Why cash is king (with Chris Cuffe)

see him on a variety of boards. Some boards you won't see him on because they're family offices, but you would be familiar of course with UNI Super, which is I think the fourth biggest industry fund in the country, so that is a very big gig as you can imagine. He's also on the board of Argyll, the listed investment company, the original of the species. You have to mention Don Bradman when you mentioned al Go, because he was once involved with that. Do you know that his passion Chris's

passion is philanthropy. I have talked to him before regularly. He's got involved in some terribly interesting projects of late we're going to talk about that too, and the extent to which you may be able to access some of this if you wish to. But first I want to hear what he has to say. Needless to say, I want to hear what he says. You want to hear what he says about the markets and the conditions of the markets that were currently investing in. How are you, Chris?

what's going to do well and what's not. And we're in a period now, you know, sometimes there's no one unknowns and now we've got unknown's unknowns, So we sort of wake up each day and just sort of work off the seat of your pants. But look, it also very much depends on whether you're running your portfolio with new money coming in, whether you're in draw down phase. There'll always be issues around that. But look, right now, I think it's a pretty good time to draw breath.

Probably don't get too anxious about anything, particularly if you've got a well diversified portfolio, and really just you know, it's a strange time we're in, James. What else can we say.

of seeing the magnitude is the big thing. And now I think we'll grind for a probably a long period of time as we see the effects of maybe the base twer for ten percent. You know, it's probably going to cause inflation at least in the short term. That's probably going to put interest rates on hold at least

for the short term. And then I think behind the scenes in Washington will be concession, slow concessions over time as the American people get very hurt by what's happening, and I think that will reverberate back to their members, their elected officials, and hopefully, you know, get to the President and his men. I don't think they anticipated anything like what's going on, and I don't think there was a grand plan. I think it was a complete mess.

as they are, it's just impractical. You just trade between the nations will stop, and that just doesn't seem likely to me at all. So this posturing going on, we've got to wait for that to stop. But we might get what they call imported inflation. If it costs Chinese the Chinese a lot more to make the goodies that we bring into Australia, it's going to cause some inflation.

But I think these are short term things. To go back to your first question, I just wouldn't be in a hurry to do anything radical right now and just let the dust settle.

it's at sixty four cents. So I did see some groups put on hedges very quickly, which not everybody can do, although there are easily accessible instruments in the market that any investor can do for that. And we've seen the currency already firm from the US Australian dollar a firm from fifty nine to sixty four, and that's a very big, very big change. You know, the urgency to do perhaps do something about the currencies calm down a little, though.

Sixty four cents in a long term sense is still well below the long term average, which is around seventy cents, which it always seems to head back to at some stage or another.

so far, you're cushioned. You think that might not be the case going forward.

is to have it unheitched. So that's default position. But we have seen in history where you get very large aberrations and look, I remember it's got I remember once when the Australian dollar got to forty five cents to the US dollar, and I remember, yeah, and I remember traveling when the Australian dollar got to one hundred and twenty.

So you know what the out of bounds, you know, if it's got a five in front of it for sure, or a nine in front on the other end, they're probably times where you could opportunistically probably take advantage of that with great likelihood of success, as long as you don't pick your time frame.

I don't know if there's a common level, James. I like to think, in any event, if you had sort of ten to twenty percent of cash at most times, you know, maybe that's useful to jump on things. Other people like to be invested all the time. As long as it's liquid, you can get money out and rotate

to something else. But I don't know if there's one one better way than not, but there's Look, there's an increasing number of securities that give you, i think, both great diversification and some liquidity, so you can take advantage of things. But it also, as I said before, it

depends very much on what stage you're at. If you've got your own self managed super fund and you're a retiree and you're drawing money off it each year, now, so you know it's got to keep shrinking over time, you'll probably have a higher amount of cash so you don't have to sell down securities in volatile stressed times.

to be listed on the stock market. You can get in and out at nta net asset value, just like you can for normal shares. And I have a preference myself. Where a market is what I call thin, like Australia, I have a preference to be in actively managed funds because but in overseas, I'm very satisfied with ETFs as well as active funds, simply because those markets offshore are much wider, they're much bigger, they're well diversified. Whereas Australia,

as most people know, you the heavyweights. You're exposed a handful of banks, a few miners, and a couple odds and ends on the outside. So I find Australian ETFs are a little bit risky for.

coming with bank I mean, is just basically unmoved. In the middle of all this, gold is going steadily higher and people are looking at those conventional, traditional defensive stocks. Just now, what do you think of that approach?

got fresh money. So as you've made the point I think last week or the week before, if you've been in the Commonwealth Bank since it was say twenty dollars, the dividend yield you're getting off that cost base is magnificent and you might find it very hard to see a reason why you'd want to sell it. And of course there's always tax when you sell things. But if you said if I was starting myself managed super fun today with a fresh pile of cash, what would I do.

I certainly would be looking at the value of stocks. I probably would not be investing big time in the banks, just because they've gone up so much. But in my starting point, as I've said a few times, I'd be thinking of a diversified portfilo across local shares, international shares. I always like a bit of private equity. I always have plenty of private credit. I really do believe in

that sector. And there are other weird and wonderful investments out there that I like to give me a great way to sleep at night.

James Kirby here with Chris Kuff. It's a great time to have Chris on, one of the best known fund managers in the land. Now, Chris, I've mentioned that the investors listening to the show will know UNI Super and

they'll know Argo et cetera. They listed investment company and other operations you're involved in more recently and more recentimes, you got a lot of time to philanthropy, active philanthropy, and there's two we've talked about the Third Link Fund on the before, which is an unlisted fund that you're involved with that the retail investor can pay, maybe getting them for about twenty thousand I think is the minimum. And that's a fund where there is a strong philanthropic

element to it. And then separately, tell me if this is wrong. You were involved with the Australian Philanthropic Services Group, and they have a very big fund which is pretty close to becoming the biggest fund charitable fund in the country. It's called the Australian the APS Fund. And how much is under management there?

the best we can. I think the returns on the Third Link website it's been slightly better than the Australian share market since this inception, and so far we've given twenty three million dollars to charity over the sixteen years. It's been a lot of fun. And all those fund managers do it for free. I do it for free, and our investors I think like the fact that they're both making money and their fees they're paying. They've still got to pay a fee, but that fee is going

to charity. So that's the third Link Growth Fund, which is a minimum of twenty thousand dollars Australian equity fun very specific and it's an active fund, so it's out there trying to beat the index. Okay. The second organization you mentioned is fairly unique, so it's called Australian Philanthropic Services. It's actually a charity I set up about fourteen years

ago to help people do philanthropy better. And it's a big word, but philanthropy is an increasing part of the Australian wealth management landscape, particularly with the massive intergenerational wealth transfer that's going on in the trillions of dollars. Philanesbury is really growing. Anyhow, I decided fourteen years ago it's set up an organization where you could really do engage in philanthropy with the help of experts and do it hopefully in a much better way. So we run products.

We have a couple of products, so we set up and administer what's called ancillary funds and they're just like superannuation. Your listeners will know in superannuation there's two types of superannuation funds in the market. You can have a self managed super fund that's a private super fund, or most of the population are in public offer fund whether it's

an industry fund or whatever. It's exactly the same. In the philanthropy industry, we have these vehicles called ancillary funds, and you can set up a private ancillary fund just like self meaning super very similar structure, or you hit your car to an existing public ancillary fund and hold an account within that fund. And so we are the leading organization in Australia that helps people go into those

vehicles and help them with their general giving. And between those things, those ancillary funds we ad minister about two and a half billion dollars and our clients give currently around one hundred and sixty million dollars per annum to charity out of those funds. So it's been an enormously beneficial business to set up again as a charity for the Australian public.

moment as to why. But in any event, so if I wanted to, if I wanted to get involved in this, what is the rough bottom minimum in which I can part play here in this particular sandpit. How much would I need to put in?

Foundation for a minimum of forty thousand dollars. You get one hundred percent tax deduction for that forty thousand dollars in the year in which you put the money in, or indeed you could spread the tax deduction over five years if that's better for you. So you put your money in the foundation, and you are then attached to a big pool of assets and those assets are invested

tax free. There's no tax payable by the foundation. And then each year we write out to our people clients in there and say you need to now here's your proportionate balance of this big pool. You need to give away four percent of that to charity. So you just tell us which charity you want to give the money to and the way it goes. So the magic that it's the very simply stated, it's quite a unique vehicle these it's broken the nexus between the timing of the

tax deduction and the timing of giving to charity. You get the tax reduction all up front. The giving to charity happens over many years, or you can do it quicker if you want, but you can take your time. You can because often when you give to get a tax deduction for giving to charity. It'd be smart if you could time that with events which might cause you tax like selling your business or selling your CBA shares, or getting a bonus from your employer or something you

get a taxable of anything. Chee, I wouldn't mind off setting that TAXI. You could perhaps put a lump sum over in the philanthropic vehicle, and then take your time to think about what charities you want to give too. Over time, we've seen wonderful growth in this area, and it's really changed the dynamics of a lot of families as well, because they involve their children in giving.

We go into this fund aps and then the management of that fund is you and your colleagues, and it goes it has been doing very well, and you're able to donate then on an ongoing basis on what you're making on your initially depositive you like in that fund,

and it must be four percent each year. This is probably why you need a minimum of forty thousand dicpresum because you need to have a four percent is going to go out to do it every year anyway, And you didn't say you want you stop me calling it investors for the simple reason that it's not it's it's philanthropic in nature. And that means, Chris, if I've got it right, that if listeners, you are interested in this

and you have the capacity to do so. It's ideal of course, when people as you see liquidity event as they call it in the trade. If you were about to sell a business, if you're about to inherit your uncle's house or whatever. But you can't, for instance, use you can't take forty grand out of your or one hundred and forty grand out of your super and put it in Chris, can you, because that crunches up against the best interest duty in super? If I've got that right, you.

As we said, they can time their tax deduction, but then the giving can go on for many many years later. And in fact people often use it upon their passing, which there's a thing in the way tax works is quite interesting. If you were lucky enough to buy your Common Warf Bank shares at five dollars. We always pick on the Common Warf Bank as such well run institution,

I should say. And if on your passing your state was then holding those shares, then all things being equal, if your a state sold those shares, there would be a massive capital gain that the state would have to pay. However, if you had donated, if you donate those shares through your will to a foundation, say that was in existence already, then there's no tax to the state at all, and the foundation then will not pay tax because the foundation

is a tax free vehicle. So it's a magnificent way for people who have stored wealth beyond their needs, beyond what they want to provide for their children, and still don't want to pay tax. I love the idea of not paying tax even when I die.

philanthropy in a more strategic and tax effective manner. Why why not do that if you do that in every other area of life. Just briefly, Chris, So, the big fund, the APS Fund, what was how much did you say it has under management?

percent in what they call interest bearing securities. The rest then is scattered between property, venture capital, and what they call miscellaneous growth assets and liquid's been seven percent. Okay now, Chris, seventeen percent of this fund is private equity. Can I just ask you, a lot of people on the shore are every day investors are only getting to know private equity, and it's been put in front of them for the first time. It's been put in front of them at

this time for a variety of reasons. This sense that the banks are withdrawing. I don't know if that's completely true. There's a sense that the hybrid market has been is being wound up, and so people are looking for income and they're putting private equity funds have been put in

front of people in a listed form. How do you think the uninitiated should approach this very important area that takes like seventeen percent of your successful fund, which, by the way, folks, is just to give you an idea of how it's going. It has a target return, very like at the future fund to see inflation plus four percent is what it looks for. And for instance, like last year the one year did thirteen. But private equity, right, we'd all love to be in it in a successful manner.

But I worry Chris, that kind of lead to the party for a lot of everyday investors and they're going to go into second red stuff.

and so far that's been successful. So if you're trying to get inflation plus four percent, you're not going to get that by investing in term deposits. You have to take a growth approach and you have to have time on your side. So this pool of money is a growing pool. People have parted with their money already into it to get the tax duction and to give to charity. They can't take the money back, so we know it's

a long term growing pool. So that means with a rolling a target of rolling seven year periods and very patient capital. On the other side, I can be very patient in the way I invest. Now you talked about private equity. There, I think in the portfolio you'll see two segments that are reasonably large. You'll see private credit and private equity. Private credit I might mention quickly first and then come on to the equity because I know you talk about private credit a bit on your show.

Private credit is a very important sector now. I think it's sort of had a bad name at the start a bit that. Of course, it really evolved from property development and construction, which is risky the best of times, but can be very risky when interest rates arising and the economy is not doing well. But private credit is very wide now across very white array of sectors. There's many managers in Australia there as well over one hundred managers.

And you've got to understand if you looked at the banks twenty years ago, two thirds of their borrowing book the money they lend were to businesses and one third to home owners. These days it's the reverse they like.

have in their portfilo is very vital. These inevitably, some loans will go bad, just like they do in banks. That's why banks provided for loans, so they do go Some of them do go bad, but good. A well run private equity fund is a cornerstone in my portfilo always, and you can't catch your normally in those things. They're not liquid like money in the bank. You know, if you want to get your money out of a private equity fund, it's at best you could do it quarterly.

Maybe some of it, maybe not all of it. We shouldn't think of it as highly liquid, but it's somewhat liquid. The position is very different with private equity, so to be clear to those listeners of yours that don't know private equity by its nature. Instead of buying shares on the stock market, these are shares in companies that don't trade on the stock market. And generally speaking I do

that through managers who specialize in that area. But the general way they will go about it is that they will launch a fund and they'll lock your money up. You commit to it, they'll lock it up for about ten years, could be less, and they spend half their time investing the money and the other half selling it down. But what we do see in the numbers all the time is that private equity isn't that good on average. You have to be with the top quartile manager to

make good returns there. And the trouble with that for most on the street people, if I call it, is that the minimums are too high so they can't get in those funds. But the minimums have been coming down.

in the early days to the best ones. But as Chris says, outside that top quarter, different business altogether.

value and not just value with leverage. Often private credit is criticized quite rightly that they often will invest in a business that's got good cash flows and they'll leverage up the business, which is fine until it's not fine. It's not fine when interest rates are eyes interesting.

Raymond asks. Basically, he says, we had talked about how it was good not to be hedged. It was certainly not good not to be hedged during the most recent American drop where they had that desperate day where they had the worst day since twenty twenty because of the

weaker Australian dollar. But as he makes the point that when things turn around, an on hedged position exposes Australians to a strength Australian dollar, even when market sentiment improves and you have increasing international equities across the board, both private investors and institutional vestors. So he says, hedging isn't perfect, but it reduces exposure to currency fluctuations. I imagine you don't have anything to disagree with that. We've more or

less covered that at the start of the show. There, all right, Andrew has two really good questions. The first one, he says, Chris, is at the beginning of a global at the beginning of a global market meltdown, before the interest rates have been cut, is it broadly a good or bad time to consider bonds or bond dtfs? WHOA Now, you see when people like you talk about bonds, you're talking about bonds in this sense of buying them one

by one and selecting them. But for everyday investors, their way into bonds really as bond dtfs and bond dtfs have not been great really in this market for a variety of reasons, for most years of recent years. What's your What do you say to everyday investors wh'll see I should have bonds on my way in as ETFs?

Now others may think differently. I'm just not a fan because I feel in those areas you your health is very dependent on the other people in the fund with you. If they start to panic and want to come out of the farm, there could be unintended cap gains because the manager of the fund might have to sell bonds and that might realize losses as well as gains. I just don't like the idea of holding hands in these things,

so I always prefer to buy. If I want to be in fixed intra securities down in this sort of area, I like to buy them individually and own them individually, and probably in the main think about holding them until they mature, so I don't have to worry about the you know, the market value of these things going up and down. But of course, so your.

months or whatever it is. But for Australia based Australian investors, I think the better thing, or easier in my mind at least, is probably just lock into some term deposits if you really want to be in that area, because you'll understand the term deposit. They're not traded on the market, you don't see their value going up and down, and you're generally forced to keep them until they mature. It's very hard. You can break a term deposit, but there's

usually a break fee, so we don't. Particularly, and particularly with the hybrid market disappearing, it's quite hard to find securities around that you can just sort of buy and hold. There are some, but it's not easy to find.

But we've had more than one person on the show, from financial advisors who are just dealing with their clients to people who manage very large amounts of money saying that at TDS that is term deposits. You know, government guaranteed may serve that purpose more for most people most of the time.

a day if you think about it. You know, the clock's stall, but it's right twice a day. And sometimes people will sit there with a lot of cash waiting for something to happen and miss out on the opportunities or the good days in the more risky markets, so to speak. So I never quite understand the buying opportunity type of logic unless you do, you know, have cash, and you've got some fantastic way of knowing that this you're at the end of the meltdown. Because you know

that adage about trying to catch a falling knife. It's very hard to know when things are going to stop going down. And I remember in the glow or financial crisis, where things ground on for ages down month after month for a long time, and I remember after about three months, I thought, I'm smart. Now I'm going to put money in the market. And you know, I tried to catch what I can now look back at. So it was definitely a falling knife and cut a few fingers off

along the way. So it's not easy. I prefer a strategy that says set yourself for an all weather market upsow downs. That's you know, sit with a good advisor, work out how you want your money placed across different sectors, well diversified portfolio, enough cash to live on if you're drawing it down, and just gritch your teeth and stay

away from knee jerk reactions, which we're all prone to do. That's, you know, if I had my time again as an investment professional, the first thing I should should have studied at university is behavioral science, not financial science, because people react in the investment markets with emotion first. The best investment managers in my career I've seen are often those who are slightly on the spectrum. They can be completely emotionless.