From a young boy managing money selling tickets at the football to being on the board of Australia's Future Fund. Click to listen to the latest episode of The Richards Report with Brian Watson AO
Brian Watson was just a boy when he started learning how to win people’s trust with money. At the age of 12, he used to sit at Lake Oval selling tickets to South Melbourne VFL games and often handling large sums of cash by the start of the game.
Brian’s come a long way since handling ticket money as a 12-year-old. We discuss how he moved on to manage billions for the Australian Government as a founding member of the Board of Guardians for the Future Fund.
The Future Fund was founded late 2006 with approximately $50 billion (currently it’s around $122 billion) with the intention of investing the budget surpluses that were coming out of the mining boom.
The global financial crisis occurred soon after, which Brian says created some good buying opportunities. We discuss how the Board of Guardians still needed to remain conservative throughout this period but they were able to get some good returns without taking on too much more risk.
The Future Fund had identified that the fund’s asset allocation would be critical to maximising returns, rather than stock selection that involved focusing on one company over another. The fund invests across Australian shares, international shares, emerging markets, international bonds, infrastructure and real estate, while also taking into consideration matters such as currency exposure.
We discuss how Brian and his wife moved to New York to take on a role with JP Morgan just before the crash of 1987. When the crash occurred a few months after they arrived, Brian thought his banking career was over.
However, it was quite the opposite. He was Global Head of Equity Capital Markets at JP Morgan and also Global Head of Private Equity. After moving on from those positions on Wall Street and the exciting experiences of working on Wall Street in New York he returned to Australia with his family to take up the role of Chairman of JP Morgan Australia.
We also cover Brian’s role as the deputy Chairman of the Australian Government's Innovation Australia Board since returning to Australia. He’s also sat on the Board of the CSIRO, and believes Australia still needs to improve when it comes to innovation.
“Venture capital is the oil that allows the wheels of entrepreneurship to move around,” Brian says. While start-ups are attracting more capital than before, he believes more money and more people are needed to drive innovation. Brian recognised the issue in Australia, which motivated him to accept roles on boards to help these institutions.
We discuss how Australia will never again compete with low knowledge/low tech-based manufacturing industries. That area was initially eaten up by China, but the emerging world (which includes Vietnam, Africa and Latin America) now has the mantle for the world’s manufacturing.
Brian identifies medical research and biotechnology as areas in which Australia has the potential to become a world player, already having a starter reputation. He believes that we have a great workforce but need creativity and more support of small businesses from the government.
He outlines being hounded for years by friends and family looking for advice on how to invest their money. He looked into a few ideas before he and Six Park co-founder Pat Garrett realised the impact of robo-advice overseas and how it was helping investors.
They knew Australia had a large pool of money, much of it unmanaged or managed poorly at high cost. Brian outlines the need for affordable investment management in Australia to help people grow their nest eggs. “Robo-advice represents the democratisation of asset management.”
Brian is chairman of Six Park’s Investment Advisory Committee, joined by members Paul Costello (former General Manager of the Future Fund of Australia) and Lindsay Tanner (former Finance Minister for the Australian Government).
The committee’s role involves signing off on the asset allocations that clients receive. Investments are not just about returns, but also about the risk taken to receive those returns. The investment advisory committee also assesses global market and political conditions and how they may affect investments. Changes aren’t frequent, but recently the committee lowered clients’ allocation to bonds for most of the portfolios to mitigate the effect of interest rate increases around the world.
Why did they do this? The developed world is now growing at a decent clip. It’s taken longer than most people first thought, but it was a decision made with a long-term outlook rather than trying to time the market over the short term.
On the watch list right now: Trump and North Korea are being watched closely, but it’s not the top of the list as it’s “low probability but high impact for the world’s affairs”. The biggest item on the watch list is “what are the central banks doing, how quickly will they move, and what impact that will have”.
Brian recommends reading The Economist and the New Yorker to keep abreast of international events and gave this advice to all his four children.
Brian’s favourite financial book is ‘The Predators’ Ball’ by Connie Bruck. Set in the 1980s, it tells the story of a business that took off like a rocket but then crashed and burned not long after. Brian says that it’s a great story of what not to do in financial services!
Brian warns of the dangers of group think and herd mentality. When it comes to investing, his valuable advice is to think through your investment goals and consider the level of risk you’re taking on to achieve them.
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