Australian asset manager Altair Asset Management has made the extraordinary decision to liquidate its Australian shares funds and return “hundreds of millions” of dollars back to its clients, citing an impending property market “calamity” and the “overvalued and dangerous time in this cycle”.
“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,” Philip Parker, who serves as Altair’s chairman and chief investment officer, said in a statement on Monday.
The 30-year veteran of funds management said that he had on May 15 advised all Altair clients that he planned to “sell all the underlying shares in the Altair unit trusts and to then hand back the cash to those same managed fund investors”.
Mr Parker said he had “disbanded the team for time being”, including his investment committee of chief economist Steve Roberts, senior healthcare analyst Sally Warneford and independent strategist Gerard Minack.
“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,” Mr Parker’s statement said.
“We think that there is too much risk in this market at the moment, we think it’s crazy,” Mr Parker said more candidly.
“Valuations are stretched, property is massively overstretched and most of the companies that we follow are at our one-year rolling returns targets – and that’s after we’ve ticked them up over the past year.”
“Now we are asking ‘is there any more juice in these companies valuations?’ and the answer is stridently, and with very few exceptions, ‘no there isn’t’.”
Mr Parker outlined a roll call of “the more obvious reasons to exit the riskier asset markets of shares and property”.
They included: the Australian east-coast property market “bubble” and its “impending correction”; worries that issues around China’s hot property sector and escalating debt levels will blow up “later this year”; “oversized” geopolitical risks and an “unpredictable” US political environment; and the “overvalued” Aussie equity market.
But it was the overheated local property market that was the clearest and most present danger, Mr Parker said.
“When you speak to people candidly in the banks, they’ll tell you very specifically that they are extraordinarily worried about the over-leverage of the Australian population in general,” he said.
He flagged how exposed the country’s lenders were to a correction.
“If they get a property downturn anything similar to 1989 to 1991 then they are going to have all sorts of issues,” Mr Parker said.
Altair’s investment committee included former Morgan Stanley chief economist and noted bear Gerard Minack and former UBS economist Stephen Roberts.
The finance industry is not short of dire warnings.
One Melbourne fund manager recently warned that interest-only loans had the potential to be “Australia’s sub-prime”. More notoriously, in early 2016 a Royal Bank of Scotland strategist urged clients to “sell everything” at what fatefully proved to be a low point in the cycle in January 2016.
‘I’ve never been more certain of anything in my life’
But Mr Parker’s decision comes after a robust year of double-digit gains on the ASX. Not only that, but he is acting on his convictions by returning money to clients and abandoning the fees attached to a $2 billion advisory agreement.
However Mr Parker, displayed little nervousness about making such a significant decision.
“Let me tell you I’ve never been more certain of anything in my life,” Mr Parker said. “I am absolutely certain we are in a bubble in this property market.”
“Mortgage fraud is endemic, it’s systemic, it’s just terrible what’s going on. When you’ve got 30-year-olds, who have never seen a property downturn before, borrowing up to 80 per cent to buy three and four apartments, it’s a bubble.”
Using the benchmark S&P/ASX 200 index as a proxy, he outlined a situation where the measure could fall as low as 5200 points in the coming months, depending on the confluence of his identified risk factors.
“Australia hasn’t had its GFC event, we’ve been living in this fool’s paradise. But if China slows down the way the guys think it will towards the end of this year, then that’s 70 per cent of our exports [affected]. You can see already that the commodity market is turning down.”
Mr Parker stridently denied any suggestion that there were other factors at play other than a pure investment decision. No personal issues, no position that has blown up and forced his hand.
“No, God no,” he said. “We’ve sold out all of our positions at huge profits for our clients.”
“This game is all about reputation. I feel that we are right.”
For now, Mr Parker said he was happy to take some time off.
“I’ve never had more than five weeks off in a row. I’m probably going to have four months in a row, and if something happens in between, I’ll think about it. Otherwise I’ll enjoy the time off.”