It was revealed this week that Caledonia Investments intends to short sell stocks for the first time in their history. A definite sign that buy and hold strategies are no longer generating sufficient returns (as I mentioned in my article on algorithmic trading).
Caledonia Investments was formed in 1992 as a vehicle to manage the inherited wealth of 20 or so members of the Darling family. These family members own 28% of Caledonia Investments (which manages approximately $A2 billion). In 1998, Caledonia was opened to outside investors.
The Darling family fortune was created by John Darling, a 19th century Scottish immigrant to Australia who founded a wheat and flour milling business. Apparently, by the 1880s, this business was Australia’s largest wheat exporter.
Current members of the Darling family that have taken prominent roles at Caledonia Investments include Michael Darling, his cousin Ian Darling and Ian’s father David. Like Rupert Murdoch, Michael Darling attended Geelong Grammer School and Oxford University. A privileged upbringing to say the least.
Ian Darling is also a documentary maker. Hhe produced the excellent Woodstock for Capitalists, a documentary made at the time of the Berkshire Hathaway AGM in 2000. If you haven’t seen it, go and get a copy.
Caledonia has tried to emulate Warren Buffett’s investing philosophies, which is why their announcement of their intention to short sell stocks is so interesting.
Caledonia does not disclose on their web site what the returns have been for each of their funds. Obviously, the move to short sell indicates to me that recent returns have not been sufficient. Media reports always refer to “excellent returns” achieved by Caledonia, but where do outsiders find the proof of this?
One rather indirect method of determining how successful Caledonia has been is to look at the wealth of the Darling family over time.
In 1990 the Darling family were worth approximately $A330m and are now worth in the vicinity of $A600m – that’s a compound return of about 3% per annum over that time period. This obviously compares unfavourably to many other rich Australians.
For example, over the same period of time, Kerry Stokes went from approximately $A150m to $A2.5 billion (14.3% compound), Lindsay Fox went from $A50m to $A2 billion (19.2% compound), Frank Lowy went from $A550m to $A5 billion (11.1% compound) and Stan Perron went from $A260m to $A1.9 billion (9.9% compound). I could quote many more.
If the Darling family had compounded their wealth at 10% per annum over the period 1990-2011, their fortune would now be approaching $A2.5 billion, the fact that it’s nowhere near that is revealing for a family that now manages money for outside investors.
The Darling family’s investment prowess also doesn’t compare favourably to two of the great investing families of Australia – the Hains family and the Millner family.
The Millner family also inherited great wealth but seem to have made many astute investments, one of the best being New Hope. You can actually invest alongside the Millners in one of their listed companies such as Milton Corporation (and the management expenses are miniscule compared to fund managers like Caledonia).
Senior figures at Caledonia Investments seem to have a wide variety of extra-curricular interests such as acting as trustees for various non-investment related bodies. I don’t like to see this, if you are managing my money, I want you absolutely focused on that without outside distractions.
Individuals will need at least $A250,000 to invest with Caledonia, with some funds requiring a minimum investment of $A500,000 and individually managed accounts requiring $A10 million(!).
Like most fund managers returns have been poor in recent times and that is why they are short selling. Interesting discussion of their wealth.
ReplyDeleteThe $330m you quote for Darling family wealth, I would be interested in the source (if you still have it.)
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