Malcolm Turnbull’s Cayman Islands funds make perfect sense

Malcolm Turnbull’s efforts to diversify a substantial fortune are well worth examining.

It had to happen and it happened fast: PM Malcolm Turnbull is probably the wealthiest politician in parliament and his investing activities — specifically the use of Cayman Islands-linked funds — almost became a hot issue this week as an excited opposition dug into his affairs.

But fake naivety rarely works any longer in a globalised investment market: opposition assistant treasury spokesman Andrew Leigh didn’t win many converts when he laid into the PM, suggesting: “Few Australians, I believe, if they found themselves in possession of extra money, would decide the best thing to do was to buy into a Cayman Islands-based venture fund with a minimum million-dollar buy-in.’’

Actually, if any Australian was to find themselves with a considerable fortune to spend offshore, then venture funds domiciled in low-tax jurisdictions would make a perfectly sensible choice in a balanced portfolio.

And who wouldn’t at least like to get a look at the special management funds reserved for the wealthiest with million-dollar entry levels? High net worth investors get to access investments most of us never get to see with lower fees and wider opportunities. In other words, Turnbull seems to be investing sensibly:

Here’s why:

1. The outlook for the Australian market is poor; in fact overseas markets — especially the US — offer a more robust outlook in the year ahead.

2. We are still faced with a soft or falling currency, so offshore investing will have a currency tailwind.

3. Any fund manager you use should be best-in-class when it comes to tax efficiency; if they are not, they are letting you down. The Cayman Islands are voted the No 1 offshore specialist tax location year after year, outshining alternative British offshore territories such as Guernsey and Isle of Man. Sure, the Cayman Islands has been criticised for its tax policies, but so for that matter has Ireland, which this week infuriated the EU with another tax cut that multinationals will exploit. So, would Turnbull be under fire if his investments were linked with Ireland?

4. Most Australian investors — perhaps even our former Goldman Sachs partner PM — do not have sufficient overseas exposure.

5. Investors should always seek to optimise their position; if you can get an investment mortgage then it makes sense to examine investment property. Similarly, if you can get into a boutique investment fund normally reserved for institutional investors, then you’d be silly not to examine the deal.

Turnbull’s would-be tormentor Leigh may be a political junior, but he’s also a prize-winning, Harvard-educated economist who would well understand that the criticism of Turnbull for simply accessing global markets — in part through the Caymans — is a sham: in the end, when any profits come back, Australian taxes will be applied. Any investor of any stature uses specialist low- tax offshore jurisdictions, including the Future Fund, which has dozens of entities linked with the Caribbean state.

Turnbull’s regular parliamentary declarations on his investments are always interesting. After all, he is a player — someone who turned a $500,000 investment into $50 million when he sold his stake in email operator Ozemail back in 1999, before most investors knew the internet existed. That’s not a 10-bagger, it’s a 100-bagger: the investment equivalent of going around the golf course with a hole-in-one on every green.

Though the register is erratic and occasionally opaque, it is obvious Turnbull owns a spread of investments, including index funds and both local blue-chips such as BHP and overseas blue-chips such as Fiat.

And though we only get a glimpse into Turnbull’s investments through the parliamentary register, if he made $50m 15 years ago (after CGT, that might be about $38m net) it is not inconceivable that would have compounded to beyond $100m by now, GFC or no GFC. And remember, Turnbull would have made a second fortune as a Goldman Sachs partner.

As far as we can see Turnbull’s investments are conventional in style and allocation — and as a sophisticated investor he does exactly what would be recommended ... he’s globally diversified and tax-efficient.

Turnbull’s retort to Leigh and co — ‘‘If the honourable member wants to go around wearing a sandwich board saying Malcolm Turnbull’s got a lot of money … then feel free’’ — sounds like someone ready to have his affairs inspected.

Leigh and Opposition Leader Bill Shorten would do better perhaps to look harder at why the government has just passed a highly controversial legislative amendment that stops the details of companies with more than $100m in turnover being made public. Turnbull’s newly elevated Cabinet Secretary Arthur Sinodinos has been a long-time supporter of this amendment. The legislation — which ostensibly protects company confidentiality — may also effectively hide situations where companies linked with extremely wealthy individuals in Australia pay alarmingly low levels of tax.

It is entirely legitimate to examine the financial affairs of a very rich politician ... but this initial Turnbull tax attack and the PM’s response only showed Turnbull the politician is starting to measure up to Turnbull the investor.

James Kirby is managing editor ofwww.eurekareport.com.au