Investors that started the year with growing confidence that inflation was on a clear path lower, and that rate cuts would soon follow, are digesting a new reality.

At this point, policy uncertainty remains elevated, and markets are still grappling with the prospect that not only will rates remain restrictive for longer, but they could move higher from here.

This matters for investors with a whole-of-portfolio view because it changes the job description of defensive capital.

If you believe rates are on an upward trajectory, you can no longer assume the lower-risk portion of the portfolio is best served sitting in cash waiting for a more benign backdrop. Nor can investors ignore the opportunity cost of holding too much capital in structures that are either locked up, or insufficiently productive.

Good portfolio construction is about ensuring each part of the portfolio is doing the job it is meant to do. When every element is doing its job and earning its place, there's very little room for what is termed 'lazy cash.'

In a scenario in which rates are higher for longer, it's reasonable to expect liquidity should be doing more than simply preserving capital. Investors need to think laterally about liquidity, duration and what it means to have 'portfolio flexibility'.

Ideally, the defensive portion of a portfolio is not simply a passive holding area. It needs to generate income, preserve optionality and avoid unnecessary exposure to interest-rate risk. That is why floating rate corporate bonds are coming back into focus.

These private wealth management advisory firms, serving ultra-HNW individuals and families, control vast amounts of capital and are increasingly looking for direct investment opportunities. However, accessing and effectively pitching to family offices presents its own set of challenges.

Family offices are not your typical institutional investors.

They often have more flexibility in their investment decisions, longer investment horizons, and a broader range of objectives beyond mere financial returns. Despite the potential, connecting with family offices can be daunting.

Unlike publicly traded companies or well-known investment firms, information about family offices can be scarce, making it difficult to research and approach them effectively. Moreover, family offices are inundated with pitches, making it essential to stand out from the crowd.

Success in this arena requires a deep understanding of the specific family office you are targeting, their investment philosophy, and their broader objectives.

This paper provides a walk-through of the strategies necessary to effectively research, approach, and email pitches to family offices, so as to help navigate this complex but potentially rewarding landscape.

Before crafting a pitch, it is crucial to understand the unique characteristics and motivations of family offices. This knowledge will help you tailor your approach and increase your chances of a positive interaction.

There are also SMEs that are innovators, introducing game-changing products and services. Think about companies like Facebook and Airbnb, to name but a few. They are giants now, but started life as ideas in the heads of their founders.

Big companies do not start out big. They usually start small. Some progress all the way to become large established companies. Some, sadly, go out of business altogether.

Our private equity (PE) team has been active in the mid-size part of the SME space for many years and we are enthusiasts about the potential benefits of PE investing in this sector because it has helped deliver strong long-term returns for clients.

To elaborate, our private equity portfolios look for firms globally of around $200 million-$2 billion in size in sectors like technology, healthcare, and business-to-business industrial services. We make investments in profitable, cashflow-generative companies with proven records of revenue and cashflow growth and forecast to continue or accelerate on such trends.

There are multiple reasons why we think mid-size companies are attractive, from our perspective as PE investors. For starters, it is the sheer size of the opportunity set.

In the US, for instance, around 200,000 privately owned mid-size companies with revenues between US$10 million and $US1 billion have been a driving force in the domestic economy for decades. This group represents around one-third of US private sector gross domestic product (GDP) and employs around 48 million people.

Many of these businesses are facing succession issues with Baby Boomer founders considering retirement and weighing up selling the business to private equity, or alternatively passing over the reins to a relative or someone they know to run the business.

We see this as a substantial catalyst for more private equity transactions in the mid-market sector over coming years. That said, private equity managers are not just waiting for the future to arrive. Rather, they have been pushing strongly into the mid-market segment with 3352 buyouts being transacted in the US middle market in 2024 valued at a touch over US$358 billion.

Last year, KPMG Australia, NAB Private Wealth and JBWere co-hosted roundtable lunches in Melbourne, Sydney, Brisbane and Perth, bringing together senior and next-generation family members, and non-family executives from a broad spectrum of industries. The goal was to explore how families are evolving their relationship with their enterprises and to share practical insights for navigating the complexities of ownership, governance and stewardship.

These conversations revealed a clear shift in mindset. Families are moving beyond the traditional 'family-run' model, embracing new approaches to ownership and governance that prioritise long-term stewardship, purpose and alignment.

The following sections examine the key themes, lessons and questions that emerged from these discussions, offering insights for families seeking to future-proof their enterprises.

The relationship between family and business is not static. What made a family enterprise successful in the past may not be fit for purpose in the future. As we see families and their wealth grow, diversify and transition across generations, the need for clarity around roles, responsibilities and values becomes ever more pressing.

A useful way to understand these dynamics is through the Three-Circle Model of the Family Business System - a framework [developed and first published in 1982 by Professor Renato Tagiuri and doctoral student, John Davis at the Harvard Business School] that distinguishes between the family, the ownership group and the business itself.

Each of the seven positions represents distinct perspectives, attitudes and priorities. Importantly, these positions are not fixed, and individuals may move between circles as their careers and lives evolve."

For business families, wealth is more than financial capital. Socio-emotional wealth (SEW) recognises the intangible assets of identity, belonging, legacy and continuity, and plays a critical role in shaping decisions and behaviours.

During the roundtable lunches, participants spoke about the importance of family influence, a sense of belonging and the emotional attachment that comes with stewardship. These dimensions surfaced in stories about generational transitions, the pride of legacy and the tensions that exist in balancing tradition with innovation. Families that appreciate and nurture their socio-emotional wealth are often better equipped to manage transitions, navigate conflicts and sustain unity across generations.

Likewise, Europe, China, and Japan are expected to carry out fiscal stimulus programs, and there may be opportunities in growth assets within countries pursuing these measures.

Meanwhile, geopolitical risks are likely to impact markets. US-China economic decoupling continues to reshape supply chains, while the global race for AI supremacy and rising populist politics add complexity. Western nations face growing debt and deficit challenges, affecting fiscal policies. Diversification and a focus on resilient companies should be considered.

We believe that AI valuations remain broadly reasonable. Despite rising valuations in major tech firms, current price-to-earnings (P/E) ratios are below dot-com bubble peaks and are supported by strong fundamentals. AI is transformative across sectors, but cautious monitoring is still necessary due to risks of over-optimistic adoption forecasts and complex financing arrangements within the AI ecosystem.

In terms of AI enterprise adoption, AI is reshaping business value creation, though enterprises are proceeding with caution due to governance and security needs. Overcoming data and cultural challenges will accelerate progress, enhancing productivity and innovation across industries such as healthcare and logistics. Investors should consider targeting companies with strong AI Research and development (R&D) and strategic partnerships.

Despite persisting geopolitical risks, the macro and market environment should remain supportive of risky assets in 2026.

Through the first three quarters of 2025, non-US equities outperformed US stocks, driven by market volatility and a weaker dollar. Growth in Europe, reforms in Japan, and innovation in emerging markets (EMs) highlight global opportunities, making this a potentially attractive moment to diversify equity exposure beyond the US.

Meanwhile, we believe that global fixed income diversification is key. Macro volatility and policy divergence make a global investment approach essential. The US faces challenges, including a weaker dollar and policy uncertainty, while EMs and global credit offer attractive opportunities. Rebalancing portfolios away from the US and embracing global credit and EM debt can help enhance diversification.

Finally, corporate credit fundamentals seem likely to improve. With expected rate cuts in 2026, corporate credit fundamentals like interest coverage and cash balances are set to strengthen, supporting tight credit spreads similar to mid-1990s conditions. We think that investors should maintain credit exposure, consider global credit diversification, and monitor stress in private credit."

Private markets firms focus on strategies including, but not limited to, buyout, growth equity, infrastructure, real estate, and private credit.

Private equity firms that specialise in acquiring and subsequently monetising ownership interests in other private markets firms are referred to as 'GP stakes' firms.

Similar to an ownership stake in any other company, a GP stake is a perpetual and transferable interest which can be financed or sold.

GP stakes emerged as a dedicated institutional fund strategy as a byproduct of the rapid growth in assets under management across private markets firms after the Global Financial Crisis (GFC). However, GP stakes have a much longer history dating back to the 1980s, but transactions were infrequent and largely strategic in nature.

For example, certain large asset owners pursued ownership interests in select GPs to create more aligned partnerships, sharing in the economic value created in part by their own substantial commitments and securing preferred access to future investment opportunities (for instance, the California Public Employees' Retirement System (CalPERS) acquired a stake in global investment firm the Carlyle Group in 2001).

For the most part, however, there was no pressing financial catalyst for private markets GPs to pursue such a transaction. This changed with the surge in investor interest in private markets exposure after the GFC.

To accommodate increased demand from existing and new investors and meet increased expectations around GP commitment percentages, many of these firms required growth capital to supplement cash flows generated by management fee profitability and carried interest.

GP stakes transactions offered these firms a compelling means to inject additional balance sheet capital to fund larger GP commitments, make additional hires, invest in organisational infrastructure, and otherwise accelerate firm growth timelines in an aligned fashion.

While the secular growth of private markets created structural demand for growth capital solutions, the GP stakes market opportunity could not fully take off until the value proposition to investors, as potential limited partners (LPs) in GP stakes funds and as LPs in GPs selling a stake, was understood.

With market education and the benefit of time, many investors now recognise the merits of investing in GP stakes, which offer diversified private markets exposure and can provide private equity return multiples generated through a combination of yield and capital appreciation.

China recently held its Fourth Plenum [a formal assembly of the Chinese Communist Party Central Committee], which saw the draft for the 15th FYP approved. The 15th FYP, which sets the direction for China's economic and social development for 2026-2030, is not merely aspirational. It contains binding directives that cascade down through all levels of government and the state-owned enterprises.

When Beijing identifies a priority sector, capital flows are channelled with remarkable speed and scale. Conversely, sectors that fall out of favour tend to face regulatory headwinds-the ability to correctly interpret these signals can lead to significant investment opportunities.

To properly understand the 15th FYP, it is important to compare it with previous FYPs-many seemingly familiar aims and expressions have been subject to subtle changes in wording, order of importance, and tone. Moreover, unlike previous FYPs that occurred during periods of robust growth, the 15th FYP arrives at a critical juncture-China's GDP growth has structurally downshifted from double-digit rates to a more modest 4-5% range.

The property sector is undergoing painful deleveraging; youth unemployment remains elevated, all the while geopolitical tensions with the US remain intense. For investors, the 15th FYP is key to understanding future trends and opportunities.

Since the 13th FYP (2016-2020), the Chinese government explicitly elevated "high-quality development" as a guiding principle. The 14th FYP (2021-2025) deepened the concept, linking it to modernisation, technology self-reliance, and the green transition. The 15th FYP further emphasises high-quality development with ecosystem-driven industrial policies and consumption-led growth.

As these groups grow, the number of trusts often increases, requiring more sophisticated and coordinated management.

In this context, understanding the complexities of trust administration becomes essential.

One area that demands particular attention is the family trust election (FTE). While FTEs can unlock valuable tax concessions, they also carry significant compliance risks.

A misstep can trigger the family trust distributions tax (FTDT), which is levied at the top marginal tax rate plus the Medicare levy, currently totalling 47%.

A family trust can access a range of tax concessions including the ability to pass on franking credits to beneficiaries and more easily deduct carried-forward tax losses in trusts and companies.

A trust (generally a non-fixed trust which incorporates both family discretionary trusts and most hybrid trusts) becomes a family trust at any time when a valid family trust election in respect of the trust is in force.

A valid FTE would require nominating an individual a 'test individual'. However, this comes with important limitations.

This wealth transfer will encompass, among other things, residential property, superannuation, significant family businesses and more generally, investments assets (such as shares in Australian and foreign companies).

This transfer represents arguably one of the most important - and presently underappreciated - opportunities to pass on more than just wealth.

It is a chance to enable continuity of organisations, culture, values as well as livelihoods painstakingly built.

The focus of this paper is not estate planning, although that is one element, but rather the options that are available for Boomers to seek to address the challenges in embedding/creating a culture that continues to embrace responsible business long after the transition.

I am prepared to die for something. I am prepared to live for our cause. The cause is caring about each other. The secret to this job is personal relationships.

The mission statement details how his personal core values had become misaligned with his employer's.

The mission statement is broadcast to the entire company, resulting in Cruise's character being fired, retaining only one client and a single staff member who believe in him.

For Jerry Maguire, his core values of integrity and compassion became non-negotiable compass points in guiding his attitudes, decision-making and interactions with others.

Authors such as management consultant Jim Collins and organisational theorist Jerry Porras in their 1994 book Built to last: Successful habits of visionary companies popularised the notion that all "visionary companies" should develop a set of core values, described as an "organisation's essential and enduring tenets, not to be compromised for financial gain or short-term expediency".

Consequently, the key pillars that drove synchronised global economic growth are under threat, with economic growth drivers such as the peace dividend [economic benefits a country obtains from channelling post-conflict defence spending into things such as civic initiatives and economic growth] we have enjoyed over the past 80 years and free trade agreements we have appreciated for decades, no longer intact.

While the investment community would like to think markets are central to government actions, the harsh reality is that they are not. The market feedback mechanism is important in governments achieving their economic and geopolitical objectives, however, higher-order priorities for governments are increasingly apparent.

For much of the past four or five decades, investors have been able to rely on some simple principles for investing within free-market-based capitalist economies. The allocation of scarce resources was driven almost solely by the highest return on capital available, feedback from market pricing and free competition anchored by comparative advantage.

The role of government mostly centred around delivery of public goods and services, provision of safety nets as well as keeping checks and balances in place through regulation-an environment where private sector decisions ultimately drove markets while governments played a supportive role. Markets were at the forefront of these private sector (and some public sector) decisions.

Looking ahead, we see the potential for the roles of government and the private sector to be reversed. That is, where governments have strategic priorities driving critical decisions around the use of capital, labour, technology and other scarce resources dictating the growth or fall in certain sectors-the higher-order priority now is to achieve nationalistic objectives.

Further, while the private sector will absolutely be necessary for governments to achieve their more strategic goals, the bigger-picture decisions are not likely to be driven by free-market pricing signals per se.

Getting worker classification wrong can lead to unpaid tax, superannuation, payroll tax or workers compensation, and the Australian Taxation Office (ATO) and state and territory regulators may apply heavy penalties.

Worker obligations are not the same everywhere. Payroll tax and workers compensation rules can vary, so it is important to check what applies in your state.

When engaging workers, businesses are responsible for ensuring that they comply with the relevant laws and obligations, including employment taxes.

Failure to do so can result in significant financial and legal consequences, such as fines, lawsuits, and reputational impact to the business.

With an increased level of activity by state and federal revenue authorities, coupled with recent changes in the courts' views, the spotlight has never been brighter on worker classification and associated obligations.

We are aware that revenue authorities have data sharing arrangements and are able to analyse vast amounts of data from varying sources to identify potential risks. In such an environment, it is crucial that businesses understand the risks, as non-compliance can create uncommercial outcomes and, if not detected in time, can be costly to rectify.

No-one ever went broke from taking profit" is the old saying, but they may have had to deal with the tax obligation that it created.

This is the question some investors are asking regarding their Commonwealth Bank (CBA) holding, given the run over the last 8-12 months.

For investors that have held CBA for more than 12 months, the obligation outlined above may be more palatable, given the 50% capital gains tax (CGT) discount (if applicable).

However, for investors that have acquired CBA within the last 12 months, that may not be the case, as hedging some of this exposure through to the 12-month timeframe before disposal may be preferable.

If an investor is concerned with the future performance of a stock, such as CBA, they can hedge their exposure by buying a security with inversely correlated returns, so if the value of their stock goes down, all other things being equal, their hedge should go up.

Investors can potentially achieve this by using futures or warrants with the objective of directly offsetting a loss on a stock.

Alternatively, investors can buy a Put option to lock in a future price for the sale of the stock. Buying a Put has the added benefit of being at the purchaser's discretion, so if the stock remains above the agreed price, the Put will expire worthless with the stock holding remaining unimpacted."

The top seven companies paid over half the dividends in calendar year 2024, which is pretty much the case most years. This included the four major banks, BHP, Fortescue and Woodside Energy Group.

That is, this local 'magnificent seven' paid more in dividends than the other 193 companies in the S&P/ASX 200 combined.

Majority of the dividends are paid by a small group of companies.

Looking at it another way, if you split the index in half, the 100 highest dividend payers paid 97% of all dividends paid, with the other 100 companies accounting for just 3% of the total.

The concentration of dividend payers is not just at company level, but also at sector level.

Banks make up 30% of the dividends paid, and when the big three miners, BHP, Rio Tinto and Fortescue are included, it is again very close to 50% of the dividends from the financials and materials sectors.

Add in the oil and gas companies in the energy sector, and other metals and mining in the materials sector, and we get almost 60% of dividends by dollars paid coming from just banks and resources.

But when done without a strategy, it can lead to unintended outcomes, such as missed tax opportunities, confused beneficiaries, and in some cases, unfulfilled wishes.

For most people, the largest gift they'll ever make is in their Will.

But is waiting until after death always the best approach?

Alternative assets (also known as alternatives) provide investors access to superior portfolio diversification and lower levels of volatility, which typically increases the likelihood of achieving an investor's objectives over the long-term.

Alternatives offer investors the opportunity to minimise portfolio volatility and correlations with traditional asset classes such as shares and bonds.

This helps protect long-term capital and lower the downside risk during unforeseen market crises such as the Global Financial Crisis (GFC) and COVID-19.

Alternatives can also help investors navigate market volatility and uncertainties caused by geopolitical risks, such as the recent US tariff announcements and current global conflicts.

However, alternatives come with their own risks and are generally more illiquid and complex compared to traditional assets. It is essential that investors understand the different type of alternatives and their risk-reward profiles before incorporating them into portfolios.

This paper discusses the role alternatives play in portfolios, and explores the different types of alternatives available to investors.

It also provides an overview of how alternatives are used in portfolio construction with regard to risk management, and what effective investment criteria look like when selecting the right alternative managers.

Outside the spotlight, a select group of non-US equities has quietly-but decidedly-made a case for itself.

Each year for the past decade, an average of 82 of the top-100 performing stocks in the MSCI All Country World Index were headquartered outside the US, their gains driven by strong business models and secular tailwinds that mattered more than their physical address.

For investors wary of allocating away from the US, these stocks suggest a selective approach to non-US markets could pay off, especially given gaps in valuation between US and non-US peers, and an equity cycle that is showing signs it could be due for a change.

The Mag 7's outperformance in the S&P 500 Index is widely recognised.

Less known is that, in some cases, top contributors in non-US indices have also achieved robust gains.

In fact, while the Mag 7 returned a cumulative 62% since early 2022 on an equal-weighted basis, the top seven contributors in the MSCI EAFE Index delivered 55%, benefiting in part from less volatility, such as during the broad market pullback in 2022, and lower valuations.

Though non-US equity benchmarks have trailed the S&P 500 Index for more than a decade, a number of stocks outside the US have delivered some of the best gains during that period.

Portfolio resilience involves building a portfolio that may help navigate risk events and compound returns in alignment with investors' long-term objectives.

This paper identifies seven core principles that are important to consider when seeking to build resilient portfolios.

Why resilience matters today  

In the current market environment, we believe that there is an underappreciated - yet crucial - ingredient for delivering on investors' long-term objectives.

Something that helps manage risk and drive returns through the economic cycle. We define that ingredient as portfolio resilience.

Broadly, where entities have debt deductions that arise in relation to the acquisition of assets from associates, or fund distributions or royalties to associates, the rules will permanently deny those deductions.

The rules can apply to wholly domestic arrangements, and the lack of transitional rules means that historic funding arrangements may now result in significant denials of deductions.

Further, new and existing integrity provisions may prevent entities from restructuring their arrangements to avoid the application of these provisions.

What are the Debt deduction rules about?

From 1 July 2024, the DDCR will broadly apply to deny debt deductions (e.g. interest) that are paid or payable in relation to loans and debts to associates in two key instances:

1. Acquisitions of assets or obligations from an associate ("asset acquisition rule"); and
2. Where financial arrangements are used to fund one or more prescribed payments or distributions to an associate ("payment or distribution rule").

While the asset class has historically delivered attractive, diversified returns driven by high income generation, many investors still need help understanding how to approach it effectively.

However, for those considering EMD investments today, despite potential short-term volatility stemming from geopolitical events, the current environment presents one of the most favourable opportunities in the past decade.

The short-term EMD macro landscape has rarely been this favorable

The recent US election has been a key factor of near-term volatility in EMD.

However, like Trump's first presidency, there may be a silver lining for a large part of the EMD universe. President-elect Trump's likely weaponizing of tariff and trade actions will prioritize China, followed by Mexico, the EU, and potentially Southeast Asia-a region through which many Chinese exports to the US have been rerouted since 2018.

It focuses on those sectors we believe will likely benefit the most from AI adoption in the near- to intermediate-term, including data centres, life sciences, logistics, and retail warehousing.

A framework for assessing AI's impact on real estate

Ambitious pioneers laid the first rudimentary neural network algorithms aiming to simulate human intelligence as far back as the 1950s.

Since then, this branch of computer science, commonly referred to as AI, has evolved dramatically, sparking the imagination of entrepreneurs and investors

Today, new AI-enabled products and services have risen to popular fame and made their way into people's lives.

Digital assistants such as ChatGPT and Copilot are helping employees find and analyse information.

Content-creation apps like Instagram and Stable Diffusion enable influencers and artists to edit pictures or create videos from a single text string.

Meanwhile, car manufacturers and engineering companies are testing autonomous vehicles and smart robotics for commercial use.

Family charters can also help define the relationship between critical resources of a family such as the family office.

This paper looks at several key areas that families should consider when developing or stress-testing a family charter.

What is a family charter?

A 'family charter' is a written statement that serves as a record of a family's heritage, culture, ambitions for future success, conflict resolution guide, ambitions for future success, and its culture.

Many families, particularly those with family offices, will be familiar with the concept (also known as a 'family constitution' or 'family protocol').

By whatever name, this document, at its core, will be the family's mission statement, providing some clearly stated aspirations for current and future generations. A family charter also typically sets out broad principles around governance management, and the use of family assets and profits.

It might also include specific policies on things such as investment, education, the family business and the resolution of conflict within the family.

What does a family charter look like from the family's perspective?

A family charter is a humanistic, as opposed to a legalistic, document. A lot of family wealth is held in legal structures, which are constituted by shareholders' agreements, trust deeds and other documents that are drawn up and interpreted by lawyers.

These structures, while very important for commercial and legal reasons, may not resonate with the family in the same way as a family charter, which is expressed in non-legal terms and often encompasses and embodies emotional considerations rather than just purely legal, financial and commercial ones. This is not to say that a family charter cannot be drawn up by a lawyer. In many cases, they are. But fundamentally, it is not a legal process.

Looking at the generation of wealth globally, there is a clear shift happening. Wealth creation is moving from traditional pension funds and government pensions to individual investors. Australians are also investing in assets other than property. We are seeing a new wave of investors emerging and a growing interest in investments in shares, exchange-traded funds (ETFs) and more sophisticated investment solutions.

Wealthy Australians and their advisers are increasingly exploring alternative investments for better returns and diversified portfolios beyond traditional markets. There is no doubt that this trend will shape the financial landscape over the next 15-30 years-in ways we probably cannot yet even imagine.

Private equity on an upper trajectory

The private equity industry has grown substantially over the last 5-10 years. Initially, it was straightforward to engage with large pension funds through one-on-one conversations about collective pension schemes. However, as the industry has expanded, the need to tap into new sources of capital has also grown.

In Western countries, governments are gradually stepping back from providing pensions to individuals, resulting in a reduced pool of state-provided capital. In Australia, the ongoing push towards individuals building their own wealth through superannuation has resulted in the nation having a retirement savings pool that now sits in excess of $3.5 trillion.

Consequently, the wealth in these areas shifts quickly from government-managed to individual savings. This divergence creates an exciting opportunity for private equity to engage with individual investors.

We often refer to three pillars of wealth generation:

• Pillar one-government pensions
• Pillar two-workplace pensions
• Pillar three-individual savings.

Companies have also had to adjust product lines to address the shift in consumer preferences for sustainable and healthier product alternatives across the food and beverage sector.

Additionally, agribusinesses are required to reduce emissions in line with the Agriculture, Fisheries and Forestry to support Australia's net zero greenhouse gas emissions target by 2050.

These aforementioned factors, in combination with the transition to technology-driven farming methods, present an opportunity and need for companies in the agribusiness sector to conduct product and process innovation.

To facilitate continued innovation, the federal government's Research and Development Tax Incentive (RDTI) supports companies to undertake research and development (R&D) activities that meet the eligibility criteria.

Why charitable bequests are important

The for-purpose sector will see great change in coming decades. Larger and evolving demand for services, continuing tight profit margins, not to mention ongoing COVID recover, climate change and artificial intelligence will meet an ageing and growing population. The continued fall in mass market philanthropy an the current rates of volunteering are a worrying backdrop. Thankfully, there are opportunities from these changes.

Philanthropy is the most valuable form of income for the for-purpose sector as it mostly comes without the service provision costs of government or client (fee-for-service) income. Although the cost of fundraising has risen over the past two decades due to competition in a falling mass market, it is still the highest margin for of income. Within that fundraising mix, bequests are the most valuable.

Introduction

The introduction of stricter bank capital regulations following the Global Financial Crisis fundamentally changed the way in which loans are originated and distributed, stimulating a surge in non-bank financial intermediation (NBFI). According to the [Switzerland based] Financial Stability Board, the NBFI sector, which includes assets held by insurance companies, pension funds, hedge funds and asset managers, now accounts for US$217.9 trillion (47.2%) of global financial assets, more than the US$183.2 trillion held by banks.

There is no clearer example of this trend playing out than in Europe, which has seen rapid growth in alternative lending. According to Preqin data, European private debt assets under management surged from US$271.5 billion at the end of 2019 to US$427 billion in December 2023. This momentum shows no signs of waning, with estimated annualised growth of 7.8% through 2029, potentially bringing the market size to US$668.5 billion.

Typically, this market has been dominated by closed-end structures and by institutional investors, with retail investors having limited access. Increasingly, however, asset managers are utilising ever-green, or semi-liquid, structures that facilitate access to private credit markets for retail investors, allowing them to build more diversified portfolios and achieve better outcomes over the long term.

Smaller companies face significantly different ESG challenges compared with their larger peers. When discussing ESG, emphasis is often heavily placed on the environmental ('E') and social ('S') aspects of ESG. But our active engagement with smaller companies frequently centre around governance issues ('G').

Smaller companies are typically more 'capital light' and tend to have higher intangible assets. They often create competitive advantage through strategic initiatives, entrepreneurship, innovation, culture and speed to market. Small companies can also rapidly grow their 'challenger' status. Environmental and social issues are common for larger companies, but typically less common (though no less important) for small-cap investors.

Governance is the most important factor when assessing the sustainability of smaller companies. Small companies typically need to spend on expansion and growth to generate future profit. Governance must focus on how companies identify, manage, mitigate and optimise risk across the organisation. Strong governance frameworks are essential, particularly when assessing capital investments, both organic and inorganic, because these decisions generally determine the success or failure of smaller companies.

US investor and professor [and "father of value investing"] Benjamin Graham once famously said, "In the short run the stock market is a voting machine but in the long run it is a weighing machine."

Certainly, sentiment can be a powerful driver of short-term stock market returns. But ultimately what truly matters over the long term-what actually gets weighed-are fundamentals such as book value, cash flow-and specifically, earnings.

It is right to focus on company earnings of course, but the level of delivered earnings growth is less important to the market than any actual surprise in growth-the amount by which a company surpasses, or disappoints, relative to expectations.

Fundamentally, we strongly believe in the importance of earnings surprises-analysis of which can help explain stock returns and, as such, it is a vital area which investors should pay attention to.

A business case for cultural humility: Moving the metrics on diversity, equity, and inclusion

Institutions, companies, and teams are acknowledging the inequities that exist in many team-based experiences and recognising how they limit outcomes. However, people in these organisations still lack clarity about how to address those inequities. Women and minorities remain underrepresented in positions of leadership and governance and in pay equity. In short, the workplace is not a just environment for them.

Diversity, equity, and inclusion efforts over the past 50 years have focused on activity as a proxy for outcome: providing training, ensuring minorities are in the pool of finalists for jobs, providing mentorship and networking opportunities. But the numbers have not moved. The facts remain.

This paper identifies competencies and offers approaches for developing a practice known as cultural humility. This practice was initially developed in the medical field, and is defined as "having an interpersonal stance that is other-oriented rather than self-focused, characterised by respect and lack of superiority toward an individual's cultural background and experiences."

A shift was made in the 1990s from considering cultural competence as a singular skill to thinking of cultural humility as a mindset based in lifelong learning. As early as 1994, health practitioners were observing, "Cultural competence in a clinical practice is best defined not by a discrete endpoint but as a commitment and active engagement in a lifelong process that individuals enter into on an ongoing basis with patients, communities, colleagues, and with themselves."

By the end of that decade, the approach was gaining support and reflected in the competencies outlined in reports or organisations like the Pew Health Professions Commission and in community-based research.

"This training outcome, perhaps better described as cultural humility versus cultural competence, actually dovetails several educational initiatives in US physician workforce training as we approach the 21st century. It is a process that requires humility as individuals continually engage in self-reflection and self-critique as lifelong learners and reflective practitioners."

As such, the Spam Act sets out key requirements on how businesses can use mediums such as email, messages, telephone calls, SMSs and push notifications to contact other businesses and individuals.

The Australian Communication and Media Authority (ACMA) regulates the Spam Act. Further, unlawful financial services marketing has been a key compliance priority for ACMA.

On that, and upon the author asking industry peers at the time, it appears that ACMA is not commonly known by many financial services firms. As such, it is relatively easy to unwittingly/accidentally fall foul of this relatively unknown regulator in financial services. Upon the author asking industry peers at the time, they had not heard of ACMA.

This paper examines:

• key elements of the Spam Act
• ACMA's powers regarding financial services
• actions and items that are deemed breaches of the Spam Act, potential penalties and other costs.

The remaining section that passed through the House of Representatives on 29 November 2023 will proceed to the Senate in early 2024. To assist employers prepare for the proposed changes to the Fair Work Act 2009 (Fair Work Act), this paper highlights the key amendments (from a total of over 80 proposed changes), which will likely have the greatest impact.

The key changes are:

• Small business redundancy exemption
• Wages for labour hire employees
• Introduction of new Industrial Manslaughter provisions for Commonwealth offences
• Introduction of criminal provisions for intentional underpayments
• The remaining parts of the Bill which will be dealt with in the new year include:
• Amending the definition of casual employees
• Regulation of contractors who are on digital platforms or in road transport
• Increased penalties for underpayments

Now, for those of us who don't quite have the track record of Buffett, we're forced to look for alternate methods of trading in line with our views and searching for a "leg up" where we can find it.

So, what if there was a way to use exchange-traded options to potentially break even, without the stock price getting back to your average purchase price?

The use of a 'stock repair' strategy can potentially be a handy tool when managing a portfolio, and may provide a faster path back to break even, than simply holding stock alone.

As always, when trading options there's usually a risk or trade-off involved. In this case, the trade-off comes from giving away the upside, should the stock price increase significantly. As such, it's essential to consider the likelihood of a significant rally before employing the strategy.

In Australia, ETF adoption largely started with self-managed superannuation funds seeking exposure to harder-to-access asset classes, such as international equities. Fast forward, ETFs are now a mainstream investment vehicle with two million investors in Australia holding ETFs in their portfolio, up from 1.9 million last year-a growth of 7% year on year. This growth has pushed the Australian ETF industry past $196 billion in assets on the latest numbers.

As part of this growth in ETF adoption, the story that has been overlooked is the trend of private banks, wealth firms and family offices increasingly turning to ETFs to cater to the needs of their high-net-worth (HNW) clients.

An endowment's purpose

As one of the oldest classes of institutional investing, endowments are dedicated sources of funding established by non-profit organisations. Endowments are intended to be invested over the very long term, while generating sufficient returns to support the objectives and mission of non-profit organisations.

All financial decisions made by non-profit organisations should be driven by their core mission and purpose. Endowments have unique circumstances; and defining an endowment's purpose sets a clear path for key decision-making.

A plethora of company trust issues have been exposed in the last year. As a result, major brands have been subjected to searing scrutiny and suffered catastrophic reputational damage based on poor governance practices. This should be sufficient evidence to reinforce how critical stakeholder trust is to reputation and financial performance.

These failures have resulted in the loss of substantial shareholder value, largely driven by the evaporation of customer, employee and investor trust. Despite concerted efforts to deny, obfuscate and deflect, several well-known senior executives have been held accountable (as they should) and stepped down. At least in the short-term, their personal reputations have also taken a big hit.

Governance failures also attract the attention of regulators and governments. This leads to an added burden for all industry participants and, ultimately, shareholders and consumers. They are forced to pay, in one way or another, for the added protections imposed.

No one quite knows how long it takes for affected brands to regain the trust of their stakeholders. But one thing is now very clear, trust is a strategic asset that is often ignored or undermanaged to the great detriment of any company that takes it for granted.

Further, trust is more expensive when it disappears than it is to build and maintain.

Why is funding for a startup important?

This paper uses the term 'funding' in preference to 'financing'. While there are some nuances to this-and that people often use the words interchangeably-funding is more appropriate when considering the needs of a startup.

Financing tends to have implications of traditional funding through a lending institution, however, many of the funding options available to startups exist outside the traditional lending institution (for example, the 'big four' Australian banks) world. These lending institutions still play a huge part in funding startups in Australia and internationally.

For an entrepreneur wanting to start up a business, securing the necessary capital to turn their vision into reality is often the first and most significant challenge they will encounter. It does not matter what type your business is; unless you have the funds to 'bootstrap' (that is, using personal savings, revenue generated by the business, or funds from friends and family to finance a startup without external investment) the startup or fund it with your own equity, understanding the startup funding landscape is critical to your success.

This vanilla buyout strategy has performed especially well both during and after times of greater uncertainty since 2000. This is particularly the case if middle-market buyout performance is compared with returns that could have been generated by investments in public market strategies. Where does this land us?

Look no further than recent times- buyout category portfolios were up modestly in 2023, and that performance had fared quite well compared to choppier, publicly listed assets since the outset of 2022. Their relative outperformance tends to be the greatest in more volatile times, and post-turndown vintage years can offer buying opportunities. Breaking this segment down further, the data tells us that middle-market-focused buyout exposure has the potential to create even greater long-term outperformance within a balanced portfolio.

• is registered with the Australian Charities and Not-for-profits Commission (ACNC)
• has been approved by the Australian Taxation Office (ATO)
• is ready to start marking a meaningful impact on the community and to carry on the family legacy.

Now, all that needs to be done is to transfer some assets and start distributing to worthy charities, right? Well, yes, but to do that effectively, you need to take some simple steps right at the beginning to set your foundation up for success. Here is a list of the first actions you should carry out as a new director of a PAF:

1. Establish a record-keeping system.
2. Know your duties.
3. Schedule a director's meeting.
4. Establish a bank account.

Establish a record-keeping system

It is important that all directors can access any documents necessary to administer the fund. The best way to ensure that information is accessible is to establish a record-keeping deposit or database. This could be physical hardcopy documents and/or electronic records.

At a minimum, this deposit should contain the items outlined in the following discussion.

Buy-writes require a moderate level of risk tolerance. This is because the maximum potential loss is the entire value of the stock purchase less the premium received from the option sale. If the stock price declines after entering a buy-write, the sale of the call option provides limited downside protection to offset any capital depreciation.

Investors whose investment objective is to generate income may utilise a buy-write option strategy to collect premiums from the sale of call options. While buy-writes can produce returns that outperform a buy-and-hold stock strategy, they also cap the upside profit potential of the stock through the duration of the option. This is due to the obligation of the option seller, who must sell shares of the stock if it reaches the strike price by the expiration date. Investors who utilise a buy-write option strategy would ideally have a slightly bullish-to-neutral outlook with a price target below the call option's strike price.

Truth #1

Over the past several decades, there has been an exponential expansion in private market investment opportunities. At the same time, there has been a deluge of incorrect information circulating in investment circles. This may stem from the fact that, for many decades, only institutional investors and very ultra-high-net-worth (UHNW) investors had access to private markets. Further, this asset class had complex regulatory and structural hurdles. This left a large swathe of investors and advisers on the sidelines, many of whom grew sceptical about the potential residing in private markets.

There is also often confusion about what 'private markets' actually means. The largest segment of private markets is private equity, which includes buyout, venture capital and growth equity strategies. Because private equity represents such a significant portion of private market activity, these terms are sometimes used interchangeably- which has unwittingly muddied the waters.

These changes were brought in by the Treasury Laws Amendment (More Competition, Better Prices) Act 2022 (UCT Reform Act) through its amendments to:

• the Competition and Consumer Act 2010 (Competition and Consumer Act), of which Schedule 2 comprises the Australian Consumer Law (ACL) which contains laws to protect consumers and small businesses from unfair terms in standard form contracts (unfair contract terms laws)
• the Australian Securities and Investments Commission Act 2001 (ASIC Act).

While the relevant legislative changes include amendments to the unfair contract terms regime under the ASIC Act, which regulates standard financial services contracts, these specific changes are outside the scope of this paper. However, it is still worth being familiar with what these changes entail because the unfair contract terms laws may apply to all standard form contracts that are not defined as "financial services contracts".

Benefit corporations (B Corps) are businesses that have undergone a rigorous independent assessment and certification process to meet high standards of verified social and environmental performance, transparency, and legal accountability. B Corps prioritise purpose and social impact alongside profits. This certification demonstrates a commitment to using business as a force for good, focusing on sustainability, ethical business practices, and positive contributions to society and the environment.

Traditionally, family offices have focused on financial returns, but as younger generations take control, there is a growing trend towards sustainable and socially responsible investments. These offices are increasingly aligning their investment strategies with environmental, social, and governance (ESG) principles, considering factors beyond just financial returns.

Family offices and B Corps are two distinct concepts that, while separate, can be interdependent regarding certain aspects of their operations, especially when it comes to shared values and a growing emphasis of impact-driven investments and legacy.

Thankfully, innovations in engineering and digital technology is helping drive progress towards global climate goals. In addition, consumer momentum and government policy are helping to spur on the development of technologies able to make an impact.

For example, the introduction of the US Inflation Reduction Act (IRA) in August 2022 should spearhead a new wave of growth and innovation and go some way in helping the private sector- and investors- decarbonise energy, transportation, agriculture and other emissions-intensive sectors.

The legislation has earmarked billions in new spending and tax breaks designed to increase clean energy investment, cut healthcare costs, and raise tax revenues. Overall, some US$43 billion in IRA tax credits will aim to cut emissions by making electric vehicles (EVs), energy-efficient appliances, rooftop solar panels, and home batteries more affordable.

Europe responded with its own Green Deal Industrial Plan, aiming to create a more supportive environment for scaling up the European Union's manufacturing capacity for net-zero technologies and products. This backdrop should drive profits for the companies delivering game-changing tools which secure widespread adoption. Further, it will create opportunities for portfolios if investors can closely track some of the key areas where this impact can be greatest.

Prior to the 1990s, China and India were seen as relative equals on the global stage. Both fell into the category of emerging market economies, characterised by stagnant low levels of GDP, a lack of foreign direct investment (FDI), and with minimal investment in critical infrastructure. Many issues plagued the two nations and hindered economic progress. However, in the early 1990s, China turned its focus to the manufacturing sector where it became a major centre for global manufacturing, subsequently seeing it reach heights that significantly outpaced India.

China received significant FDI after the 1990s which saw its growth opportunities outpace that of India's (see Figure 1). Increased investment led to infrastructure spend and a noticeable uptick in the Chinese economy, one that can be replicated in India as the rest of the word looks to decouple from a relatively sole reliance on China.

There is particular focus from the international community on an internalisation of critical operations and a desire to diversify risk. India could be a clear beneficiary of this trend.

The initial key items considered were as follows:

• What did the firm wish to do in relation to financial services? 
• What types of financial services and financial products did the firm wish to offer?
• How would these financial services be provided (e.g. app only/app and desktop etc.)?
• To what types of clients did the firm want to position its services and products?
• Considerations for the firm necessary to achieve its goal; namely: 
• appointing a CEO and chief compliance officer (CCO)
• setting and working within a budget
• obtaining an Australian financial services (AFS) licence
• ascertaining the support functions required
• determining the number of employees needed.
• How to get everything done in the anticipated timeframe?
• Measures of success.

Not to mention, all of these happening concurrently over such an abbreviated period. At the very least, it seems like a once-in-a-generation string of events in the current context, so perhaps those terms are not too far off the mark.

Where do we go now?

Not just a great line from one of the greatest rock songs of the late-1980s ['Sweet Child O'mine' by] (Guns N' Roses), but also a thought nearly permanently transfixed on investors' minds. Let's face it, we all want what we cannot have- we demand a greater level of certainty and predictability when it comes to our portoflios, especially in uncertain times. Alas, these are two rare attributes in the investing world.

Emerging markets debt (EMD) stands out as one place where investors can potentially take advantage of an underutilised asset class that offers attractive yields and diversification.

With a few exceptions, emerging markets (EM) sovereigns and corporates have been resilient in the face of rising rates and tighter financial conditions. A more mature policy framework, particularly on monetary policy, has supported this resilience.

Since EM central banks have been 'ahead of the curve' in terms of hiking, we believe this has set up local debt for a period of strong performance moving forward as tightening cycles peak and inflation prints roll over.

Select countries and corporates have been under macro and market pressure amid the global volatility, including the commodity shocks of 2022. Idiosyncratic situations, like China property, have also been in focus. This is why, as active managers, issuer differentiation is a key part of the investment approach. The Russia-Ukraine conflict provided a valuable case study in this respect.

One of the benefits of EMD in the current environment, is that it offers compelling valuations and an attractive long-run income opportunity. Further, investment consultant studies highlight that there is no clear 'winning strategy' for investing in EMD.

It is not uncommon for parents, or grandparents, to feel that they must leave their estate equally to their children or grandchildren in the name of 'fairness' or to not be perceived as favouring a particular family member.

It is important not to get caught up in the 'guilt of giving' when writing your Will and understand that part of being a 'reasonable testator [the person who makes a Will]' is to take into account the personal circumstances of your intended beneficiaries and the interplay with the value of the estate assets.

Although you are entitled to draft your Will and distribute your assets however you see fit, a balance must be struct between what you want to do with your assets, as well as ensuring you meet any moral obligation to provide for certain people following your passing.

A Will-maker has a moral obligation to adequately provide for certain categories of people, such as a spouse or children, to ensure their general maintenance and advancement in life. But that moral obligation does not mean that you must distribute your assets using a set formula or equally between children, grandchildren, or other dependants. You get to decide who gets what, and you should not feel guilty if that division is unequal.

Once the province of distressed sellers and 'zombie funds' [private equity funds that hang onto assets for long periods of time, often because substantial losses will be incurred if sold], secondaries now involve the bluest of blue-clip limited partners and general partners (GPs). This evolution has helped annual volume rocket from US$20 billion in 2008 to well more than US$100 billion in 2021 and 2022.

And we continue to see the momentum build. In 2022, 50% of LP portfolio transactions involved first-time sellers. As we have noted, GPs are increasingly looking to get in on the GP-led secondary action. So the momentum and traction are there. Against this backdrop, some investors are asking what the secondaries phenomenon means for them. While for others, the question is, 'Can I responsibly ignore it?' Let us revisit why this market has grown, but also explore what it means for investors. Further, we will do so with a dash of data.

Combined with rising interest rates, inflationary pressures and a retraction of fiscal stimulus, it makes for a tough macro environment. In the face of these headwinds, asset managers must look for ways to enhance their proposition and increase profitability.

Mutual funds have been the vehicle of choice for 100 years, and then exchange-traded funds (ETFs) arrived, offering investors more choice and accessibility. Tokenisation (that is, representing the ownership of an asset, or pool of assets, as digital tokens) is the next stage in evolution. It offers asset managers a new opportunity to benefit their investors and the management of their assets.

The tokenisation (r)evolution

As an example of turning the promise of tokenisation into a reality, Calastone, in collaboration with Schroders, is building a new way of operating.

That is, directly tokenising collectives of assets for distribution to the mass market, using its Distributed Market Infrastructure (DMI) technology.

Just tokenising fund units will not provide the transformation that the industry is looking for. Operating collective investments on a native distributed ledger technology (DLT) platform, and applying DLT and tokenisation at all levels of the fund from trading, to administration and distribution, provides a much more fundamental transformation.