By Leon Gettler >>

AUSTRALIA’s $3 trillion superannuation industry could turn Australia into a renewable energy powerhouse and steer the country closer to net zero emissions before 2050, it has been claimed.

Simon Sheikh, the founder of fossil-fuel-free super fund, Future Super, said the scope for super was immense.

Mr Sheikh said climate change was a major problem that needed to be addressed on a ‘warlike footing’ which meant using every lever available – whether that is the money in super accounts investing in renewable energy, or governments directly building projects and setting the regulatory frameworks for markets.

“A warlike footing means it all needs to happen and not in 2050,” Mr Sheikh told Talking Business. 

He said superannuation would play a big role. With $3 trillion worth of assets under its control, Australia’s superannuation sector was one of the largest pools of capital in the world that Australians actually control – as it is “their money and their super”.

SUPER CAN POWER RENEWABLE BASELOAD

Mr Sheikh said research from the University of Technology Sydney found that just 7.7 percent of Australian superannuation savings, between now and 2030, could fully fund the transition to a 100 percent renewable energy powered electricity grid.

“Clearly, superannuation is the pool of capital that needs to be unlocked to take action on climate change,” Mr Sheikh said.

“Starting now, we all switch our super to those providers that are investing in renewable energy.

“The big opportunity here of course is for governments to set the policy settings to such that they are attracting and pushing superannuation funds to invest in nation-building infrastructure.

“The investment community sees great opportunity in making money from the transition. Big transitions of whole economies and whole societies, moving from one energy system to another, create huge opportunities to deploy capital and so the investment community broadly I think is up for the challenge.”

Mr Sheikh said business was now clearly getting behind the push towards net zero emissions.

“Right now, I don’t think you can name any businesses in the ASX 100 that aren’t working feverishly on how they’re going to change their business model to work in a net zero world,” he said.

“You’ve got farmers lobbying out there and the farming community making big changes, you’ve got the business community out there making big changes, you’ve got individuals making big changes but at the moment, it’s happening without any co-ordination.”

SUPER FUNDS MAKE THE CLIMATE CASE

What’s needed he said, was for super funds to make their case for zero emissions, a price on carbon and the government to show some clear leadership on this issue.

Mr Sheikh said financial markets and superannuation funds create a space for the government to play a role. The companies and the super funds could put pressure on the government to adopt its net zero pledge ahead of 2050.

“When you’ve got the business sector taking action on climate change. The business community are a core constituency for the Liberal Party and the reality is, we can drive what businesses do,” Mr Sheikh said.

“That’s the power of our money. If we move our superannuation and demand our superannuation funds make investments in progressive causes like climate action, it means those super funds go and pressure the companies they’re investing in to say, ‘We’ve made a net zero pledge, where is your net zero pledge?’”  

www.futuresuper.com.au

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Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness.

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By Leon Gettler >>

THE NEW area of investment for self-managed super funds (SMSFs) is National Disability Insurance Scheme (NDIS) accommodation.

The SMSFs are investing in purpose-built accommodation for disabled people, with the government offering massive financial incentives for their investments. And the rent is paid by the Federal Government.

“Financially, it provides a yield that you cannot find with any other type of properties in Australia at the moment – and it’s a very ethical investment as you provide a much-needed type of accommodation which, most often, extracts young people out of retirement homes or wherever they had to live in the meantime,” Yannick Ieko, founder, CEO and senior lending strategist of the SMSF Loan Experts told Talking Business.

Mr Iecko said the yields were double digit and “north of 10 percent” and – depending on the accommodation, the structure of the investment and the disability concerned – it could be as high as 15 percent. 

A 20-year agreement with the Federal Government was also backing these investments, with 90 percent of the income paid by the government, making it an enticing investment.

UNDERSUPPLY OF DISABILITY HOUSING

Mr Iecko said there was a dramatic undersupply of NDIS accommodation.

“If you look at it from an investment perspective, you’ve got a massive pipeline of potential tenants or participants in the NDIS scheme that have been approved for housing and financial support. There are thousands of them,” Mr Iecko said.

“Those people at the moment are living with elderly parents who are not able to care for them in a way that would be ideal. They find themselves in retirement homes.

“That’s a common scenario, where you have young people who have suffered disability who find themselves in a retirement home environment – which is pretty depressing.

“There are a lot of sad stories that this is addressing alongside those massive returns.”

He said there had been tremendous progress on the lending front over the last six to nine months as valuation experts were now understanding more about these properties.

The key for the SMSF was to invest in a property located where there was an undersupply. Then, the moment participants move in, the government payment covers the loan repayment and any costs associated with the property.

“People are using this to deleverage aggressively, using the cash flow from these properties or to re-invest aggressively, depending on what stage they’re at in the investment cycle,” he said.

MATCH ACCOMMODATION TO DISABILITY

Mr Iecko said the specificity around the property purchase really came down to the type of disability of the participant.

Usually, people at the extreme end of the spectrum were those suffering a mental health disability, who had their own sets of challenges to deal with, such as rage and bipolar conditions – and these came with certain protocols.

On the flip side, participants tended not to move houses very often, which means they tended to be long term tenants. And there was income from the government.

That makes it a triple-A investment, according to Mr Iecko.

The scheme is also structured to help investors deal with challenges. Some houses, for example, were built with a break room, where a participant could have an episode, and the furniture might be bolted to the floor so that it could not be thrown around and hurt someone.

The additional costs for dwellings to be built to such specifications is around $50,000. And the properties need to be certified.

Mr Iecko said this was now a growth market for self-managed super funds and interest was growing.

“The level of interest is tremendous and it’s growing month to month,” he said.

www.smsfloanexperts.com.au

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Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness. 

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By Leon Gettler >>

PRAEMIUM is changing the world of finance and it has an enormous potential market.

Praemium is a platform and ­financial-planning software provider that also conducts portfolio services. With banks retreating from wealth services in the wake of the Hayne Royal Commission, the market for Praemium is growing.

Praemium started as an off-platform service in 2001. From the earliest days, it had data feeds with all the stockbrokers in the country and, using optical character recognition software in those days, it could see what the transactions would be and construct the portfolio, what it was worth, what its unrealised capital gains were and the level of franking credits.

“That is why we are the best at corporate actions and tax and finance reporting,” Praemium CEO Michael Ohanessian told Talking Business.

“One of our greatest strategic resources is we have every corporate action on every listed company in Australia since 1985. We’ve actually configured all those corporate actions from every Australian company into our system.

“And because we service the last two international investment banks that still do wealth here, and that’s Morgan Stanley and Credit Suisse, we also do that exact same thing for about 5000 international securities, all those American companies and European companies and so on. And with a data base of all their information, all their corporate actions automatically configured into our system, so that is how we started.” 

‘UNIVERSAL’ INVESTING

Mr Ohanessian said Praemium did the reporting on 300,000 investor portfolios, including three of the four big banks.

He divided the investment landscape into Universe A and B.

Universe B was where the company would provide the information and the investor would take it to their accountant to work out what the tax was. Universe A was where companies like Praemium provided investors with the tax report that they provided for their clients.

Mr Ohanessian said working out what portfolios were worth was always a challenge, which is where Praemium has a distinct competitive advantage in the market place.

Praemium gave its clients the software to determine all the holdings and corporate actions. But for that to be correct, they needed to do the administration work to reconcile the data. That meant checking everything at all sources, from the registry to the bank.

“That’s the admin work that our clients have to do themselves to make our software 100 percent accurate, and therefore investment grade, and 100 percent right from a tax perspective,” Mr Ohanessian said.

“Then back in 2017, we started realising maybe we could do this for some of our clients and it’s just taken off.”

REMARKABLE GROWTH CURVE

Mr Ohanessian said in the last three and a half years, Praemium had gone from one client with a few portfolios to the market today, where 15 firms are using the Praemium service, with over 6000 portfolios and covering more than $16 billion worth of assets.

“For all those firms, we are taking away all of that pain of reconciliation and making sure it’s right,” he said.

Mr Ohanessian said this was a “game-changer”.

“We think the future potential is massive because every advice business out there has this pain and it’s inefficient for them – it’s not a good use of their time and it distracts them from what they need to be working on. And we are the best at operating our own software because we know it best,” he said.

Mr Ohanessian said because Praemium started out as an off-platform business 20 years ago, it’s in the firm’s DNA.

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Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness. 

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By Leon Gettler >>

THE GROWTH of impact or ESG (environmental, social and governance) investing is changing markets and, while much of it has been driven by climate change, the coronavirus pandemic has thrown a new force into this trend.

Adam Rein is president and chief operating officer (COO) of CapShift, a US impact investing firm that empowers philanthropic and financial institutions, along with their clients, to mobilize capital for social and environmental change. He said impact investing is now taking two forms.

One is the broader set of public market investors putting their money into the largest companies in the world and declaring that they are not just looking at the financial forecasts but also at ESG principles, because those factors can present a long term risk for the company or simply because it’s the right thing to do.

A separate group of investors is more focused on private markets, investing in venture capital, private equity, micro-finance and small business lending and seeking to change the world by investing in small businesses. These investors are focused on specific sectors like renewable energy, affordable healthcare or education technologies.

ESG CAPTURES ALL COMPANIES

Mr Rein said the ESG market covers all public companies, focusing on issues such as how the company treats its workers and suppliers, the environmental footprint of its operations and whether the products and services do good or harm.

He said there had been some standardisation for these investors, with one type focused around carbon and climate and the second focused around workers, suppliers and products.

“That data is growing and there’s a whole eco-system of rating agencies and analysts trying to look at the largest corporations in the world,” Mr Rein told Talking Business.

He said there are two driving forces behind this movement. One is financial and the other is around ‘purpose’.

The research showed that funds and analysts that looked at non-financial factors did better at predicting which companies would generate long term returns. Examples of that included Volkswagen and its emissions scandal and Facebook and privacy sandals.

SOME FOCUS STRONGLY ON CLIMATE CHANGE

The second is captured by investors like Larry Fink, the CEO of Black Rock, the world’s largest funds management firm, who sent a blunt warning to the world’s biggest companies at the start of this year telling them that if business can’t play a role tackling climate change or coronavirus, then all economies would suffer, so investors needed to push businesses to have better practices.

Mr Rein said for the last few years, mutual funds had been at the forefront of pushing companies to report on their greenhouse gas emissions, to have sustainable palm oil use and forcing them out of sweat shops.

Now hedge funds are moving in, he said, buying companies with bad practices, replacing the board and positioning these companies with a future based not just on shareholder capitalism but on stakeholder capitalism, treating their workers and communities well.

He said one of the key issues brought up by the coronavirus was supply chains.

“A year ago, you saw a lot of companies shutting down and a lot of companies that didn’t have a lot of transparency in the health practices of their suppliers – and companies that were more proactive on protecting workers were able to stay open,” Mr Rein said.

“Companies where workers were getting sick were shutting down.

“We saw this shake out as an example of practices on how you care for your workers in the middle of a pandemic,” he said.

www.capshift.com

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Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness. 

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