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SMSFs seek exotic investments amid asset class decline

Emma Rapaport  |  29 Jan 2019Text size  Decrease  Increase  |  
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Frozen semen, taxi plates, water vending machines and commercial hair removal lasers are among the most exotic assets popping up in the portfolios of self-managed super funds new analysis reveals, even as the asset class continues to decline in popularity.

Strict rules have severely restricted investment in collectables and personal use assets since 2011, leading to an over 50 per cent decline in allocation, but not all trustees have been deterred.

New data from SMSF administrator SuperConcepts exposes a creative streak among some SMSFs who have used their retirement saving to seek exotic assets.

Among the top 10 list: frozen equine semen – bought in straws and stored using nitrogen.
Phil LaGreca, an analyst at SuperConcepts says frozen semen can be thought of as liquid gold - more tradeable than bullion because investors can sell units in it.

“If a horse comes from a winning line of show jumping or dressage it can command enormous fees for a date night – technically known as ‘Stallion Standing Fees’,” LaGreca says.

"If a stallion is a multiple title winner, the value of its semen increases. This value can experience capital gains if it’s highly sort after but has restricted market supply. Traders will hunt for straws that have special value."

SuperConcept's data analysed over 2400 funds worth $3.2 billion. The administrator is a part of AMP and has a higher portfolio of advised clients than most SMSF administrators.

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The top 10 exotic SMSF assets also include a $15,000 industrial grade commercial laser, used by beauty salons for permanent hair removal, ATMs – bought from a distributor with the prospect of regular income via monthly fees, commercial washers and dryers leased to holiday parks, aged care facilities and motor inns, and cattle.

Horse racing

Frozen equine semen is among the list of the top 10 exotic SMSF assets

Water also features heavily, with trustees investing in water vending machines, an ethical alternative for those waring against waste, and water rights.

“Just say you’ve got a river running through your property, you could sell over 100 megalitres to neighbours up or downstream,” LaGreca says.

“Or sell the water rights back to the original seller and rent the water you use. Or sublease the rights to one party who might retail it to others. You just hope there’s always water when you need it.”

One SMSF held “260 units” of water rights typically bought per megalitre valued at $563,200. Income from this investment between December 2017 to March 2018 was $15,649.50.

Allocation to collectables in decline

News that trustees have made investments in more exotic asset classes is not surprising. The freedom inherent in SMSFs mean that trustees directly invested in a variety of collectables like wine, vintage cars and art.

However, following the Super System Review—also known as the Cooper Review in 2009–10 the Australian government imposed stricter rules on the storage, leasing and insurance of collectables and personal-use assets. The review expressed concern that trustees were investing in assets for present day benefits rather than accumulating wealth for retirement.

The new restrictions led to an over 50 per cent decline in such assets within SMSFs as a percentage of total net SMSF assets in the five years to 30 June 2016, Australian Taxation Office data shows. 

Today, allocation to collectables and personal use assets has dropped to around 0.05 per cent of total net assets—or $358 million.

Trustees with grandfathered investments in collectables and personal use items were given until 1 July 2016 to ensure their assets were compliant.

LaGreca explains the new rules prevent adults simply regressing to buying toys they never had as kids.

For in-house assets—business assets used to generate income like machinery, animals or taxi plates—SMSF trustees cannot invest more than 5 per cent of their total fund assets in the asset class.

For collectables and personal use assets—assets used or kept primarily for person use or enjoyment like artwork, jewellery, antiques, artefacts—these assets must be purchased for genuine investment purposes such as generating income and capital growth. Assets are also subject to several investment standards including a restriction of assets being stored in a private residence of a related party.

Trustees among SuperConcepts clients have continued their love affair bordering on unhealthy obsession with Australian equities, with a 36.6 per cent allocation to the asset class in June 2018.

Trustees are testing the benefits of diversification with a move into international equities, up from 13.1 per cent to 14.4 per cent in a year. Property remains the second highest asset allocation at 18.9 per cent followed by cash and short-term deposits at 17.3 per cent.

is the editorial manager for Morningstar Australia. Connect with Emma on Twitter @rap_reports. You can email Morningstar's editorial team editorialAU[at]morningstar[dot]com

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