Jamie Mead

Australian fund managers face a test of discipline as geopolitical conflict, stubborn inflation and market swings continue to unsettle investors, according to Jamie Mead CEO at Talaria Capital.

Mead says the current environment, which has been defined by persistent macro uncertainty and volatility, is exposing a gap between fund managers who have a solid investment process and those who are reacting to events as they unfold.

“While it is something we maintain an awareness of, macro factors such as geopolitics and central bank movements are not central to the way we run money,” Mead says.

“The key thing in an uncertain world is to be able reassure your investors and say, ‘let me give you conviction that how we invest your money is not going to change.”

Mead says investors should be prepared to ask the hard questions of fund managers, about what they own, how investment decisions are made and whether the process holds up when markets become unsettled.

“When markets are volatile, a disciplined investment process allows you to distil signal from noise,” Mead says.

“We are looking to buy the cheapest, best quality assets at the lowest price we can afford. That’s it.”

Talaria’s approach is to capitalise on market volatility rather than avoid it, which Mead says is becoming increasingly relevant as investors look beyond traditional shares and bonds for returns.

“We certainly hear from our investors that alternative asset classes are going to continue to form a larger part of the overall asset allocation,” Mead says.

“We do that in a way which means that we can harvest volatility. That’s why we consider ourselves more of an alternative fund rather than being a long-only manager.”

And as alternatives gain ground in institutional and wealth management portfolios, Mead says investors need to scrutinise how those investments are structured, particularly around liquidity.

“Liquidity is one of those things that you don’t need until you need it,” Mead says.

“Investors should understand what they are invested in, but also ask their fund managers how that investment is packaged and what happens if they need to get their money back during a more difficult market.”

Mead adds clear communication between fund managers, advisers and investors is essential to avoid the common pitfalls in client and fund manager relationships.

“For example, investors shouldn’t assume they are diversified simply because they own investments through different structures. An investor may be exposed to the same type of business through listed shares, private equity and private credit. While those investments may sit in different parts of a portfolio, they can still be susceptible to the same underlying risks,” Mead says.

“That’s why the simple practice of communication is an extremely important part of what we do.”

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Chad Padowitz

Investors ‘buying the dip’ are at risk of missing broader economic threats including sticky inflation, artificial intelligence, private credit and higher energy costs off the back of oil price volatility, Chad Padowitz, co-chief investment officer at Talaria Capital says.

“In equity markets, we often see an extreme reaction to a short-term problem. And right now, it seems investors are driven by a fear of missing out,” Padowitz says.

“There is an enormous amount of capital flowing into AI, and while there is opportunity, the long-term winners and losers remain uncertain. Market enthusiasm may be hiding how uncertain long-term success really is.

“It’s extremely difficult for investors to analyse these companies with conviction, and that creates risk.

“If the AI hyperscalers who dominate the US and Global indices fail to achieve optimistic future earnings forecasts or the benefits take longer to materialize, that will likely be a headwind for investors.”

Padowitz highlights private credit as another area of growing concern, with the current economic conditions highlighting the fragility of the sector.

“The term private credit is really just another way of saying shadow banking or unregulated lending. Private credit has expanded rapidly, but it lacks transparency and is often built on leverage,” Padowitz says.

“As inflation and interest rates stay elevated, write-downs from larger players are emerging, which suggests that credit stress is beginning to surface.”

“In this environment, liquidity and transparency are even more important. We feel investors should look beyond the noise and focus on longer-term valuation opportunities.”

“It’s likely that we see a higher-than-normal oil price for the next few months and even years regardless of the outcome of the conflict in the Middle East.

“That said, this isn’t the worst energy crisis ever. It wasn’t that long ago when oil was at this price for several years in a row.

“Despite these potential risks, the market is again at near all-time highs indicating there is enduring optimism about many companies’ ability to ride out these concerns.

“At this stage, from an investment perspective, I’d caution against getting caught up in the headline story of the moment. There are good opportunities for investors willing to take a prudent, long-term approach.

“Real assets, for example, are an extremely important asset class to consider in a world of AI disruption, sticky inflation and high debt. They offer better valuations and more resilience than the highly speculative growth stories we have become accustomed to.”

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Hugh Selby-Smith

Savers could bear the hidden cost of the developed world’s mounting debt burden as governments run out of easy ways to combat their leveraged balance sheets, Hugh Selby-Smith, co-Chief Investment Officer at Talaria Capital says.

Selby-Smith says the global economy is moving from a three-decade era shaped by globalisation, cheap capital and low interest rates, into a new era of political fragmentation and higher funding costs.

“The headlines are full of missiles, airstrikes and oil shocks, but the more important change for investors is happening in plain sight,” Selby-Smith says.

“Supported by falling interest rates, governments have accumulated substantial debt across developed economies to the point where further borrowing is limited and there is little political appetite to cut spending sharply or raise taxes significantly. That leaves one option which is rarely discussed openly, and that is to let inflation do some of the work.”

Selby-Smith says this is what investors call financial repression – when interest rates stay below inflation for long enough that cash and savings lose value in real terms, while the real value of government debt falls over time.

“If inflation stays above interest rates for a prolonged period, people holding cash lose spending power, while borrowers, including governments, benefit because their debt becomes easier to manage,” Selby-Smith says.

“In effect, what is happening is wealth is transferred from those who save to those who owe, with governments the major beneficiaries.”

Talaria says years of globalisation has delivered reduced levels of global poverty, lower prices for consumers and more efficient supply chains, but has contributed to wealth inequality, trade imbalances and public debt. At the same time, governments are focusing more on economic self-reliance and security.

Selby-Smith says in an environment where the gap between real and nominal growth is higher the market is likely to place greater value on businesses that are generating significant levels of free cashflow, where funding is tighter investors ought to place a higher value on getting paid back their investment faster.

Talaria continues to favour short duration, real assets, strong balance sheets and diversification. Over the nine months to March 31, real assets including gold, commodities and infrastructure have performed strongly, while short-duration bonds have outperformed long-duration bonds.

“Investors who expect the next ten years to mirror the previous decade risk being caught off guard. What worked in a world of abundant capital may not work in a world defined by competition for capital,” Selby-Smith says.

“The system is changing and so must investors. Those who recognise this early and prioritise resilience and value over speculative growth stories that we’ve become accustomed are likely to be better placed in the years ahead.”

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Hugh Selby-Smith

From how AI is already shaping businesses and markets via data centres and drug trials, to precious metals, defence spending and demographics around the world, Talaria Co-CIO Hugh Selby-Smith outlines how the 10 stats below are impacting our society and why they matter for the future.

1.

3.

Microsoft down ~2.0% past 12 months to Feb 16, despite the S&P500 (of which it is a significant part) being up ~12%. Even the best companies with track records of good ROI from capex spend are subject to market concerns.

4.

AI-designed drugs are whizzing through the preclinical phase (before human trials begin) in only 12-18 months, compared with three to five years previously. A study published in 2024, of their performance in such trials, found an 80-90% success rate. This compares with historical averages of 40-65%. That, in turn, boosts the overall rate of getting drugs successfully through the entire pipeline to 9-18%, up from 5-10%. The average cost of developing a successful new drug is $2.8bn, so AI has the potential to cut that cost in half.
The Economist  

5.

Above-ground silver inventories stood at about 19 bln oz in 2024. Bullion inventories (bars and coins) total roughly 7.4 blnoz, including 1.4 bln oz held in London vaults and Comex warehouses—equivalent to annual silver demand of 1–1.2 bln oz. By comparison, copper inventories covered only 50 days of demand in 2024, while gold has decades’ worth of above-ground stocks. Like gold, silver has a significant amount of above-the-ground inventories/stocks, measured in years instead of days. Contrast this to copper, where we only have ~50 days of inventory in 2024.
Source: World Gold Council, Silver Institute, S&P Global, Wood Mac, Bernstein analysis

6.

US defence spending is the second highest per capita in the world and totals close to US$1 trillion annually. Unlike spending on Veterans’ Affairs, which is mandatory, the defence budget is classified as discretionary spending. As US federal debt has grown, interest payments have taken up an increasingly large share of the budget. This has reduced fiscal flexibility, as mandatory programs (such as Social Security, Medicare, and Veterans’ benefits) together with rising interest costs now dominate federal outlays.

Adding to this pressure, defence spending continues to increase. As a result, the pool of truly discretionary funding is shrinking. For context, annual interest payments on public debt are now roughly US$1 trillion, while total corporate tax revenue is approximately US$452 billion — highlighting the scale of the fiscal constraint.
Stockholm International Peace Research Institute (SIPRI), Congressional Budget Office, Office of Management and Budget

7.

For the first time since 1996, foreign central banks now hold more gold than U.S. Treasuries (U.S. debt) in their reserves, marking a historic turning point in global reserve management.
https://thedailyeconomy.org/article/liberty-eroding-gold-rising-30-years-of-warning/#:~:text=In%20dollar%20value%2C%20the%20world’s,cause%2C%20of%20gold’s%20price%20rise.

8.

In the last 15 years the share of US consumer spending accounted for by over 55’s has increased from less than 30% to over 45%. This is due in part to demographics, in part to the story of wealth and income distribution and in a small part to life-cycle dynamics.
Axios

9.

Japan has the oldest population among major economies, with 30% of its population aged 65 and older. China has the world’s largest senior population, with over 211 million people aged 65+. India has more than 100 million seniors, despite having one of the youngest populations among major economies. As the biggest economies age, they put more pressure on government spending and productivity.
IMF, UN

10.

More young Americans are living with parents than ever before. According to data from the US Census, 54% of women between 18 and 24 years old live at home, compared to 46% in 2003. For men, this figure is 58% today vs. 55% in 2003. This upwards trend in adults living at home with parents is also seen in the 25-34 year old age group too. 11% of women between 25 and 30 year olds live at home, compared to 7% in 2003. For men, this figure is 19% today vs. 14% in 2003. The cost of living continues to be a factor despite interest rates coming down in most developed countries, with a lack of housing being a major factor as populations grow.
US Census Bureau

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Hugh Selby-Smith

Market optimism is increasingly fuelled by rising debt and the belief that authorities will insulate investors from harm, rather than economic durability, yet opportunities remain for investors willing to rethink portfolio construction, Hugh Selby-Smith, co-CIO at Talaria Capital says.

As the global economy moves away from decades of deep globalisation and into a new monetary regime characterised by higher debt and greater government intervention, investors should prioritise short duration equities, companies with strong balance sheets, investment in real assets and ensuring portfolio diversification.

“The defining theme for financial markets is the transition in monetary regimes,” Selby-Smith says.

“Earnings growth in large-cap US equities has driven optimism, but that optimism is increasingly disconnected from the realities sustaining those profits.”

Governments are playing a more interventionist role in managing their economies, often pursuing political objectives at the expense of long-term economic discipline.

Selby-Smith says the scale of deficit spending and debt accumulation is frequently overlooked, despite its significant role in supporting growth in the corporate profit pool.

In the United States, interest payments on public debt are nearing USD 1 trillion, while total corporate tax receipts amount to just USD 452 billion. Selby-Smith says once with mandatory programs consuming most of the budget, even the most prominent policy initiatives face severe constraints.

“The gap between the ambitions of the now defunct Department of Government Efficiency (DOGE) and its limited achievements highlights how difficult it is for governments to meaningfully reduce spending,” he says.

“It’s less Department of Government Efficiency, and more Dead On Arrival.”

Despite these pressures, US equity valuations sit at the extreme end of their historical range, prompting investors to resist conformity and reassess how portfolios are constructed.

“Valuation is one of the few indicators with demonstrable explanatory power for long-run returns,” Selby-Smith says.

“From a shorter-term perspective, headline valuations for the S&P 500 are stretched.”

Over the past decade, the US corporate profit pool expanded by approximately USD 1.7 trillion, with almost ninety percent of that increase explained by growth in the deficit. Of nearly 35 million businesses, the 500 largest listed US companies captured around 70 percent of that growth, or roughly USD 1.2 trillion.

Selby-Smith says this concentration has been building for decades and reflects a market increasingly reliant on a narrow set of companies.

“Current conditions represent a classic peak-on-peak set-up, with elevated earnings multiples resting on unusually high profit margins,” he says.

“Governments are more likely to respond to rising debt through financial repression than austerity or growth, keeping interest rates below inflation to reduce the real value of government debt.”

Despite this backdrop, Selby-Smith says investors can still build portfolios with reasonable prospective risk-adjusted returns.

“At a minimum, elevated valuations and high concentration should prompt investors to ask where diversification is possible,” he says.

“There is value beyond expensive headline indices and mega-cap stocks. Even before drilling down into individual securities, the opportunity set outside US large caps offers a materially better trade-off between risk and expected real return than headline US indices today.”

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Chad Padowitz

The US Federal Reserve’s (the Fed’s) pivot to interest rate cuts is likely a signal of underlying economic weakness that historically leads to a prolonged downturn cycle, Chad Padowitz, co-chief investment officer at Talaria Capital says.

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Talaria CEO, Jamie Mead, says Ms Simpson’s expertise in wealth management and fund distribution will be an asset for Talaria’s growing team.

“Brooke’s strong background in client relationship management, fund manager engagement, and business development makes her an excellent fit for our expanding team. Her skills and energy will be invaluable as we continue to grow our investor base and deliver strong outcomes for our clients,” Mr Mead says.

Before joining Talaria, Ms Simpson worked at Wilsons Advisory and Koda Capital in Sydney, gaining deep expertise in investment products spanning equities, fixed income and alternatives. She also spent time at Tsetsaut Ventures in Northern British Columbia.

Ms Simpson’s appointment comes as Talaria continues to broaden its footprint in the Australian market, with growing demand from advisers and institutions for the firm’s alternative investment approach.

Ms Simpson’s appointment follows the hiring of Kate Doherty as fund administrator and Krish Bhattacharjee as an operations analyst. Ms Doherty brings extensive experience across financial services both in Australia and internationally, including senior roles in fund and trust administration with UBS Fund Services (Cayman) Ltd, Butterfield Bank (Cayman) Ltd, and HSBC Trustee (Guernsey) Ltd. Mr Bhattacharjee brings over six years of financial experience, including 2.5 years in investment operations at Vanguard, focusing on equity and fixed income funds.

“As we expand our reach, it is crucial that we bring on board people who share our values and bring fresh perspectives. These appointments will help continue our growth and realise our vision,” Mr Mead says.

Ms Simpson holds a Master of Financial Planning from UNSW, and a BBA (Finance, Accounting Minor), from Thompson Rivers University, Canada.

Ms Doherty holds a Bachelor of Commerce from Melbourne University and is a Chartered Accountant.

Mr Bhattacharjee holds a Master’s degree in Accounting and International Finance from Deakin University.

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Chad Padowitz

Structural labour shortages in the US pose a more persistent risk to inflation, corporate earnings and market stability than tariffs, Chad Padowitz, co-chief investment officer at Talaria Capital says.

While recent market gains have been supported by easing trade tensions and confidence that inflation and interest rates are manageable, Padowitz warns that workforce constraints are a deeper and longer-term challenge.

“Labour shortages affect inflation, earnings, competitiveness, and growth. The ‘Magnificent Seven’ may dominate headlines, but they won’t shield portfolios from the silent erosion of labour costs,” Mr Padowitz said.

“These issues will remain long after the headlines about tariffs have faded.”

Labour now accounts for more than 60 per cent of US corporate costs and comes at the same time the US labour force is shrinking, fuelled by retirements and falling net migration.

Padowitz warns that unlike tariffs, these shifts cannot be addressed by the Federal Reserve through interest rate changes.

“When you have more retirees than new entrants, wage inflation becomes endemic,” Mr Padowitz said.

“Also, with US debt-to-GDP projected to reach 200 per cent in coming decades, the fiscal burden of labour scarcity is only set to grow.”

The recent US-Japan agreement, which boosted Japanese equities, illustrates how quickly tariff headwinds can dissipate. In contrast, Padowitz points to entrenched demographic trends, including ageing populations, low birth rates, and a smaller post-Covid workforce, which he says are driving sustained wage pressures and constraining productivity.

“Labour market imbalances are structural, not cyclical. That makes them far harder to solve and more disruptive to profits,” Mr Padowitz said.

Mr Padowitz stresses the importance of strategic positioning in companies and assets less exposed to labour-driven cost pressures.

“For investors, the implications go beyond short-term market cycles,” Mr Padowitz said.

“Investors need to look beyond tech giants and consider labour-light sectors that offer resilience in an age of structural scarcity.”

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Jamie Mead

The significant changes in the funds management industry in the past decade have brought issues such as liquidity, correlation and diversification to the forefront, and created new risks for investors to manage, says Jamie Mead, CEO of Talaria. 

He said fund managers have had to respond to major changes such as the Your Future Your Super reforms, the huge growth and influence of superannuation funds, insourcing of investment expertise, industry consolidation, and the rise of passive investing, to name just a few.  

“We’re also currently seeing a notable shift in interest towards private markets at the expense of public markets. 

“The big question mark is, how aware are investors of the impact of these changes on them, and the risks that they pose? 

“With the rise in passive investing and index aligned ‘active’ strategies, currently we believe there is a lack of genuine diversification in portfolios and many investors are sleepwalking into concentration risk. True diversification requires exposure to different asset classes, active conviction, structural risk management, and liquidity,” he said. 

Mr Mead says one critical factor in the current environment, where there are more Australians in retirement than ever before, is having more liquid investments, as this allows retirees or pre-retirees to meet their financial obligations or take opportunities more easily. 

However, he says liquidity is just one factor, as there is also the need for decorrelated income, which is earned from sources other than dividends and helps investors meet their living needs – particularly important during market downturns. 

“This allows investors to receive income without drawing only on their capital base or relying on companies to pay dividends when that isn’t always reliable or consistent,” Mr Mead said. 

“Lower volatility strategies are important because they allow a smoother return profile. A person earlier in their career can ride out market drawdowns, whereas a retiree who needs the capital to both drawdown over time as well as generate income can be significantly disadvantaged if they need to withdraw funds at a distressed price.”

Mr Mead says in an investment landscape increasingly shaped by passive strategies and concentrated market exposures, some fund managers have benefitted by carving out a distinct position as leaders in alternative asset management. 

“While the alternative assets space has seen a shift toward private equity in recent years, we think there are still outstanding opportunities in public markets, and our focus is on offering investors the benefits of alternatives such as lower volatility, low correlation to index funds and indeed many ‘active strategies that are not very different from the index, and unique return sources, while maintaining full liquidity and transparency.  

“This approach has proven particularly relevant in an environment where many portfolios are overexposed to narrow segments of the market, such as the “Magnificent Seven” stocks in the US. 

“As such, I believe that remaining ‘true to label’ is more important today than perhaps ever before. It means avoiding style drift through various investment cycles – something our strategy, which has been running for 20 years, has achieved.  What’s crucial for us is that our strategy is process driven – it’s not about individuals, whims or the latest theme-du-jour but a focused adherence to a process that aims to deliver strong risk-adjusted alternative performance results. For clients it’s crucial that we keep doing this.” 

Talaria uses an options implementation process when buying shares. The manner in which they do this aims to deliver three key outcomes, namely structurally lower market risk, less market volatility and an additional decorrelated return source aligning with the risk-return profiles of sophisticated investors, while often outperforming traditional hedge fund indices.

“Our strategy reflects a long-term vision with an actively managed approach that delivers differentiated returns rather than tracking indices.  

“In an era where many portfolios are inadvertently regulated by index-linked strategies, our philosophy emphasises the importance of fundamental research and unique implementation process,” Mr Mead said. 

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Chad Padowitz

A shift from global integration to a new era characterised by increasing nationalism and the return of manufacturing to domestic locations could harm the returns on equities, according to Chad Padowitz, co-chief investment officer at Talaria Asset Management.

Talaria’s latest quarterly outlook says that the global economy is moving from a period of global integration, which began in the early 1990s, towards a period of heightened nationalism and trade protectionism, led by the US.

“Geopolitical events, including economic nationalism and onshoring, require a fresh assessment of capital, risk, and how countries depend on each other,” Mr Padowitz said. 

“We are in the midst of a fundamental change to the global integration we’ve witnessed in the past three decades.”

Governments globally are increasingly influencing capital movement through policies that encourage domestic investment. Examples include the UK’s Mansion House reforms, which aim to direct up to US$65 billion into domestic projects by 2030, European proposals for defence bonds, and changes to the Australian Future Fund’s mandate.

“All these initiatives are designed to reduce the flow of capital to other regions or countries,” Mr Padowitz said. 

“This trend shows a broader increase in economic nationalism, a force that has grown stronger and is causing governments to direct capital within their own borders.”

The COVID-19 pandemic highlighted the dangers of long overseas supply chains and showed that western domestic manufacturing was not resilient enough, accelerating the shift towards internal focus. US policy changes this year under the Trump administration have fast-tracked this move towards nationalism and onshoring.

“A shift in US policy, America First, has further driven a turn inward, firstly in the US but then in other countries that had previously been happy to rely on overseas production,” Mr Padowitz said.

For investors, Talaria says all this may mark the end of a period of strong asset price increases, where nominal cash flow growth and the cost of funding moved in ways that significantly increased the value of many assets.

“There is a lot of noise in financial markets today. The broader battle for attention that now drives the media has resulted in a distracting cacophony,” Mr Padowitz said. 

“Beyond the noise there are several significant developments for investors to consider, but if we had to identify a single item not to lose sight of it would be this: as the monetary regime transitions, the conditions that underwrote rising valuations across a range of assets are no longer in place.

“Our approach for this new environment is to prioritise resilience. This means focusing on short duration assets, companies with strong balance sheets, exposure to real assets, and strong diversification to manage investments in a world characterised by fragmentation and increased uncertainty.” 

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