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

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