn't work:

• Gold was the worst performer, giving back AUD 30k of gains.
  

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. We have the desired asymmetric capture for all three indices now and positive alpha compared to all of them.

We moved further towards our long-run asset allocation. Real assets (real estate and art) are the asset class that is furthest from their target allocation (7.2% of total assets too little) followed by bonds (2.9% too much):

 

On a regular basis, we invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Other moves this month:

• I sold my USD 25k of Virgin Australia bonds for 8.125 cents on the dollar. With Australian borders closed longer than we would have expected at the beginning of the year, I guess the company's financial situation will be worse than they expected when they told us we would likely get 9 cents.
• Prospect Capital called its baby bonds (PBB) early, resulting in another USD 25k reduction in our bond exposure.
  
• I started systematically daytrading ASX200 CFDs and futures....  I made a little money, just under AUD 600. I also started trading soybean futures using my version of the turtle model. This system doesn't trade that often. It made one trade which was stopped out for a loss.
  
• Two days before the earnings release, I sold 2000 of our Treasury Wine shares (TWE.AX) as I was anticipating some turbulence. The next day the price fell sharply and I bought them back almost a dollar lower. By the end of the day the price recovered. On the earnings day not much happened. Then the day after earnings the stock price rose 17% on a broker upgrade and a positive article in the Fin Review. After that there was more turbulence and I adjusted the positions a little
  
• I invested USD 10k in another painting at Masterworks. I now have USD 60k invested in 6 paintings.
  

Investments Review: Part 6, Real Assets

In my usual reporting, gold is a separate category from real assets. I plan to put 10% of gross assets into gold and 15% into real assets. 10% would be in real estate and 5% in other assets, such as art.

Gold (PMGOLD.AX). Share of net worth: 12.10%. IRR: 15.2%. This is one of the more cost and tax effective ways to hold gold. The fund reflects rights to gold held by the Perth Mint. This is much more tax effective than using futures and less hassle than owning real gold, though Perth Mint provide some fairly easy options there. The IRR reflects our total gains on gold ETFs. The management fee is taken by the manager cancelling some shares each year. That means the price exactly tracks the Australian Dollar price of 1/100 of an ounce of gold.

WAM Alternatives (WMA.AX). Share of net worth: 4.32%. IRR: 16.9%. About 10% of this fund is in real estate and half in real assets, mainly water rights. The rest is in venture capital and cash. This fund was started by the failed Bluesky group and has now been taken over by Wilson Asset Management. The fund has traded deep below NAV. It has closed some of the gap but is still below NAV. I'm holding the fund mainly in the hope that eventually it trades at a premium to NAV. The underlying performance is not that good. In 2020 it lost 3 cents per share in NAV to $1.08 per share while paying out 4 cents in dividends. This year, so far it's gained 6 cents per share, which I guess is OK.

TIAA Real Estate. Share of net worth: 2.78%. IRR: 4.8%. This fund invests in US real estate - offices, retail, apartments, and industrial. It is in my US retirement account (403b). The IRR for this fund is low, but its returns are very smoothed and so it has a nominally high Sharpe ratio and a low correlation to my other assets. Based on my analysis, I'm hoping that the coming period is one of higher returns than average for this fund. It is easy to market time this fund due to the lag in revaluations.

Masterworks. Share of net worth: 2.63%. IRR: -0.28%. This fund provides fractional access to paintings, mostly works from the last few decades. I have now invested in nine paintings through the platform, investing USD 10k in each. Not much to report so far regarding performance. The downside of the platform I think, is that it isn't worthwhile for the manager to buy a painting for $100k or even $1 million. Buying a $10 million painting has a huge economy of scale for them. They are incentivised to make profits, but they could make it either by getting a lot of appreciation or less appreciation but more assets under management faster. Less expensive paintings that have a larger potential for gain cost them too much to offer.

US Masters Residential Property Fund (URF.AX). Share of net worth: 1.25%. IRR: -1.85%.This is an Australian fund that invests in residential real estate in metropolitan New York. The fund has had a quite disastrous history and now trades at less than 50% of NAV. The fund's underlying exposure to real estate is much larger than the value of the shares on the ASX. The fund has stabilized after refinancing its debt. Previously, it had assets in US Dollars and a lot of debt in Australian Dollars. My bet is that house prices rise in the New York area, that fund costs are now lower after the restructuring, and that the fund eventually trades nearer NAV.

Australian Unity Diversified Fund. Share of net worth: 1.17%. IRR: 28.2%. A recent investment in our SMSF. Invests in Australian office, retail, and healthcare real estate. This is unlisted property and so the price reflects the actual net asset value. Listed real estate provides much less diversification from stock market risk.

Domacom Investments. Share of net worth: 1.12%. IRR: 0.16%. Another recent investment in our SMSF. Fractional investing in Australian real estate. So far, I bought a small share in a farm, but the platform is very slow moving regarding new investments and most existing investments that are trading don't look like good bets.

December 2021 Report

 

Stock markets performed very strongly, with the MSCI World Index rising by 4.03%, the S&P 500 by 4.48%, and the ASX 200 by 3.15%. All these are total returns including dividends. The Australian Dollar rose from USD 0.7122 to USD 0.7261 reducing Australian Dollar returns and increasing USD returns. We gained 2.14% in Australian Dollar terms or 4.14% in US Dollar terms. The target portfolio is expected to gain 1.13% in Australian Dollar terms and the HFRI hedge fund index is expected to rise 1.90% in US Dollar terms. So, we out-performed three of the benchmarks but underperformed the S&P 500 and the ASX 200. Though I track performance against the S&P 500, it isn't really a benchmark, as I can't imagine investing all my assets in it. This month's numbers are very preliminary though. The returns for two of the top performing investments are just estimates based on historical internal rates of return. These venture capital funds only update valuations every six months and report the results more than a month after the quarter end.

The record-breaking run of winning months in Australian Dollar (and currency neutral) terms continued. We haven't had a losing month since March 2020. This is a 21 months run so far. We have had several monthly US Dollar losses in that time.

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

Private equity had the best performance and contributed the most to the account. This includes estimated returns of venture capital funds that won't report the year end value till some time in February and so is very preliminary. US and rest of the world stocks had negative returns. This was because of the negative performance of the Hearts and Minds Fund (HM1.AX), which lost 7% for the month and had a 3.7% portfolio weight.

Things that worked well this month:

• Venture capital funds Aura VF1 and VF2 are predicted to perform well. In reality VF2 might not be upvalued at all and VF1 revalued by more than predicted because of a strong funding round for Shippit, which is the largest holding in the fund. Pengana Private Equity (PE1.AX) gained AUD 15k, Tribeca Global Resources (TGF.AX) AUD 12k, Cadence Opportunities (CDO.AX) 10k, Fortescue (FMG.AX) 9k, and Pershing Square Holdings (PSH.L), 9k also.
  

What really didn't work:

• As mentioned above, Hearts and Minds was by far the worst performer, losing AUD 14k.
  

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 index. We are a little bit better than the median hedge fund levered 1.6 times. 

We moved a little bit towards our desired long-run asset allocation. We reduced the shares of futures and hedge funds in the portfolio and increased the shares of everything else. Private equity is 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:

• I bought a second Australian Dollar futures contract to hedge our foreign currency exposed positions.
• I reduced our leverage quite a lot from 23% of gross assets (not counting our house) to 18%. This includes the mortgage on our house. The main reason was to reduce our most expensive debt – a margin loan from Commonwealth Securities. I also replaced a pile of AUD cash with the second futures contract and reduced our US Dollar margin loan from Interactive Brokers by selling AUD 66k. I sold the remaining 200 shares of the Ready Capital baby bond (RCB) to complete this delevering.
  
• I invested in my twelfth painting at Masterworks. A David Hockney painting shown above. I just liked it. As usual, I invested USD 10k.
• I sold 25k shares of Pengana Private Equity (PE1.AX) as the share price rose above NAV.
  
• I sold 38k of Regal Funds (RF1.AX) shares I recently bought when the NAV hit AUD 4.02. NAV is now AUD 3.83. Still we made a profit of about AUD 3k on this trade.
• I bought 1,000 shares of the China Fund (CHN) after they paid out a dividend that reduced the dollar value of my holding by almost as much.
  

Two New Investments

 I invested in another painting at Masterworks, No Hopeless by Yoshitomo Nara:

This takes my investment back up to 12 paintings again, given that Doppelbild by Albert Oehlen was sold and should pay out soon. I was a bit nervous this was overvalued but after a bit of research took the plunge anyway and invested USD 10k.

I also started buying units in a property on Domacom: 60 Devonshire Road, Rossmore, which is a market garden near the planned Badgery's Creek Airport. After the initial investors paid up big fees for the establishment of the investment, it trades below par but at the last valuation saw an uptick in value. I am thinking now it makes more sense to buy in the secondary market on Domacom instead of joining "campaigns" that seem to go nowhere. 

So far, I only invested AUD 920, but have a bid open waiting for sellers.

December 2020 Report

The rallies in the Australian Dollar and the stock markets continued this month. The Australian Dollar rose from USD 0.7361 to USD 0.7725. The MSCI World Index rose 4.68%, the S&P 500 by 3.84%, and the ASX 200 rose 1.27%. All these are total returns including dividends. We gained 2.16% in Australian Dollar terms or 7.21% in US Dollar terms. The target portfolio is expected to have gained 0.07% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 2.03% in US Dollar terms. So, we outperformed all benchmarks. In recent months, we have been tracking the target portfolio quite closely but with a positive alpha:

 

 

The target portfolio is a mix of indices (ASX200, MSCI World, HFRI, price of gold, Australian Dollar, private equity indices) and actual funds (TIAA Real Estate, TIAA Bond Market, Winton Global Alpha). If I was more industrious, I would use indices for the latter too... Hopefully, we can continue to beat the target portfolio by selecting better than average hedge funds etc. 

 

Increasingly our assets are in more illiquid investments that report with a lag. I am now using estimates for all of these:

• Our house - we might change the value based on local sales up to a year after the month end! We will stick with last year's value until there is another local sale. Our house  isn't included in the calculation of the rate of return, though, only in our net worth calculation.
  
• Aura VF1 - reports every 2 months and more than a month after the end of the month, I am using the IRR so far to project the return.
  
• Aura VF2- reports every 2 months and more than a month after the end of the month. For the moment we will stick with the IPO price.
  
• Winton Global Alpha - lag is only 2-3 days.
• Cadence Opportunities - not sure how long the lag will be. I am using the historic alpha and beta to compute an expected return.
  
• APSEC - seems to be 2-3 weeks after month end. I am using the expected HFRI return to project the return.
  
• Masterworks - none of my paintings is yet tradable in the secondary market, so we are just using the IPO price.

Some of our other investments are listed on the market or quoted daily, but their NAV adjusts with a lag, such as Wilson Alternative Assets (WMA.AX) and TIAA Real Estate.

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

 

Hedge funds added the most to performance followed by gold. Things that worked well this month:

• Pretty much everything! But gold was the strongest performer in dollar terms, gaining AUD 28k.
  

What really didn't work:

• URF.AX which invests in residential property in New York and New Jersey lost most – AUD 3.5k. Hearts and Minds (HM1.AX) had its first decline since March, losing AUD 1.3k. That's after gaining AUD 95k since the March low!
  

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. We have the desired asymmetric capture for all three indices now and positive alpha compared to two of them. 

 

We moved further towards our long-run asset allocation. Real assets (real estate and art) are the asset class that is furthest from their target allocation (7.6% of total assets too little) followed by bonds (4.8% too much): 

 

 

We are now over-allocated to hedge funds, so will look to trim some positions over time. On a regular basis, we invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. Other moves this month:

• I rebalanced my US 403b retirement account to 50% in the TIAA Real Estate Fund (direct real estate) and 50% in the CREF Social Choice Fund (balanced fund). I eliminated an allocation to the Money Market Fund and reduced the allocation to the Social Choice Fund.
• I bought 5,000 Treasury Wine Estates shares.
• I sold 1,000 CBAPI.AX Commonwealth Bank hybrid securities (convertible bonds).
• I bought 3,000 shares of the IAU gold ETF, taking our position to 20,000 shares and finally around 10% of gross assets. 
• I bought AUD 160k by selling US Dollars to get our currency exposure to 50% Australian Dollars and I bought GBP 25k by selling AUD.
  
• I bought 1,000 Pershing Square Holdings (PSH.L) shares. This took me more overweight hedge funds, but I self-justified it by the fact that the shares are still trading at a big discount to NAV but the gap is narrowing. And anyway, the target portfolio weights are arbitrary, aren't they? I will look to trim the lower performing listed hedge funds once prices are nearer NAVs again.
  

Annual Report 2021: Contributions of Individual Investments

I think all investment valuations for 2021 are now in. So, as I promised here is the profit or loss on each individual investment. We didn't hold all of these at the same time. Currently we have about 37 investments.* This doesn't account for investment costs, the most important of which is interest, or other investment returns like interest on bank accounts, of which there is very little.

Of course, this doesn't control for the size of each investment. Generally, the losing investments were smaller, with the exception of Hearts and Minds. Still even that investment was not as bug as the two top investments in terms of performances or the really large investments in the two superannuation funds. This means our capital allocation made sense and helped generate strong returns this year.

* Counting all 12 paintings at Masterworks as a single investment, for example.

May 2021 Report

This was a month of consolidation as I tidied up the SMSF and its repercussions and launched a review of all our investments.

The Australian Dollar rose from USD 0.7725 to USD 0.7738. It was another month of increases in world stock markets. The MSCI World Index rose 1.61%, the S&P 500 by 0.70%, and the ASX 200 rose 2.13%. All these are total returns including dividends. We gained 1.96% in Australian Dollar terms or 2.10% in US Dollar terms. The target portfolio is expected to have gained 1.58% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 0.80% in US Dollar terms. So, we outperformed all benchmarks apart from the ASX 200. Here is a report on the performance of investments by asset class (currency neutral terms):

Gold added the most to performance followed by hedge funds. and only Australian small cap had a negative return. Things that worked well this month:

• Gold had a very strong performance, gaining 8.7% in AUD terms or AUD 43k. Next was Tribeca Global Resources (TGF.AX) gaining AUD 19k, and third was PSS(AP), which gained AUD 7k.
  

What really didn't work:

• The worst performer was new investment Fortescue Metals (FMG.AX), which lost AUD 5k. It was followed by Pershing Square Holdings (PSH.L) and Hearts and Minds (HM1.AX) (-AUD 4k each).
  

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. We show the desired asymmetric capture and positive alpha against the ASX200 and MSCI indices. We are doing a little worse than the median hedge fund levered 1.6 times. Interestingly, USD performance is now stronger over the last five years than AUD performance because the Australian Dollar has appreciated over that time.

We stuck close to our desired long-run asset allocation. Real assets is the asset class that is now furthest from its target allocation (3.0% of total assets too much). Private equity and futures are underweight. The former will solve itself over time as Aura make capital calls. We will fix the latter this month.

 

On a regular basis there are retirement contributions. I have stopped making regular contributions to investments outside of superannuation. This was a again a very busy month:

• I sold some Regal Funds (RF1.AX) shares getting back down to 60k shares.
• I invested in Contango Income Generator (CIE.AX).
• I sold Treasury Wine and invested in Fortescue. This was a very bad move.
• I invested in the Ruffer Investment Company (RICA.L).
• I switched funds from Platinum International Fund to Generation Global Fund.
• I made the first investment through Domacom.
• I bought some more shares in Pershing Square Holdings (PSH.L).
  
• I invested in another painting at Masterworks.
  
• I switched funds from the CREF Social Choice Fund to the TIAA Real Estate Fund.
  
• I opened a new calendar spread trade in soybeans. 
• We applied for shares in the WAM Strategic Value IPO.
  

April 2021 Report

This month we completed the initial investments in our self-managed superannuation fund (SMSF). I stopped systematic trading for the moment. We also reached a big round net worth number in  Australian Dollar terms. But once I raised the value of our house to reflect a recent sale in our neighborhood, I realised we would have actually reached that number in February.

The Australian Dollar rose from USD 0.7612 to USD 0.7725. It was another month of increases in world stock markets. The MSCI World Index rose 4.41%, the S&P 500 by 5.34%, and the ASX 200 rose 3.48%. All these are total returns including dividends. We gained 2.54% in Australian Dollar terms or 4.06% in US Dollar terms. The target portfolio is expected to have gained 1.76% in Australian Dollar terms and the HFRI hedge fund index is expected to gain 2.07% in US Dollar terms. So, we outperformed these benchmarks and did OK vs. the MSCI. Here is a report on the performance of investments by asset class (currency neutral terms):

Hedge funds added the most to performance and only Australian small cap had a negative return. Things that worked well this month:

• Tribeca Global Resources was the largest contributor in dollar terms contributing AUD 21k. Gold bounced back, contributing AUD 15k. Unisuper, Cadence Capital, and Pershing Square Holdings all also contributed more than AUD 10k. Other notable strong performers were URF.AX (NY/NJ residential real estate), 3i (UK private equity), and soybeans.
  

What really didn't work:

• The worst performers were Hearts and Minds (HM1.AX) and Domacom (DCL.AX).
  

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. We show the desired asymmetric capture and positive alpha against the ASX200 index. Against the MSCI World Index we could be doing better and we are doing a little worse than the median hedge fund levered 1.6 times.

We moved decisively towards our desired long-run asset allocation again as I implemented our SMSF investments. In October 2018, when we received the inheritance we were 48 percentage points away from our target allocation at the time. Now we are less than 6 percentage points away. We compute this by calculating the Euclidean distance between the target and actual allocation vectors. This is the square root of the sum of squared differences between the actual and target allocations for each asset.  Real assets is the asset class that is now furthest from its target allocation (4.6% of total assets too little):

On a regular basis, we invest AUD 2k monthly in a set of managed funds, and there are also retirement contributions. This was a very busy month. I'm only recording net changes here:

• Australian large cap: I invested in Argo Investments again.
  
• Hearts and Minds (HM1.AX): I bought back 20k shares I had sold a while ago at higher prices. This is a long only global equities fund.
  
• Hedge funds: I increased our holding of Regal Funds (RF1.AX). This wasn't intentional, but I didn't get the price I wanted in exiting part of our holding in a regular brokerage account while also establishing a position in the SMSF.
  
• Private equity: I increased our holding of the Pengana private equity fund (PE1.AX).
  
• Bonds: Our Medallion Financial baby bond matured and we bought shares in Scorpio Tankers,  Star Bulk Carriers, and Ready Capital baby bonds, increasing our net holdings of US corporate bonds by USD 50k. We also bought shares in the Australian MCP Income Opportunities Trust (MOT.AX).
  
• Art: I invested in another painting at Masterworks.
  
• Real estate: I invested in the Domacom and Australian Unity Diversified Funds. I also doubled our holding of URF.AX (NY/NJ residential property).
  
• Futures: I successfully closed a calendar spread trade in soybeans and stopped systematic trading of ASX futures.
  

Annual Report 2025: Individual Investments

As promised, here are the individual investment results for 2025 (Australian Dollars):

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, Unpopular Ventures, and Domacom investments boxes.  

I also make no attempt to compute individual rates of return. My goal is to have twice as many winners as losers and to make at least twice as much on winners as I lose on losers. So, position sizing is part of the story. Based on that goal, I had more than enough winners, but only won slightly more on each winner as I lost on each loser. Without the two worst losers, I only lost $9.9k per loser. In the long term, my winning positions have gained more than five times as much as losing positions have lost. Of course, both Bitcoin and Defi Technologies gained more in the previous year than they lost in 2025. In the long run, these were winning investments.

Gold was the top performer this year, after coming in second last year. It was followed by two listed hedge funds and then the Aura Venture Capital Fund 2. Next came our two employer superannuation funds, each of which is 8-12% of our portfolio. The diversified Regal Investment Fund put in a good showing at 7th position. WAM Capital is a new investment I made during the April Tariff Tantrum. Australian Dollar Futures are paying off this year after being the worst performer last year. Finally in the top 10, CREF Social Choice is a balanced fund in my US retirement account (403b).