John Abernethy, Clime Asset Management’s founder, has taken aim at a fair chunk of Australia’s financial and business community in an interview with Fairfax this morning.
Abernethy, a devotee of the Ben Graham/Warren Buffet school of “value” investing believes that the current crop of money managers have it easy and the massive flow of cash that comes to them through superannuation has “undermined the value of hard capital”.
He notes that in nominal index points, the “stockmarket is the same level today as it was nine years ago”, and adds “the valuation’s up by $300 billion but we can track probably 50 per cent more than that, say $400 billion, has gone in new issues, or reinvestment or retained earnings. There’s been destruction at a great rate.”
It’s not just money managers Abernethy takes aim at – he says the boards and management of Australian businesses aren’t creating growth or using their capital efficiently.
That’s a great criticism of capital markets today which I think is destroying value in Australia. There’s no thought processes to capital structures and that’s why the sharemarket is pretty appalling at present.
We give too much credibility to people managing businesses who really haven’t proven anything, they just happen to flop into the job.
He also believes that local investment banks need a shake-up. That’s because “some of the deals they’re bringing to market are disgraceful the way they’re structured,” he said.
But perhaps his most scathing views are directed at index and hedge funds, which he reckons are “clowns”.
“Does the guy in the street who’s putting 9 per cent of his salary each fortnight into those funds actually know what’s going on? Would he actually be happy that there’s a clown buying an index on one side and another clown shorting it on the other side with his money, and he’s paying them. On the hope that in 20 or 30 years time he might get enough money to live off?”
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