Ethics Over Profits - Lessons from an Australian Hedge Fund

Just last week the Sydney Morning Herald reported an occurrence so unusual and so gutsy (coming from a financial institution) that it warrants a closer look: Altair Asset Management, an Australian hedge fund, just liquidated all of its positions at a time of profit and handed back “hundreds of millions” of dollars back to its clients.

This action was not due to an “unwinding” of Altair but instead was prompted by a number of economic factors indicating an imminent “calamity” in property markets and in other assets they deemed to be dangerously overvalued. In other words, they decided to preserve their clients’ wealth at the expense of their own continued fund operations and profits.

Philip Parker, Altair’s chairman and Chief Investment Officer, stated that “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 put before their own interests.”

Altair made the extraordinary decision to follow through with this principle upon foreseeing the following conditions:

• The Australian east-coast property market was subject to a major correction following its current “bubble”;
• Concerns that China’s property sector and oversized debt would result in a full-on “blow up” later in the year;
• Unpredictable US political and geopolitical risks contributing to global market uncertainty; and
• The “overvalued” Australian equity markets.

Hence, Altair Asset Management decided to put client interests first and hand back their cash.

There is an important lesson to be gleaned here: ethical financial institutions like Altair Asset Management would proactively exit clients’ market risks during times of economic fragility so that clients can protect their wealth via assets that are safer and more sound.

Perhaps Altair felt that the Aussie dollar was enough of a safe haven asset--after all their current national debt to GDP ratio at the end of 2016 was at 41.1%. In the US, with a debt to GDP ratio of 104.49%, cash is hardly a safe option.

But there’s another lesson we can take away from all of this: wealth accumulation is a lifelong process that requires robustness. And Altair admitted through their actions that managed paper funds were far from robust.

Achieving robustness in wealth, as opposed to mere paper wealth, entails a few key requirements:

• Your assets must have the capacity to rise in value when most other assets fall.
• The value of your assets must be sound in that they demonstrate both relevant and time-tested value.
• Your assets must be a true commodity that is rare, able to withstand long-term storage, and not artificially manufacturable or manipulable.

Wealth managers generally understand these principles but most are conflicted when it comes to practicing it. 

Wealth managers can only do their jobs to the extent that they profit. Unlike Altair, a company willing to cease operations until they find a more favorable economic environment in which their functions would be ethically appropriate, most fund managers would do everything they can to continue profiting from your funds at the expense of your wealth!

But to underperform in safeguarding assets during times of economic turmoil is unforgivable.

So kudos to Altair for doing the right thing! Would your fund manager have the courtesy to put your interests first? If not, then it’s time for you to reconsider the motivations of those with whom you have entrusted your hard-earned wealth.

But why juggle risk on shifting economic grounds when you can make such exposures irrelevant?

As we’ve said many times before, gold and silver--sound money--makes all speculative endeavors and their risks irrelevant. Gold and silver values rise when most other assets fall. Their values are not only current but time-tested. And they cannot be artificially manipulated, manufactured, replicated or inflated.

Long term wealth accumulation is about exercising prudence over speculation.

And if your fund manager chooses to dismiss your financial interests by peddling a company narrative designed to keep you optimistic, while they continue to profit at your risk and your expense, then it’s time to rethink your strategy and look toward assets whose “real wealth” values are inherent.