Why we're selling all shares and handing cash back to investors

Philip Parker

Philip Parker - veteran fund manager decides to sell all shares in Altair’s Trusts to hand back cash and hands back mandates for SMA/IMA’s and also sells MDA family office mandates to cash from shares.

Why?

AUSTRALIAN EAST COAST PROPERTY MARKET BUBBLE AND THE IMPENDING CORRECTION

CHINA PROPERTY AND DEBT ISSUES LATER THIS YEAR

THE OVERVALUED AUSTRALIAN EQUITY MARKETS AND

OVERSIZED GEO-POLITICAL RISKS AND AN UNPREDICTABLE US POLITICAL ENVIRONMENT

The underlined above are some of the more obvious reasons to exit the riskier asset markets of shares and property - in my opinion.

As a result of the above and after 25 years as a fund manager and 30 years in this industry I am taking around 6 to 12 months off. The main reason is in my opinion that there are just too many risks at present, and I cannot justify charging our clients fees when there are so many early warning lead indicators of clear and present danger in property and equity markets now. I would like to make clear this is not a winding up of Altair, but a decision to hand back client monies out of equities which I deem to be far too risky at this point.

On the 15th of May I advised all our clients that Altair was to sell all the underlying shares in the Altair unit trusts and to then hand back the cash to those same managed fund investors. In addition Altair gave our clients in the MDA (managed discretionary accounts) portfolios the choice of transferring their shares to other managers or for us to sell the shares from the portfolios and give them back the cash.

Interestingly, 95% of our MDA clients took the latter decision to cash up.

Separately and additionally we have handed back $100’s of millions of mandates with Altair’s financial planning clients on their own platforms and for the many models we provided for others on their chosen SMA platforms.

Altair also returned a huge advisory contract for over $2bln for one of Australia’s largest financial planning companies.

As an active manager we are proud to have beaten the relevant benchmarks since inception, and I did not take this decision to give up our management and performance fees lightly of course. Lack of upside in our models of course leaves an active manager little alternatives but to hand back cash at such an overvalued and dangerous time in this cycle. From a bottom up perspective Altair’s analysts’ valuations were indicating sells above their target levels or were at best were severely overstretched even after we upgraded our targets several times this year and late last year. As the bank analyst of the team I can state that all my 1 year forward bank targets prices had been surpassed in my models, and of the big 4 banks, I was happy to sell our NAB holdings at over circa $32. NAB was our only significant overweight in banks. From purchase in late 2016 to two weeks ago- it netted the portfolios a circa 25% gain on 12% of the portfolio.

The senior members of the Altair investment team being myself, Steve Roberts (chief economist Altair) and Gerard Minack, both good friends and colleagues over the years, have been warning of the overvalued property and financial markets for at least 6 months and to me there are specific identifiers that are extremely recognisable that remind me of the late eighties and early nineties housing calamity. In my opinion it appears that the impending crash will assist investors to take stock of the excessive valuations of not only property assets. Clients that have been reading the Altair Insight monthly report regularly will have noted that Steve Roberts has been warning of the impending housing market correction since mid -last year.

I am happy to say as CIO, that the investments we managed for our valued clients have led to the significant outperformance against the benchmarks in our Core and Equity Income and Focus products since inception.

Giving up management and performance fees and handing back cash from investments managed by us is a seminal decision however preserving client’s assets is what all fund managers should always put before their own interests.

After some time off, and if my thesis is correct and value indeed reappears as it always does after major corrections, I intend to re-enter the markets but perhaps with a broader international investment offering and when I consider there to be real value again


Philip Parker

Philip is founder and Executive Chairman of Altair Asset Management and is responsible for leading the company’s business strategy. Philip also chairs Altair’s Investment Committee, and oversees Altair’s investment functions as well as...

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Comments

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Jordan Eliseo

Amazing read Philip.

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Nigel Littlewood & Jackson Lee

great to see you backing up your views with such a move.

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Fred Woollard

Very impressive. I am not expecting many of your competitors to follow your example.

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Malcolm Jay MacGregor

I commend the conviction. But as an alternative to cashing your clients out, why not give them the option to stay in and protect their position with portfolio insurance? (unless of course your mandate prohibits you from doing so).....thereby not crystallising an adverse tax event for your clients and giving them upside should you be wrong?

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James Marlay

Another comment sent from a Livewire reader: "Mr. Parker! I just read that you are liquidating your shares and giving back millions to your clients. Just wanted to say that you have a lot of integrity in doing so. I have tried talking to many, many people regarding the gloomy outlook (I live in the U.S. ) but am usually met with skepticism....That's awesome you are honest enough to do what you are doing!"

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Daniel Fu

Mr Parker, Did you disclose you also previously closed your entity called Parker Asset Management in hasty circumstances ? As i recollect, you have been bearish on banks since 2012...and i have reasons to believe you fared poorly in 2012-13 such that you opt to close shop and re-brand yourself as Altair Asset management. You note you outperform your benchmark since inception. Yet, you were quite quick to close your Altair website down for further scrutiny of your performance in various periods. Using web archive sites, I notice you might not have updated your funds quarterly performance since Sept 2016 quarter. Did your fund suffer extremely poor Dec 16 and March 2017 quarterly relative performance? I find it extremely skeptical you really closed the fund due to your very public stipulated reasons. If you held such an apocalyptic view of the market - you could drop all fees (or to skeleton fee base to cover your bare bone operating costs) and provide an option to your clients to stay with your firm should they choose to. Irrespective, i do question your temperament capacity to manage people's money.

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Tony Wilson

Mr Parker you may be right in your views, but many investment professionals get things wrong for periods of time. Perhaps the worst trait of an investor is to be so arrogant as to believe they can outthink the broad market with accuracy. Wouldn't a more prudent approach be to tilt your strategy and portfolios in line with your thinking, to take a more conservative approach in this apparent period of overvaluation, just in case for heavens sake you are wrong. I note that some for example have been calling the Sydney/Melbourne property markets overvalues for the past two decades.

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Adam Easter

Mr Parker, I love conviction. I demand it from all my managers. I wonder though, would it not be better (if subscribing to your view point) to cash assets in, and with client permission (and trust deed amendments) hold cash at a reduced fee and be ready to buy assets again when YOU consider it better value? Would that not be a better outcome for clients?

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Ivan Tanner

One man's trash is another man's treasure as Geoff Wilson launches WAM Microcap Limited seeking to raise $154m. Further down the conviction line would be to convert the fund to a "short only" fund and liquidate all your property assets. When the chatter grows louder about an impending correction, " too many risks", and publicly announcing the call the the media it's probably not going to happen. You need to start worrying when no-one is talking about it.

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