Hello, and welcome to the Australians Money Pluzzle the podcast. I'm James Kirkby. Welcome aboard everybody. Now, look, we've spent a fair bit of time on the show explaining and indeed, you know, promoting virtually passive investing, and that invariably for most people most of the time, means index funds, exchange traded funds. They're very useful. They're a very reliable way to enter the market, to start as an investor, to
underpin and an investment portfolio at whatever stage you're at. Meanwhile, of course, the people who provide this passive investing, the big index funds, they have ambitions of their own. So the big groups like Vanguard and etc. They're working all the time, I'm supposed to expand their business and they
have ambitions of their own. So the thing is, we loved massive investing in its original guys as exchange traded funds that very simply murdered the ASEX, so you could buy the ASEX, you could buy NaSTA, you could buy the S and P. Beautiful piece of work. Everyone loved it. More recently, these funds have become more and more ambitious to keep trying new things active funds, thematic funds, and now even ambitions to get into the area of alternative assets,
private equity, private credit. This sort of murky world where the big super funds play and they've had such success, and I wonder how far you can go with this, since similarly it's worth annoying that the regulators are wondering how far you can go with this, So Assex this week making a big move to ask questions really about how big super funds invest outside of share markets, and whether we know what they're doing, and whether it's entirely
reliable what they're doing, and if things went wrong, what would happen, not just those on listed in liquid funds, but what would happen to everyone's super what would happen to invest in generally, Because there's no way on earth that if the big super funds get trouble in their private side, that the public markets as we know them, real Essex, our share portfolios would be affected. I want to put this issue and other issues and as some great questions from listeners to my guest today, my very
good guest today who's been on the show before. It's Jackie Clark. She is many things, She's an advisor primarily to a number of family officers, so she's dealing with very wealth declinents. She's an author. I'll stop worrying about money, start planning now. The title is longer than that. That's all I can recall for the moment. How are you, Jackie?
Great? James. It's excellent to pay here with you today.
Great to have you, great, to have you on the show. Tell me just a passive investing right? It really has worked, and I'm a hearty advocate of from many people in many ways, whatever you invest in passive vesting, you're going to get as good or as bad as anybody else. You won't shoot the lights out, and you probably won't lose your shirt either. You will do more or less what the market does. And that's good enough for many people, or at least it's good enough to underpin portfolios. But
I wonder is it getting is it losing direction? Basically because of the ambitions of these big players in passive investing.
Yeah, it's a great question. I read something the other day which you'll love. Our true friends are compound interest and low cost ETFs. Right, So in terms of a strategy, there's no question I feel that it's generational as well. So the passive investment style is an access to ETFs or a way of accessing the market, where I guess the reverse of that is active management. Now right now, arguably,
if you've got an advisor, it's quite active. You've got a fund manager somebody looking out for you, making decisions on buyers and sells perhaps, which is somewhat different to the management, if you like, of the ETF. So handing it off to a fund manager is fine if you've got the cash to be invested that way, But actually
otherwise the passive approach is more accessible to Australians. Perhaps The only different thing which you just commented on, ever so briefly, was how buying into the index which you can do with the ETFs now they are becoming more exotic and so how passive are you really being by taking that approach, because you could easy. I think that one thing is short in some respects ETFs can replace the fund manager, but you want to have like a long horizon when you're doing that as well.
Set and forget, Yes, but a lot of people to say forget, didn't it? And I mean many people like that. But more than that, people like to the security of knowing that they will do fairly well if the markets do fairly well, they will do okay if the market's do okay. And obviously hanging over this entire conversation is the fact that the majority of active from managers don't even match the market, and that has been proven forty five different ways in recent times. I wonder just with
your own from your view about it. And you've seen interesting, isn't it that Thedlastic makes such a big push this week at the regulator and openly said, look, we want to know more about what's going on here, and they are concerned. And even if you aren't, if you think you're not inbout in these listener's, you are because if you've got super your super fund's probably got thirty forty percent in this area, right, But let's just call it
private investing, what the public investing. I think the point Joe Longo, the chairman Mad, which was very powerful, was it's not going to be self contained and if the big super funds have problems in that area, it's got to spill in two. It's going to affect everyone because it's so such a giant amount of money it's not like they can fix it without some knock on effects. But the shere market, so we're all involved, really aren't, whether we like it or not.
Yeah. Absolutely, And in the context of yeah, I mean, the exposure is significant and super funds obviously have the ability to shape investing in our country naturally by which direction they take, recognizing though they have generally speaking, very good governance structures in place to make those decisions to protect Australian super.
Yes, generally, Well, yeah, I look, it's a different issue that's worth asking you. I mean, we did a lot of coverage of the troubles at SEBOS, and there's other problems, like Australia is super refined during the week. They're not perfect. But I do want to pose a question to you off the coff which is even major super fund is having a lot of problems in one area at the
board level, for instance, or at the executive level. People are coming or going, or people are unhappy but they're politicized, which they are clearly politicized in a fund like SEBUS, can that be quarantined from their investment performance? And people ask me, I'm in CBUS. I don't like what I hear what's going on, and I say, well, their investment
performance is fine. But the midi of dollar question is can that can their investment performance of a big fund be quarantined from octions I'd be like on the board that might be political or otherwise.
It's a tough one. It depends, I think, is the answer, because the underlying assets you'd like to think will not be impacted by that performers. But we have to go back to the decision making that got us into those
investments in the first place. And the other probably the thing that bothers me the most is typically the cost structures, because who's deciding or how are they deciding on how they're investing money in, recruiting people, retaining the right people, having the right qualifications, all those things, which maybe doesn't get the exposure that a typical public company might get in Australia.
Couldn't you're not even able to see it. Sure, you're not even have to go to their agms unless you're so.
So you'd have to question that to what extent does that affect then the performance of the business. Well, it may well affect the underlying profit or performance of the business for sure, which is what's not going into your supergrowth.
So you can't quarantine that's what you're saying.
Well, I don't think you can quarantine any executive or board from the performance of a business.
Yeah yeah, okay, very good. Now tell me in your world, Dinney, with family officers and the operanda worth, your investors, what's their attitude And this is a general question, but our listeners would love to know what is their attitude towards passive investing? I doubt assess and forget, but what's their general attitude towards passive.
You might be surprised. I think it depends where people have come from, so again, whether they've made their money and property, whether they've made that in an operating business. I think that there's an element of passive investment in everyone. But it might be passive in a different way, which is if your father or grandfather went into a particular area you just stay in that area. It becomes passive because you're not passionate about it, you're sort of required
to stay in it. But my sense is that predominantly our money is active, and so you know, wealthy Australians take quite a proactive approach, and particularly those who have exited businesses where they've got a bucket load of cash. That's their next thing, so that's where they do spend
their time. But having people who I mean most of the times with us, with family officers, we have multiple advisors looking after portfolios of cash, So not one singular advisor, but multiple advisors, which I think is great because you can kind of keep a competitive tension around performance, around fees, all those types of things which are really important in
deciding on who looks after you. But yes, definitely i'd say active, and that probably goes also to what's the you know, where people think where are people focusing their time and energy right now? Because we've had a chat before about defensive types of assets.
Yes, I hope that one more and actually we'll come to that after the brief because it's probably what people are starting to think. Just still the way the markets are so volatile, which is such a robbery word. What does volatile mean? Does it mean scary? Sometimes? It does, I think, But just back on that. So people who made them money taking risks continue to take risks. I think I'm bessing and guessing this. Okay, what are the people who didn't take risks. So there were top re
insurgent make millions every year. What they're like, I doubt I don't want to assume. Are they the ones for passive?
It's personality James, Yeah, so I think I still feel like it's a combination. Yeah, there's a portfolio of passive investments, or everyone would have a portfolio some of which you consider to be passive. It's like the equities market and holding shares. Some people will just always hold your CBA's and your bhps. It's like, yeah, people just want to let go of them.
Is that the lack of imagination.
Or maybe consistent track records of performance but over a long cycle. Yeah, that's what people look for or recognize and maybe don't invest any more time in understanding it.
I was looking at a charity recently which is a major charity with a serious balance sheet and plenty in the foundation, and the entire investment portfolio was completely passive. What do you think of that? Is that typical? Is that to be recommended?
I would suggest that's not typic cool?
Yeah, right, okay, so they do take risks, they absolutely okay, Yeah, and what would the balance typically be of a family? I know this is a very hard question to answer. But of a typical family office. I know it's different stocks for different folks, but give us some idea of what percentage might be passive.
It could be up to fifty percent.
Okay, all right, so I think.
To be fair, it could be up to it could be more risk. Appetite is a very interesting thing. It depends where the money came from, if you made it, if another generation made it. Yeah, what your expectations are distributing that wealth over a period of time. You mentioned
a foundation, which is also interesting. Quite typically a more passive approach to a foundation because of by nature, just from an investment perspective, how you want to present that foundation to the universe needs to have that consistency in its portfolio management, which when I was saying this is he means more passive than active, because you can't be jumping around things making moves necessarily in a passive in a foundation context.
Okay, just before we go to the break, you're talking about how people made their money. Here's the family office. Okay. They made their men one hundreds of millions off their widget making factories that were all around Australia. Granddad was the founder her generation. They have never worked on the factory floor. They're very wealthy. Everyone they know is wealthy. They have no idea really what the rest of the world is like. Do they take more risk or less risk?
Oh, I'm thinking of someone in particular. Yeah, I still think it well. I think it would be a balanced approach and there would be an element of risk for sure. But also the reality is if you've come into genuine money and you're not living off a dividend every year that you may have been historically, then there's a bit of lass a fair about some of it. So let's say twenty percent.
Because you can afford to lose.
Yeah. Absolutely, I'm not saying easy come, easy go. I'm just saying, realistically, we've got more than we've ever had. Let's say let's put this at risk. It's very different too. If you've been a senior executive in an organization you've got bucket loads of money from options and shares over a period of time. That's harder and cash in a somewhat different way where you might want to preserve and
grow to get particular outcomes. Someone who's sold a family business that might be three generations in manufacturing in Australia actually say all right, in terms of what price we achieved, there's a part of that we're happy to put at risk and play. I do say that it's quite interesting.
There's definitely a play element to the classic sort of Australian entrepreneur, even if it is generational, like say down the pipeline, there's a little bit of you know, have some fun, try some different things, talk to some mates, which I try and tell people not to do.
My meeting the yacht club says there's a very good opportunity in x. Okay, we'll take a break back in the moment. Hello, Welcome back to The Australian's Money Positive James Kirby talking to Jackie Clark here regular rather show. Now, I wanted to ask you in terms of today where
we are very late debutary, very early days. Trump administration just come off fabulous year in the stock markets around the world being twenty twenty four, risingly good late twenty twenty four with the anticipation that Trump would come in now maybe an element of sobriety just starting to creep in as we enter at the end of the first quarter of twenty twenty five and earning season as well, but more more importantly on a macro basis, it changed tone.
The markets are almost decompining from let's put it the other way, the political geopolitical reality sort of decompining from the market. So we have this tariff trust from the US, which is provocative and disturbing the order that this entire generation of investors are familiar with. Does that prompt defensive thinking among wealthyer investor and if it does, how is it being displayed?
James, very interesting time, As you say, the answer is people are cautious, but not defensive. So what we are seeing is closer monitoring of the markets. And so to your listeners, I'd be saying, and keep watching or if you're not, you know, to step up your game. So most people are fully invested. Nobody's setting cash aside necessarily to take the opportunity, yes, which you might see people do in the coming months.
How would we even see that local film managers cash cash cash weetings going up? Would that be the indicator? Could be?
I mean, I'm probably too close to it to answer that, as in I would see or recognize the behavior of fund managers recommending that approach exiting investments, moving things into cash or making I'm not saying aggressive changes in portfolios occur. Yeah, I mean, I guess the interesting thing is the correlation of assets in your portfolio will have an impact on this, the nature of them, whether they're advisably uncorrelated, so that you've got that waiting if you like in the market.
What just expensive listeners. That the idea I won't say that the idea, which is marvelous and theory difficult in practice, but on correlated portfolio the idea mis Jackie is putting forward is that you have certain investments that go the opposite way to your main investments. So, for instance, very simply, it's a share market crash. Shares have got forward, a lot of other things have got the fort what war Ford, what my co op of the was the share market crash?
The obvious one is very simply. The obvious one is gold. For instance, property can also be very steady. You think of the GFC. So to a retail listener of this show who is operating on their own, what non correlated options are there is gold, one is bitcoin one? H when you're talking about that, what are you talking about? What are you thinking of?
Yeah? I mean, there you've chosen to that at the opposite ends of the spectrum, aren't they are? You did quite nicely pick two very uncorrelatedre no and I would think of the tech sector versus mining in Australia, you think of banking versus manufacturing, so they're they're uncorrelated to some extent, and perhaps then domestic versus international as well. But you are you talk about gold, and I'm not a fan of gold, only because we're apart from wearing it.
But the actual the difficulty of gold is it doesn't pay you income, no, and we all like to generate income from our investments. So perhaps for some people, like gold's been good, like it's performed well. I just can't quite imagine the joy of having a block some someone holding a block of gold somewhere.
But what do you think is performing well? Because it's absolutely should be the lights out by by by historic this year, yeah, last year. So why do you think that is?
I actually don't know the answer to that, James. Why gold is performing well? Actually I don't know the answer. Is it a bit like fixed income you know has done well? Of course, you know, comparatively, if you look one of the interesting statistics is what the Aussie share market's historical dividendal It is four percent, and people get
hung up on trading equities all the time. You think, well, that's interesting you dividend yield, isn't it compared to say fixed interest that will deliver you today still higher than that as a yield. So many difference is with goal. Whilst you might get the growth in value which you can exit from, you just don't get income strain, which I would consider a goal to be quite speculative.
M M. So if I have if I know that I should be more cautious. If I know that I don't really have on correlated assets in my portfolio. I have shares and cash, I have some property. I really have nothing that is pronounced or would be defined as not correlated. What would I look at to begin the process of getting some non correlated assets in there?
Yeah, so I would think about things like innovation. So where in the market do you see innovation starting to make money? So is that as a contrast to what you were suggesting, whether you're like in a bank for example, Yeah, So looking at I guess the index and seeing i'd look at dividend yield as a basic fundamental. I'd look at the revenue of the business if you could, if you've seen that at growth, if they if you do your homework or your due diligence, and you understand whether
they've made acquisitions, do they have debt? I guess that's getting into the detail of a business. But at the end of the day, we're looking for a return on investment.
That's still shares, right, and it does a crash, they're all going to crash anyway, high dividend, little to fall. Yeah, So what is would you think of that's non correlated for the average.
Well, it would be so debt type of assets would be interesting. So, yes, that's going down the defensive path. But and if you're happy to talk about things like private credit market, yes, yeah, or private debt, depending on which side of that coin you're on a little riskier part of the market, I would argue, But it depends on who's managing that private credit Yeah.
Okay, so death credit funds, but the track record, yes.
Yeah, absolutely, Look, and that's I'm saying. I see people borrowing money in those markets, and I'm also an invest in myself on the other side, So it's quite a fascinating area because they're you know, I guess there are some loan sharky types out there that I wouldn't necessarily trust. So I'd hate to be investing through a fund that they were borrowing from, so to speak, you know, the low dock loan environment.
Yeah, so how does the just wouldn't I have seen all that? How does the average investor make their way through this? They hear about death funds or private credit funds they put in front of them. What they don't know is one's really good and one's really bad.
How do you just have to do your due diligence. You do need to understand who the board is. You need to look at relative I would look at three years and five years perform.
Okay, very good, So you.
Do have to do the hard yards. You can take the barbecue conversation not wise because it's often based on information that's spinning spruit, could be marketing in you know, disguising performance.
Yeah right, okay, So truck record, nature of the board, nature of the brand. Basically that's putting this in front of you. Who are the what's the truck record? What area are they in? And as you say, two unfortunately books you go to do your own homework on this. I expect a good advisor should be able to steer it. Ideally, it should be able to steer you between the good, the bad, and the elderly in this area we would call Yeah.
The other thing we talk about, just a small thing, is the nature of the income to James, So we're like, whether it's a franked dividend or an unfranked dividend, or whether it's interesting income, or if it's a trust distribution, like, what is it look like? Because that will have an impact on its profile comparing that to another asset. So there are the important things to understand.
Well, if folks keep that in mind, I think this is an issue we're going to come back to quite readily in the near future. I just know this because at the very best, the year we're heading into is going to be volatile. And what volatile means, for what it's worth is regular periods for the market unwinds and loses before your eyes. It's well going on a sub
version of what's going on right now. But then you can see it, even say in the backstocks, you can see how they are healing off in terms of how much they're worth Off the back of their results, they're all what softer than they were even a month ago.
But what we're waiting for hasn't happened yet. But as sure as I follows day, there will be a correction in the US and when that comes in, I think we'll get some real charity as to what sells and what doesn't sell and what people are nervous about with my debt. Okay, we might go to questions back in a second. Hello, Welcome back to the Australians Money Puzzle James Kirby with Jackie Clark, author and advisor, regular guest
on the show. Okay, question from Susie, I noticed many of your guests so far this year have presence referenced ticking out some puppets from last year's bumper results. My question is how does this work at super investment choice. If you're in a big supermont and you're in high growth, will those managers be doing with enacting this team of selling and waiting for a drop? And if you agree with that, we can't expect those sort of highate trans
again this year. Would you need to actually change your investment choice to something more conservative for this year. Great question cuts through so much that we've been talking about if it's getting more of all the time, if historically the chances of a very good year coming in this year are slimp, because history would suggest you just don't
get those sort of those years in the row. The reality of Trump and the wildness of the policies that he is unleashing day by day internationally suggests that the markets are going to be rockets. Is it? Does that mean that someone who took the high growth option in the super fund should certainly change their views? What do you think?
Well, look, I've been asking about this as well, and the immediate answer is not right now, but it is something that I would be contemplating being prepared soon. Yeah. So it's a bit like we don't have the crystal ball on this market. Nobody does. And the worst thing is that stressing about every movement in the share market. You're absolutely right about returns. They're down, so you would say that we're heading into a period where it's not
looking great from a growth perspective. So probably, if you're reading the tea leaves, you say, yes, now might be a good time to contemplate this. I guess what I'm saying is talking to fund managers, we're being cautious, we're not heading in the defensive asset pathway, but we're monitoring carefully. Now, of course, monitoring carefully is one thing. You can't change your super strategy and get that impact straight away either, right.
So just one thing that when you say they're being cautious but not defensive, why they're not that scared? Right, So they believe there's still a fair bit of steam left in this market? Is that it?
Yes, I'd agree with that. There's plenty of activity. There's sure. We are influenced heavily by the US. It's very difficult to tell which direction that leadership will take the financial performance of the country, and in turn, like the tariffs and others, how they'll actually affect all of us. So it's still a bit of a wait and see.
Okay, all right, okay, thank you and thanks for the question, Susie. Great question, cut through cut I love the questions that cut through it all. All right, Adam, does the board of a listed company have a responsibility to reign in a CEO who is obviously destroying shareholder of value? Thinking of Elon musk here or our small shareholders unprotected from these CEOs. He talks about Tesla, but he could easily have talked about Richard White there. You could have said
the same things. But that's Richard Wise tech books. If you don't know the story, I'm sure you do. But basically was there was the moment. You can't miss that. And basically, very simply, there's a guy who created the company. It went, it formalized itself into a stock market lister company, it did very well. He had controversy with the inappropriate behavior. He agreed to step aside, and he hasn't stepped aside. In fact, he's come back, and basically everyone's run away
from the board. Just as it is today, he's saying, I'm here, it's mine, take it or leave it. It's me or not me. It's like the personification of this issue, keep pressing risk, we call it. How does it? How does an every day shareholder deal with that sort of thing?
Yeah, it's a great question actually that Adam's asked. And I think the first most important part is that it is absolutely the board's responsibility to address the CEO's performance.
So, but they don't always.
No look, and I've been in difficult situations where the board has had to spill essentially, which is partly what you could say has happened in Richard White's case, but not a full board spill where everyone says okay with your behavior is not acceptable where out or there's leaky governance for one of a better words. There's definitely some issues with both the companies that you mentioned, so it
is difficult. I think the interesting thing is if you are a founder CEO and you've listed, you have taken shareholders money, so there is a responsibility here. It's no longer your baby. Once you list a company, it very quickly is the public's company. It needs to be looked after in the right way.
What did Buy challenge that and said, look, if you buy a superstar CEOs company where the person is the company, Greg Goodman Group, it's him and it's his company. You're buying him. That's the deal and all the other governance. I want to say the governance doesn't matter, but what I'm saying is he matters more than everything else. If he leaves, it's over as we know it. Richard White leaves Wistech, it's over as we know it. Same with Tesla.
What do you say to that approach where you just say you're buying one of those companies you're buying the person, accept that or don't accept it. If you don't accept it, don't by them.
Yeah, I think that's spot on because it is buyer beware. Part of your due diligence, James, is to actually understand that CEO track record will In all of our reviews of companies, we always look at the board and the CEO performance and understanding getting to meet. I mean, obviously a everyday Australian investor won't get to meet a CEO.
They can certainly turn up though to the shareholders meetings and the annual general meetings and meet them or get a feel or read about them, whatever it might be. But there's definitely you are buying into that person personality for what it's worth, their contribution to society.
So what would you do then? If you're representing you're on a family office board and they love the stockscoring great, But the problem is the CEO male or female? Is it true? For some reason? Right, some atrocity goes on. You don't you don't like that. I'm not saying it and I'm not thinking of any of the people we've just mentioned. But I'm saying, in theory, you bought a stuff because the distinguishing feature was a single person was brilliant of what they do and they attained that brilliance,
and that's the promise of the company. However, you are aware that there is issues that you are very unhappy with. They may be a behavior, they may be financial dealings, there may be anything, and it's you're absolutely split. You don't like the person you love what they're doing with this stuff. What do you do?
You got to make a call?
Have you can you recall making a call? You don't have to name absolutely.
It's the classic sort of fatal for that a senior executive may be described as having. I've seen this happen, particularly in professional services. It's like you have the big fee winning partner in a firm, but who might be under some investigations. You have to make a decision to the firm, take the revenue and deal, you know, shove the bad behavior under the carpet. You just can't do that for an extensive period of time. So you have to make a decision. What's it going to be Now?
I think it goes the same. It goes the same with investing. You have to recognize that individual might have got the company to a certain point, but it can't take it to the next point. I think this is the strong issue with founder CEOs also is that it's okay to play by their rules to hear, but once you have a very strong public profile, you've taken share public money, it's different and maybe CEO can't make it to that level.
Yes, yeah, okay. Perverse argument for equity, isn't it, because they say, hey, this is don't worry about you know, you like to your company.
I think the difficult is too, is it's a really fine line when getting that founded to decide do you want the public money to grow this business. If you do, you've got to make a decision and possibly be coached out of the role.
Yeah. Yeah, easier self than doll elevation.
Just like loaning money. The Richard White cases, great example, it was his business. He loans money to his former brother in law wherever it is. That's what you do, but not anymore.
Not anymore because it's a public company. Yeah, okay, very good. I think we might leave it there. That was very interesting about the CEO it's an issue. I suppose this is the best example we've ever had in Australia, But we have many companies that were so closely bound to a single person. Many of them you can go back to Harvey Norman and Jerry Harvey, as I said, Goodman in property, but loads of them. Often there was reasons
that some entrepreneurs didn't school public. Pratt family, for instance, could easily go public any time, an enormous company, marvelous business, but they decide that they like to do things their way and they like the flexibility. Then you have the reverse where you have say Jack Ganson co at Chemist Warehouse, where they built this huge business and they were partners, they were private, they did what they like and now they must go public. But then they're closer to retirement.
So then Richard White is so they quite intense to stick around. We'll see how that story goes. Very interesting story. Terrific to talk to you, Jackie, Thanks James, thanks very much for coming on the show. And by the way, folks, thank you very much for some reviews recently. Let's have some.
Let's have some. I would really appreciate it if you would put some reviews on the podcast as you know, Apple and that sort of thing, and similarly keep the emails rolling money puzzle at the Australian dot com dot au. Having some more questions on the share market late, why not let's have some more. I said, we'll do a special very soon on the on shares because I just noticed that there's more and more questions coming in specifically
on them. So we have, among other things, we'll have Roger Montgomery coming up on Thursday week to do that and others. Okay. Today's show was produced by Nias Sammaglu. Talk to you soon,