Industry struggling with seismic shift from wealth accumulation to wealth utilisation


Denis Donohue

A seismic shift is occurring within Australia’s investment landscape and the investment management industry is struggling to cope. Over five million Australian baby boomers (born from 1946 to 1964), more than 1 in 5 Australians, are transitioning away from full-time employment. They are increasingly reliant on their accumulated wealth to fund part or all of their lifestyle needs.

The psychological shift to “wealth utilisation” after a lifetime of “wealth accumulation” is challenging to both investor and investment manager alike. This paradigm shift requires greater emphasis on:

  • Income certainty, distribution frequency and investment liquidity for drawdown as required;
  • Effective safeguards or protection against catastrophic investment losses where recovery is time constrained;
  • Capital growth for the purpose of offsetting inflation rather than targeting speculative gains or return maximisation;
  • Investment returns being fit-for-purpose and assessed against measured and corresponding investment risk.

These challenges are amplified by parallel shifts negatively impacting on investments traditionally relied upon during this “wealth utilisation” phase of the investor’s investment lifecycle.

  • Interest rates and fixed income yields are historically low and are likely to remain that way for the foreseeable future;
  • This also means the purchase price of income annuities are historically high;
  • The prices and rental yields of traditional property investments held for income remain under pressure, and the challenges of their illiquidity and management costs often make them uncompetitive net of fees;
  • Capital protection from asset class diversification has declined, with correlations reverting to 1 just when you need them to be uncorrelated.

Additionally, lifestyle circumstances have changed for this cohort of Australia’s population. We are:

  • Living longer, and therefore need the purchasing power of our investments to do the same;
  • Spending more on ourselves;
  • Having to financially support our children and grandchildren more than any time in the past; and
  • Increasingly seeking to pass on financial legacies.

The investment industry remains focussed on the “wealth accumulator” and has been slow to meet changing investor needs. Fortunately, a new wave of investment managers have taken up the challenge.

Pentalpha Investment Management is among this vanguard.

The Pentalpha Income for Life Fund offers a simple investment solution for the “wealth utiliser”. Its low risk, capital protected, moderate growth, high yielding Australian share fund offers a bespoke solution to the specific investment needs of those investors who have moved on from full-time employment by delivering greater certainty.

By Denis Donohue, Executive Chairman and Head of Investments

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