Tuckwell on a mission to lift Australians’ savings

Australian businessman and philanthropist Graham Tuckwell. Picture: Ray Strange.

After 20 years building global ­financial markets, and a fortune for himself, Graham Tuckwell is coming home. He and his wife Louise have already donated $100 million to ANU for graduates, and now he is setting himself a new goal: to lift the returns Australians get on their savings.

“The costs of running a managed super fund is ridiculously ­expensive in Australia,” Tuckwell says. “It should be much simpler but still giving people the ability to invest with some flexibility.

“If you look at the money that’s flowing out the door to advisers and accountants and auditors, it is monumental. And that could all be saved. That’s what the issue’s about.”

The Tuckwell goal is a big one. He aims to bring the best wealth managers, including industry funds and the government, along with him to reform the system.

“Magellan’s Hamish Douglass and Brett Cairns, Peter Costello (Future Fund chair) and Ian Silk, who runs the largest industry fund in Australia (Australian­Super), getting them together in October at a new forum called the ETFs Down Under, where the conversation can be had about where each of those areas can ­benefit Australian investors and how each of those areas fit ­together, because I don’t think people understand it.”

All have agreed to the Tuckwell conversation.

For a man who happily speaks in algorithms, the issue is simple: the single-most important driver of return over the long term is fees. And those on the wealth gravy train must go.

“There is so much money ­invested in Australia because of compulsory super. Just taking the fees down by 10 or 20 basis points across the board makes a billion dollars more a year difference to the amount of money going into individuals’ pockets, which is where it needs to be.”

A legend in the exchange ­traded fund industry, Tuckwell has long been a disrupter in wealth management. ETFs are the passive investments that are cutting the lunch of the traditional active fund manager, the stock or bond picker. ETFs are retail friendly: ASX listed, low fees and low paperwork. They are groups of shares, commodities, currencies or bonds that track the performance of an index or asset class. Tuckwell likes to call them “economic and transparent funds”.

He invented the world’s first gold ETF and his London-based ETF Securities grew to hold over $36 billion. Now, having sold his global businesses, he wants to drive ETF growth in Australia.

“We converted ETF Securities into ETFS capital on the premise that if you’ve got a whole heap of money sitting in a company, it’s got to be invested.”

The baseline was to invest in a portfolio of ETFs, but to outperform Tuckwell is taking 10-20 per cent equity stakes in young ETF-related operating businesses, supporting them with seed capital and back office demands like legal and compliance, but letting managers focus on building the business.

He is more than an angel, supplying cheques from $5m to $50m. “Many of these companies, the key guys spend a third of their time just doing capital-­raising or talking to investors. We’re saying to them, we’ll supply all the capital and we’ll supply the experience on how to run a company, but we’ll let you get on and run the business.

“It’s almost like being an operator but without all the hassle of having to be involved with the people management relating to build the business out.”

Investments include Ultumus, which provides data to the ETF industry, and an index business with tools to compare ETFs, as well as ETF Securities Australia, retained to develop new ETFs such as the battery one with the ocker ASX code of ACDC.

“A lot of these are niche businesses but by introducing them to each other, they can scale up more effectively and cross-pollinate each other, so we’re almost like a quasi-operator.”

Tuckwell believes the ETFs’ time has come in Australia: falling bank deposit rates have savers hunting for yield. The royal commission was a wake-up call on high fees and poor performance by many active fund managers.

Fees matter. “It does make a big difference, particularly those managed funds who are charging 1 or 1.5 per cent per annum. ETFs are a fraction of that, possibly a 10th of that, or less, and that makes a big difference over time.”

He will go as many rounds as it takes with critics on whether ETFs cause flash crashes or that too much passive investing leads to inefficient markets.

“There’s been some negative press by people who’ve been more interested in pushing managed funds for their own benefit. ETFs just give investors exposure to different markets at a low cost. Have you been able to buy the US market until the ETFs came on? Or a recent one — exposure to the Indian market? How can you buy niche products, how do you do it?

“A single trade on the stock ­exchange, you can buy them. Now that’s all about asset allocation, that’s all it is, but at least it gives people the opportunity to get exposures to those markets.”

Tuckwell says franking credits distort investment decisions towards Australian companies. “That might be nationalistic but it means, for example, that many Australians have been over­exposed to the banking sector and underinvested in the technology sector which comes very much out of the US. Had Australians been more exposed to technology then they certainly would have been a lot better off over the last decade.”

Surprisingly, Australia now leads the world in active ETFs, which are essentially listed funds under management developed by Magellan and offering investors access for a higher fee. Tuckwell has high praise for Douglass and Cairns, but would he look at running an active fund himself?

“I wouldn’t,” he laughs. “Eighty to ninety per cent of the performance in a portfolio comes from asset allocation, and you can do that yourself, and it is very difficult to outperform after that.

“There are some active fund managers who are very good, but not many of them, and instead of it being 90 per cent active and 10 per cent passive, or indexed, it should be the other way around. Once you get rid of most ­active fund managers, you’re probably left with the ­really good ones, and they should outperform. You do need some active fund managers because someone’s got to be the price ­discoverer.”

It is really this broader thinking to engage others with low-fee models that the ETF champion hopes will bring reform.

“Why doesn’t the Future Fund help give Australians exposure for one basis point, for two basis points? Why can’t the Future Fund offer a massive ETF in its own right? In other words, should there be a central investment ­depository which costs virtually nothing for Australian investors? And by the way, is that what ­industry funds are really doing, or do they have another objective?

“You almost get this Norway-type sovereign wealth fund, Singapore model, where individual investor can invest really cheap via a government entity.

“But is that the role of the ­industry fund? What if you’re not part of a union? Should you be ­investing in an industry fund or should the government be supplying other things to do it? Or should it just be done through the free market through ETFs? How does all that fit together? It is a ­really interesting question.”

Ticky Fullerton is the business editor of Sky News and host of Business Weekend, on Sundays at 11am