Richard Keary is one of the architects of Australia’s hedge fund industry but his own views about wealth have little in common with a business which often uses money as a yardstick for success.
“Someone once said never confuse your net worth and your self-worth and that resonates with me… just because you have a lot of money doesn’t – in my mind – mean you’ve been successful,” he says.
“There are some people who live to work and for them money is probably a measure of their success. I’m not like that. I work to live and therefore you need a certain amount of money to do the things that you want to do like the way you want to educate kids, where you want to live – the sort of life you want to lead.”
Hedge funds (or absolute return funds) use a variety of often opaque investment strategies in an attempt to generate positive returns regardless of whether the market is rising or falling. In the late-1990s, Keary was head of alternative investments at Rothschild Asset Management (a role he continued over the next decade when the company was acquired by BT Financial Group), where he both promoted the role that hedge funds can play in a diversified portfolio and seeded several local funds.
From 2009, he led the Australian arm of global hedge fund FRM before moving to Zurich, Switzerland, two years ago where he now works for commodity investment firm Commodity Strategies and advises hedge fund Southpeak Investment Management.
But despite working in the financial services industry for decades, it is one whose worth he keeps in perspective.
“I think certain industries, particularly the finance industry, the way people make their money, they shouldn’t really be terribly proud of it. It’s not like they’ve come up with something that is good for humanity. It’s just the laws and circumstances at a certain point in time give them a license to make money.”
The hedge fund industry has a reputation for secrecy and attracts some of the wealthiest investors in the world. But it is not a sector which makes a lot of sense for retail investors, Keary says, because they are often left with net returns which either match or are worse than a bank term deposit.
“The fee structure is completely wrong because the fund manager takes almost all the excess performance in fees. Now having said that, the evidence is that alternative investments do make better portfolios – it’s just how you access them without paying away all the benefit in fees.”
The Australian and US share markets have performed exceedingly well in recent times despite the fallout from the global financial crisis, although Keary says his own investments have been more cautious.
“I don’t have much exposed to any risk at all and over the last three or so years that has clearly been wrong because I’ve had this view that we’re in a kind of de-levering, deflationary cycle which is not good for equities. What I completely under-estimated was the ability for, particularly the Fed, to embark on this completely untried monetary policy that has just driven share prices to record highs so for me it’s a question of timing but I’m pretty sure I will be right and I’m happy to take the short-term lack of performance and take the comfort of not having to worry when this whole thing cracks.”
It is a conservatism that comes from his parents and a view about the value of money that is becoming less common.
“I was brought up in a family where both my parents had seen their parents lose everything in the Depression. So they were just terribly, terribly conservative and that probably explains a lot about me whereas you get kids today brought up in this environment of endless plenty and so they have a different attitude.
“I have a hope that my kids end up growing up in an economy which is a bit more balanced and less dominated by financial companies and financial assets, where people can actually get real productive jobs and make stuff that people actually want, and sell stuff that people actually want.
“I don’t give any financial advice to my kids – they’re too young but my hope for them is that they don’t end up in the financial industry and have something that actually makes them passionate and just have a crack at it.”
Common investment traps
- “There’s no such thing as a free lunch. The upside is always matched with the downside risk.”
- “There’s no value in a tip: if someone says ‘you should buy this new float’, unless you actually know about it and you’ve done some work and you think you’ve got a reasonably understanding of the probability of success, then you’re just throwing your money away.”
- “Just simply investing is no guarantee that you’re going to make any money,. Investing is really hard work and if you’re not prepared to do the work, then don’t waste your money – you’re probably better off just leaving it in the bank.”