Oct 02 2018Add to Favorites
An emerging investor demographic.
My little brother is in his mid-20s, loves to surf and is a pilot. He has the life; he works about 8 days a month for a commercial airline, where he flies to Hawaii, surfs with his friends and flies home to surf some more. In his spare time, he has taught himself to trade FX. His girlfriend is a professional surfer and gets cash flow from sponsorships, endorsements, and Instagram posts.
The both of them live a globe-trotting life where getting on a plane to some exotic and remote surfing spot is like getting on the bus. They are both in Indonesia at the moment, off an island in Sumatra, and send our family daily group text photos of their impressive surfing moves and beautiful sunsets - these are the pictures that were sent to us today.
Aside from being inspired and energised by their daily photo texts, to me, these two are pretty empowered kids and I think it’s a fascinating emerging investment demographic, financially empowered Millennials. My brother and his peer group are dogged, sophisticated and competitive when it comes to committing daily learning habits, audio books and executing on investment strategies to get ahead.
What wealth means to me.
To me, wealth means feeling emotionally vibrant, empowered, healthy, happy; having time to spend with friends and family and the people I love; being challenged having a sense of achievement; giving back to the community, having a positive impact; having good hair and great shoes (!). One of the most interesting things that I think about when I think about the essence of wealth is having time and having a choice. Most of us trade our time for money because that is what we have been taught and conditioned to do and what most of us do whilst we build up a nest egg. One of my goals as an investor is to have enough capital invested so that my capital works for me and so that I have control and choice over how I spend my time. To me, when I think about wealth, time is the most valuable currency we have.
The numbers; property fundamentals.
I wrote about this topic a few weeks ago (read it here), and increasingly I am seeing these vibrant entrepreneurial Millennials who are financially empowered and who’s wise investment decision making will contribute to how our nation fares with our top-heavy ageing population issue, to recap;
ABS statistics show that our Australian population today is 25m and 14% of that 25m is over the age of 65. The ABS further forecasts that once our population hits 52 million, our over 65 ratio reaches about 25%. Read more here.
Essentially and in a nutshell, unless there are significant inflows of skilled, tax-paying migrants, the Australian Government will not have the fiscal ability to provide the financial support required to look after our elderly. We have a diminishing taxpayer base due to our top-heavy aging population. This is both a Labor and a Liberal issue, regardless of who gets into power after the election in 2019 this issue will need to be addressed. Whilst the Liberal government has done an outstanding job of reducing our national debt levels from c. $35b in 2016-17 to c.$18b in this most recent budget, the improvements are primarily predicated on the collection of taxpayer dollars. Given there hasn't been any material wages growth over the last couple of years, these budget ambitions can only be achieved if strategic inflows of skilled migrants come to Australia in increasing volumes.
NSW government has committed c.$85b to new infrastructure to support population growth which is forecast to grow from 7.7m in 2018 to over 10m in 3036 to over 12 million in 2050 (according to NSW Government treasury reports and NSW Government infrastructure reports).
The Aussie housing market is worth c. $7.6 trillion and according to Core Logic (June 2018), there is a fairly low ratio of debt on the $7.6 trillion total value at about 23% or $1.76 trillion. It's our view that these numbers do not support any signs of a bubble.
The fact is that NSW has a difficult planning system that makes new supply quite slow. We have a demand driven by immigration and restriction on supply. Whilst the APRA cooling measures and Royal Commission initiatives create a softening of the market which is a good thing, the restriction on credit doesn’t help affordability.
All of the fundamental indicators support real estate as an investment asset class in NSW and especially in Sydney.
MP Funds Management & Golden Goose Capital
Our primary and immediate Investor-focus at MP Funds Management is centered on a few different segments; domestic and offshore institutional investors, ultra-high net worth investors and family offices as well as the c.$700 billion Australian Self-Managed Superannuation Fund (SMSF) investor -base. According to a recent study, Australian SMSFs have only 19% of their wealth invested in the Aussie $7.6 trillion residential real estate market. Overall managed Australian Superannuation together with SMSF in aggregate has only a 10% exposure to real estate.
Given that banks like Westpac and CommBank have announced that they will no longer provide finance to SMSF’s to buy real estate, the real estate investment space is going to evolve significantly.
For the next 5 years and onwards MP Funds Management’s Focus, via our investment platform, Golden Goose Capital will be more focused towards not only SMSF investors but Millennials.
In Australia, NSW specifically, Millennials (born between c.1982 and 2000) make up over 25% of the population and are now the largest generational group, having overtaken the baby boomers in 2016. Millennials will remain a major force throughout the next 40 years, making up the largest proportion of the population into the 2030s. This is partly an ‘echo’ effect — they are the children of the baby boomers — but also reflects migration.
With the Royal Commission into superannuation industry stirring up some controversy around conflicts of interest and hidden fees, the onus is increasingly on the individual to be empowered to take control of their own financial future.
This Millennial generation has less of a reverence for institutionalised ways of doing things, demand transparency and eschews tradition if there is a more effective way of doing things.
Our first property financing deal was a c 150 apartment project, called VIDA, located at the riverfront in Brisbane’s Westend by Pointcorp, with a gross completed value of $100m approx. Bank West provided the first ranking senior debt, and we sat pari-pasu with Maxcap as a mezzanine loan, ranking in priority behind the bank with a second mortgage security and with Thakral Capital Australia subordinated to us as equity. After we had run a lengthy and detailed due diligence process, our capital was called in about the third quarter of 2013 and repaid in full by the end of November 2016, with a 21% IRR (-annual internal rate of return).
Despite the fact that sentiment has improved in the residential media and commentary space it looks like we may have a way to go before actual material improvement is seen overall. MP Funds Management invests in all property sectors (commercial – retail- mixed-use), not just the residential debt (and or equity) space. The reason I am so fascinated with the residential sector is that I think the sentiment surrounding the residential space is ultimately what governs sentiment for the larger segment of the population who own our c. 10million residential dwellings. which is a fairly accurate indicator of the overall economy and investor sentiment.
When I started MP Group about 9 years ago, I knew I wanted to create a funds management business. The company started off as an advisory business with the MP Report as a way to market ourselves – we also used it for research purposes. Up until this point I had been in the commercial industrial and residential agency and development space since I was 19. I had years of property experience across all sectors and as a result had developed a strong understanding of our how property behaves.
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