The interview: Ben Smoker, general manager of Commonwealth Private, on the state of the Australian market

The general manager for private wealth at Commonwealth Private talks us through the historic transfer of wealth taking place against the backdrop of volatility.

The Australian economy is currently experiencing a gross domestic product per capita recession and is up against increasing risks of a more severe slowdown, says Commonwealth Private’s General Manager for Private Wealth Ben Smoker. “The headline GDP number would be flat if it weren’t for the record net migration intake and government infrastructure spending.”

Given tighter financial conditions and increased market competition, it is all the more important to anticipate needs – and to manage risk. Leveraging the extensive network of and resources of the wider bank, as well as the in-house investments and research team, Commonwealth Private offers clients unique insights into key economic indicators and trends.

For HNW individuals looking at the property market, advertised stock levels for dwellings in major capital cities are trending higher now compared to previous years. This is reflected in softer value growth across cities including Sydney, Melbourne, Hobart and Canberra. Adelaide, Brisbane and Perth, on the other hand, are looking critically undersupplied.

Nevertheless, strong capital growth trends persist. “While there is a general undersupply across major capital cities,” says Smoker, “strong demand exists for luxury turnkey properties.

“We believe that increasing prospects of quality residential and commercial assets should follow soon enough, and typically advise HNW investors to keep a keen eye on the market in the meantime,” he continues. “We recommend that clients exercise patience, particularly in case of a deeper than expected downturn.”

With market volatility extending beyond the domestic economy, Australian investors will take stock of trends in key geographies as they plan their approach. “We’re seeing a high level of uncertainty about the state of the economy, domestically, and in key international markets,” says Smoker. “Trends like the continued decline of China and renewed interest in Japan both as tourist destination and investment hub should be monitored closely, too.”

“We recommend that clients exercise patience, particularly in case of a deeper than expected downturn.”

In the context of ongoing uncertainty and liquidity challenges, Smoker has seen growing interest in private markets, which may present better opportunities over the next 12 to 24 months: “Increased equity and bond market volatility, and the indirect impact of that, may provide better entry points at lower prices.”

Despite these economic conditions, an historic transfer of wealth across generations of Australians is currently underway. “We are seeing more clients preparing for what will be the better part of US $3.5 trillion in collective assets passed down in the coming decades,” Smoker explains. “75% of HNW individuals under 45 have inherited all or some of their wealth.”

This rising generation of HNWIs isn’t simply a passive beneficiary of family wealth. There is a marked level of interest in entrepreneurship, active investment and also sustainable or philanthropic endeavours. Alongside real estate, areas of increasing interest among this cohort include international diversification into global equities, infrastructure and discussions about very select private equity and credit opportunities.

“When investing, this generation generally tends to be more attuned to responsible investing and sustainable business models, and to seek greater transparency around green credentials,” says Smoker. “Attitudes are shifting positively towards giving strategies, and the rules governing philanthropy and not-for-profit organisations are expected to undergo several changes this year.”

“We’re also currently seeing more people seeking out shorter-term thematic plays,” he continues. “These might be in very specific investments such as getting exposure to artificial intelligence and robotics or global healthcare.”

Given the unprecedented changes in the wider economic conditions, as well as the current outlook and likely ongoing volatility, Smoker typically advises clients to remain proactive – and moreover, to continuously seek professional advice and insights when it comes to wealth preservation and intergenerational wealth transfer.

“The importance of financial and investment expertise has increased over time. It should be a tailored strategy and not a one-size-fits-all approach,” he says. “When assumptions are wrongly made that clients have existing knowledge, confusion can arise.

“Strategic Asset allocation, by its very nature, should remain consistent for the longer term. However, shorter term tilts through Dynamic Asset Allocation modifications are an important value-add from a quality wealth manager,” says Smoker. This approach takes advantage of market opportunities to both grow and protect wealth, but also rebalances the portfolio to bring it back to the client’s target asset allocation and long-term objectives.

Nevertheless, Smoker still adheres to the view that holding quality assets over the longer term supports the bank’s ability to achieve clients’ investment outcomes. “Patience often presents the best opportunities,” he says, “which is reflected in Charlie Munger’s famous quote, ‘The big money is not made in the buying or selling, but in the waiting’.”

I think for anything, whether it’s property, a watch, wine or something else, it’s about the pedigree of the products. The most important thing is the provenance.

Read next:

• The interview: Robyn Saranah, general manager of Commonwealth Private
• The interview: Kathrin Mutinelli, MD of Seventy-Two Global