Hello, and welcome to The Australian's Money Puzzle podcast. I'm James Kirby, the World editor at The Australian. Welcome aboard everybody. You do know that we have a budget coming up in March March twenty five. Most people don't realize. They expect the budget to be of course in May, but because it's an election year, we have a pre election budget penciled in from March twenty five and then we
will have an election. Not only is there a budget coming up sooner than you might have expected, but of course we are going to have something of a giveaway budget. We're pretty certain about that because that's the nature of election era or election time budgets, especially when you have an incumbent administration. Also, interestingly, of course we'll have a new regime in our world. That is that Jim Charmers
will remain treasure, but it's goodbye. Stephen Jones, who was Financial Services Minister and tried a lot of that rather difficult parliamentary initiatives, such as they're trying to bring in originally trying to bring in the super tax in its
original form. He also had a lot of issues with the Big industry funds and Seeva's sort of running a mock last in twenty twenty four, So that is a very difficult job, to be honest, And then people say, oh, Stephen Jones, you know he was a terrible financial services minister. They say the same thing about Jane Hume. They said the same thing about everyone I can ever remember. In
that job. It's a really hard job because the treasurer gets to basically get all the glamour, and the Financial Services minister, who was also in charge of super gets to basically front up to all the difficult press conferences and do a lot of really tough stuff behind the scenes. So in my experience, that particular post is something of a hospital pass politically, So keep that in mind in any event, Budget's coming, What could we expect this time round? And a few other things I want to talk to
do too about today. The ideal person, of course, is my favorite budget guest and joins me every year for the budget specially it's Will Hamilton of Hamilton with Partners.
How are you will very well? James? How are you? Thank you for having me?
You all ready for March twenty five? You're ready to do a mark? We have never done a March budget, have we. We've had some funny ones in COVID. But yeah, in fact, that whole thing about the federal budget always being in first Tuesday in May has sort of been sort of knocked around a lot this last year or two. But what in your world? I don't really want to talk about this macro situation, you know, are we in what's the situation? Are we in the radar or whatever,
et cetera. I'm thinking more in terms of measures. Is there for investors? Is there any aspect that they should keep an eye on? Do you think of this looming budget.
I don't think there's any nasties that people need to be looking out for. The governments do not take away during an election. Budget so as simple as that, So increase taxes or introduce new taxes, or look at ways I'm restricting what people can do, so I don't think they'll be that, but be prepared just for's some window dressing on the expenditure side, so extension of things like
the redbait on electricity and things like that. I really think it's going to be a bit of a yawn, But if anything, there will be a few goodies rather than nasties here.
I never I take that attitude going into a budget, Will, And I'll tell you something without naming names. There are people who go into the budget and they have decided what they're going to do and what they're going to write and what they're going to say before they go in. I don't do that. I'm very old fashioned, and I don't look at the press releases either for what it's worth. I actually look at the budget measures and the budget papers and I go through them systematically, and it is labor.
Let me tell you, it's hard work because these days, folks, it's on a PDF. It's like a two hundred and sixty page PDF, and you're locked in there for six hours reading this pdf. But if you do dig in, and if you are if you know how to read those budget papers, there's always interesting things in there question of finding them. One of the things I was thinking, Will, was,
you know, they did one very smart. I think it was very smart how they cut personal taxes and then how they got a second ring of the belt by basically moving the by enhancing taxes in the middle brackets
and reneging on promises for higher salary tax cuts. They did that in this in the recent times, and politically I might be wrong, but I have a feeling that might have been one of the smartest things that they have done in their entire time in this is the Abbot, This is the Abbot, the Albans administry and the Chalmers administration. It's interesting. I'm thinking of Chalmers and I'm thinking of a line he said in a profile recent He already said I'm the treasure that Albanizi needs. And I said
to myself, that is a devilishly ambiguous line. What on earth does that really mean? What does that really mean? But we'll assume Chalmers is there, We'll assume he's in this our same state of mind. Do you think that in the way of giving out goodies as opposed to nasties, which we can sort of assume is a theme of this election, is there anything we might see on that? So I do think is there anything you're hearing in your world that people are braced.
For not hearing now? And I think it's going to be a bit of a nothing, because we've also got to remember that there are macro implications if they go out handing out too much and you're going to bring inflation back under focus again and therefore interest rates and they're going to want to avoid that discussion. So there'll be something here, is something there. I think the big thing is post the election, and because I think it's odds on that we're going to have a minority government.
I'm not saying which side because I think that's too difficult to predict, but.
As a financial operator, which would you regard as more difficult, this administration or a minority government?
Yeah, well, no one likes minority governments because yeah, there's been a difficult government with respectors of working in air industry. But I think that if they're going into negotiations, you just need to be very aware of what the other side could be looking for. If they're looking into a minor minority government, So.
Are you assuming a labor minority government, a labor led minority government.
Or if it's coalition, you know they'll be they'll be negotiating with a handful of teals.
So that's right, a handful of teals. That's assuming there's any teals left. It would be very interesting to see. It would be very interesting to see, all right. And I don't mean to be facetious there. I really don't. But some of the you know, got in a very slim margin, and you know it would be difficult to get in again. I would think, all right, okay, now, also, will I want something I just wanted to bring before
we go to the break. I wanted to ask you one quick thing, which is and this is a totally different subject, folks, it's about term deposits.
We are.
In the era now of where rates have peaked and their due to decline, and we all talk about how decline with repeated cuts we hope in the future. So we've all talked about that in terms of investment in how its stokes investment. What about term deposits. You were skeptical about sort of returns people were getting in any event up to now. But what do you suggest to people as term deposit rates inevitably start to get cut in the backs of doing it already?
While as skeptical as we were saying, a lot of people at the end of twenty three lock in five percent two days, and they were going out as far as six months because you could, you know, people could could lock that in at that stage, and some people thought getting five percent was fantastic. Yeah, it's rest free.
Well, it's government guaranteed risk free.
I understand that, and you should always balance and looking at balancing risk and return and asset allocation and with which we do and we think that's very important. But by putting one hundred percent in two days at five percent,
I thought that was a bit silly. And yeah, when you've seen the market rally since October twenty two, the US market and US dollar terms, and I understand the strand dollars gone down seventy percent versus you would have picked up approximately thirteen percent totally in returns in tds. That's why asset allocation, that's why looking beyond just one
asset class, be at astrain equities as well. The fact is you do need to diversify, you need to take into account risk and I think that's very important.
Okay, all right, all right, very good. All right, Well take short break, folks, and we'll be back in one moment. Hello, Welcome back to The Australian's Money Puzzle podcast. I'm James
Kerry talking to Will Hamilton, regular on the show. Hey, well you mentioned I just want to clarify, but what you were talking about there before the break about the diversification and keeping things balanced, and you were skeptical about five percent that basically what you're saying is five percent is not as good as it sounds when you've got inflation of whatever two and a half, et cetera. And
then you were saying about balance. Is there a risk I haven't put this to anyone on the show, but is there a risk that many of our listeners who did listen to us all through the year, who did diversify, who did actively diversify into US shares, particularly through ATFS or whatever, that they are now out of balance because they are equities and their shares and their American shares
particularly have surged and they've blown out. So as a part of the pie, they've become not dangerously big, but bigger than they were supposed to be.
Absolutely, so we are reviewing a strategic acid allocation at the moment.
Now.
We do that. We look annually at what the long term forecasts are. And you know the fact is that US shares, global shares, but in particular US shares have had a very very strong two and a big years. The US is at a record level of its waiting in the organ Stanley Capital Index AQUISO or country World Index ex Australia, So that's the other thing that you need to take into account. I do think that we have an administration in the United States that is going
to be is definitely pro growth. But after two and a big years of stellar growth performance in the US market, don't expect to see another very strong year. I think we're going to get a good year, but it's going to be very bumpy. But the reason why you invest in equities is for growth, and too many people invest in the Australian market for dividends or income. And it's interesting that the fact is there's been a lot written about the decline in the size of the ASEC, as
there also has been in the UK. Yeah, and you square Peg, for instance, when they came out with their their announcements to the results at the end of thirty first of December, said that.
If we just square Peg a square bigs.
Aventure capital company run by Pelbast but it's very widely supported out there in the market. And they were sort of talking about two of their investments in Fund one, not Fund zero, which has got canvas in it. Fund one rocked and air Wallocks of looking to monetize those and they're looking at their full potential potential listings and they're discussing Nasdaq. Like Atlasian didn't come on the AX, it went to Narsdeck. Australian companies and they're looking at
they're looking at nas Deck as well. So people were these growth companies, they're overlooking the AX and they're looking at nars Deck.
That's a shame, isn't it. And then that's probably how it's going to go. And you can see why that's a problem all around the world. By the way, it's a problem all around the World's problem in London, it's a problem in Dublin. It's a problem in some of the European exchanges. It's a problem in Hong Kong. This sort of everything, well, as you say, will if seventy percent of shares are in the US, it becomes self perpetuating. Why would you list in your regional market when you
can go straight to the US. You mentioned too there. I don't want to go too deep into that, but one was Rocket. Now that's linked with the guy that ran jet Star one time, isn't it, Bruce? And now this is rocked RKT or OKT. What was the other company,
air well X air Warlex. Yes so too, the sort of high growth unlisted companies the point being, folks, But is that the sort of hottest companies along with Canvas, sort of big name unlisted companies that are sort of great hopes of the local economy just now all talking about going directly to the US to list. So what does that mean for the ESX Because if they keep getting big takeovers like Insignia and Sydney Airport and New Crest and they don't get the new IPOs, then guess
what it shrinks and shrinks into a very small exchange. Okay, one last thing, will does Everyone's had a crack at this private credit. Liam Short was on the show. He more or less said, don't touch it. Other people have more balanced because they say, oh look there's good and there's bad in there. I wonder I just saw something this morning. I wanted to tell you this. I want to have you heard of Hamilton Lane them being the other they're the other financial advisors, but people don't know
them like they know you. Because Hamilton Nane is very big and it's listed on the Nasdaq, which is an interesting thing for a financial advice network to do. The only reason I mentioned them is because they put out a survey this morning. It says nearly one third of financial advisors plan to alley case one fifth or more of client portfolios to private markets in twenty twenty five.
Now think about that. So we can't We've got to be very careful here about what we call private investing on listed investing, and we have to separate the good from the bad, and we have to separate private credit from private equity, et cetera. But if I may, will just on that single issue of private credits, which is what's been put in front of many investors by their advisors,
and there's more of it to come. If these guys are talking about this sort of level, what do you say to people who have no experience of this area if they are, if their advisor or an advertisement or anyone else puts it in front of them, what's your recommendation?
Know what you're doing. That's the first thing. Don't just take it because you broke is offering it. Remember, they get a stamping fee. I think that you need to ensure that even within indiversified credit or private credit. Week. Yes, we've looked at it. We've supported a firm ten eleven, twelve, ye or something like that. However, you know, we have decreased property. We decreased that in October twenty two. We decrease it again this month, whilst the liquidity is there,
and I think that's a big thing. Look at the liquidity and it's amazing. We've seen a lot of new clients in the last month or so, and some of them are with existing providers and then they say, oh, but I'm in this fund and I'm locked up. And it was a good thing at the time. They're sort of not happy due to one or two other reasons. They're looking to move and now they've got buyers remorse
because of the illiquidity of some of these funds. So make sure you understand one hundred percent what you're investing in and and the dispersion in the quality. You know, even in the property sector between a tier one manager and there's some really good ones, but there's also some that yeah, I've just decided, well, property is running, Property debts running, so I'm going into that will avoid them
like the plague or mezzanine debt. You know that there's a story of one manager having to walk into a project and the mesa has been written off and so that's one hundred cents in the dollars. So suddenly you've invested in the second tier debt and you've lost one hundred percent of what you invested in.
So I think, folks, it's hard to go too deep here. But a private credit it's fine for someone like Will who went in ten years ago, who knows that area, who knows who's who, and you know, who knows who are the good ones and who are the bad ones. And unfortunately there's not sort of one shop shop on the internet where you can just have a look up and say, well, who's good in private credit and who's bad?
What you can do? What you can do, I think very usefully is keep an eye on financial media like ourselves, the Australian or any other publications which are covering the area, because there are incidents every other week of private credit managers having to go in and take over projects of there's no way that they want to take over these projects. That was not what their business is. Is just quickly
realized that. Did that rattle you? What's going on? These stories we're seeing of private credit managers having to basically take over property properties and try and sell them. Which is that. I'm sure that's that is. They will tell you it's all normal. I wouldn't like to hear that if I had a fund.
Yeah, well, first of all, if one of the things we do is we want to know about the recovery process. So when we're when we're looking at a manager, so how have they reacted? Have have they gone? What's the track record? And never believe if a fund manager says to you have never had a default, run.
Right, ask that's a very simple question. Then pick up the phone. Just ask him one thing. Have you had faults? What were they? How did how did how did? How did you deal with them? If they've never had one? At such a good point, will I'll just close on that. I remember a very similar thing. I was on the board of a super fund once upon a time relating to a large newspaper group. I was like the very young I was just I was reporter. I want on it.
I went down it for experience and I was like the worker rapp or whatever, and was that hedge funds were just coming in, Yes, I think it was hedge funds, and they were all the rage. So this is going back twenty years ago and someone came in and they were launing theres Someone who was used to fund, was friends with, who had done other business with them, came in and they were launching a head fund and there
was a long presentation about this hedge fund. And I remember asking have you ever launched a hedge fund before? Is this new to you? And they said no, we haven't done one before. This is our first. I remember thinking, I will say anything now, but when these guys go, I'm just going to say, why on earth would you go with someone who hasn't any experience when there's plenty who do. Okay, we will leave that tangled not to one side for the moment and we will take a break.
I'll be back with some great questions. Hello, Welcome back to The Australian's Money Puzzle podcast. I'm James Kirby talking to Will Hamilton. Now, Will really good questions here. I'll read the first one from Simeon and that's not Simon. It's Simeon who sent a piece which was an article and it says this article talks about pension fund exposure to China and the difficulty they are having selling their China acquisitions due to China's slowing economy and restrictive government policy.
I was wondering the extent to which Australian super funds are exposed to China. Okay, Simeon, I'm just going to break down that question and try and make it a bit more feasible for Will to answer. I mean, the exposure to China from super funds comes in a million guises. I mean, if you had shares in Fortescue, well, you'd have big exposure to China, right because that's their main business, shipping our north to China. So it comes in different guyses.
But this very specific exposure in relation to pension big pension funds going into China and having difficulty. To be honest, I can only tell you about the news right that I'm across, and last year several very large Australian pension funds, among the biggest in the country that we all know, the top five, several of them had big problems, big write offs. But it wasn't in China. It was in the US smack in the middle of the main game. I haven't really seen any chakras out of China, have you?
Will not since Yeah, the Evergreen.
Yeah, which was ago more.
Yeah, but it's going to take an index approach depending on risk. The risk profile. Emerging markets is going to be six to eight percent of the total portfolio. China's thirty six thirty seven percent of them index, so you're looking at probably two point seven to five to three and a half percent probably index. Yeah, they're therefore total
exposure if they're at index. But a lot of a lot of fund managers and they're and also the industry funds, they're taking a negative view on China and an underweight view on China. So the exposure to China will be I would say, significantly less than that.
Okay, that's interesting, And of course that was an international piece, Simeon. And it would seem that our particular large pension funds are not in terms of exposure in any way over exposed. It would seem on that front. Rather that's an international problem. Okay, hopefully that's useful to you. Can you see a question from Tina?
I can. So I'm reading that property trusts A rates are ready to rebound, especially if we have rate cuts. What do you think, Well, Tina, they're up fifty cent last year.
So oh they really it was the sector the sub industries was a fifty percent.
Really, so forty percent of the RADI index approximately is the Goodman Group. Oh, which is why they bounced me on data centers, et cetera. So they've probably been bashed around in the last twenty four to forty eight hours. Yeah, that's exactly what happened. That a rates often look ahead. They are liquid, remember, and so a lot of property
has been illiquid. Well, a lot of property is a liquid and therefore people were looking ahead and that the next moving interest rates was down and that sector has run and it's run hard.
It's interconnectivity in some ways, it's kind of it's really it becomes ludicrous, doesn't it that the Goodman Group is a property trust in Australia were sold off midweek because the Chinese startup that no one had heard of some
days ago. I'm sorry, not midweek, but if you remember in at the very end of January, the Deep Seek sell off, which was a Chinese startup that no one had heard of, triggered a sell off because they seem to challenge in Nvidia, and that triggered a sell off on a day not a huge sell off, but a sell off in Goodman Group, which is the leading property
to us in Australia. So properties in Australia were downgraded on the back of a Chinese startup that no one ever heard of, suggesting and promising that they had taken on in Vidia, a stock that no one had ever heard of a few years ago but was briefly the biggest stock in the world. That is what you call interconnectivity at its barmeest Okay, last question from Mick, something I haven't been able to find a clear answer to.
I know the family home is exempt from the age pension test in regards to pension eligibility, but due to high house prices, my wife and I haven't been able to purchase in Sydney and we're looking at retiring abroad. This is really interesting. Some are more affordable, most likely Italy. Is an owner occupied home that is located overseas still considered exempt from the asset test if it is the only property owned and it has been used as our
principal praise of residence. This is never advice, Mick, to all the mix in the world out there who might be thinking of moving from Australia. To your little Tuscan farmyard with your lasagna on the terrace. The question is is your house and it may not Besily, Oh, it could be Bali, it could be anywhere. It could be Vietnam. Is your house is still is your host exempt? I have an over feeling it mightn't be. Have you any idea?
Well again I doubt it as well, But I think what you've got to do is there are other It's not straightforward and what's happening in Europe at the moment, especially with the state taxes and duties and changes in government and the whole non dom, which is if you live in a country and you have assets elsewhere, you do need to get some very careful and detailed the planning advice and texas because you, yeah, unfortunately one of the things that is absolutely sure as we all die
or a state may become the property of the Italian government, So.
Very careful on that to making anyone else thinking about that. And one an other. Sorry we didn't give you a clear answer on that. We didn't give you clear answer on that because that is a very complicated question that unfortunately sometimes we can answer these, but not that one. We don't know enough for a start about the whole situation.
But one thing I would add is that many older Australians I have discovered as they get older or whatever, whether they're buying property overseas or spending time overseas maybe a month a year or whatever you like to do that increasingly as you get older you can't get insurance, and health insurance is particularly difficult. But there are particular countries where there is reciprocal arrangements. Greece is one, and almost such initially is another, so are the UK and
I And that is something that's really worth checking. If you were thinking about as an older person moving overseas or living there, check out whether there's reciprocal health arrangements. That's really important because if there is, it's terrific, right, so you're going to end up in hospital more often than when you were younger. And if the country has that's important as to whether you can be exempt from the age pension. I know there's there's days, isn't there's
so many days you can be overseas. You can't be overseas permanently.
Whether you then become correct, do you become a well, that's when the whole state tax thing also further kicks in. So it's a really really it's really complex, and there's set there's specialist lawyers and accountants in yeah, therese international matters and you're really I would get some very good advice, okay.
And there is a thing about how many days you are overseas and how many days you can be to retain pension and pension entitlements and arrangements that I imagine would be pivotal for Mick and any thinking along those lines. Okay, but interesting question. We would like to come back to it. Maybe we got even more clarification on it than we could have a better crack at answering it. Okay. Thank you, Mick, Tina and Simeon, and thank you Will Hamilton. Great to talk to you.
You're welcome, games, thanks for having me.
We'll be by the time we get to the budget on the twenty fifth of March, we will be right up there and tuned up big time by the time we sit down together to do the Budget podcast. One of the favorites of the year. Okay, that was Will Hamilton. Well, partners, thank you very much for listening. Let's have some emails. The money puzzle at the Australian dot com DOTU. Today's show was produced by Leah Sammaglu. Talk to you Soon,