If you have a Self Managed Super Fund (SMSF) you could consider an investment into the art space but there are some issues you need to consider. There are no specific restrictions on an SMSF investing in artwork or other collectibles; however the Sole Purpose Test and the funds Investment Strategy are two that you need to be mindful of.

The sole purpose test is to ensure that self managed superannuation funds are maintained to provide retirement benefits to members upon retirement. Where a member receives a benefit before retirement, the fund could be in breach of the sole purpose test.

Investment in art can cause issues with the application of the sole purpose test as this art ownership could lead to personal enjoyment. An example is where a fund displays the artwork in a members home or office at no or little payment to the fund.

Great care needs to be taken in relation to how the artwork is maintained or stored to avoid any potential immediate benefit being received by a member. Even if the member pays a market rent, there may still be a breach of the sole purpose test. There are no set rules about this and each case will be considered on its merits. Involving an arms length third party in the storage or maintenance of the artwork, on commercial terms, would be the best way to satisfy the regulators in this area.

The next issue to consider is that trustees of all superannuation funds are required to formulate and monitor an investment strategy. This should set out the objectives of the fund and provide the methods the fund will employ to achieve these objectives.

With artwork as a more specialised area of investment, trustees may be required to demonstrate why it is a good investment. This may require expert opinion as to the growth and income potential of a particular piece of work. This is where I must disclose that apart from knowing what I personally like and dont like, I have no tried and tested history in picking the next Picasso. But I know people who do know if this is something that interests you!

As with any investment product for a super fund the investment should be appropriate given the fund and its members need for income or growth returns.

You will need to consider your back-up plan and as a trustee should ensure the artwork is properly insured against damage, destruction or theft and that it is maintained in a suitable environment.

Provided you feel comfortable about staying within the legislation it is then time to start the research process!

Investment in artwork can be a valid strategy for a self managed superannuation fund, or for those who want to invest outside of superannuation, however as with all investment before proceeding, seek advice to avoid any pitfalls as penalties can be severe.

If you would like to discuss this or any other aspect of your Superannuation, Self Managed or otherwise, contact the team at Money Mechanics today.

There are smaller commercial property units available starting at the lower end of the market however with the A-grade end you wouldnt get much change from $150 million. In Canberra last June Industry House by Guida Moseley Brown Architects was recently sold for $123 million so access to this type of commercial property may be impossible if it were not for property syndication. Syndication is where investors pool their funds to purchase an asset in most cases an investment minimum of $10,000.

So what should you look for in a syndicate?

Entry Point: Valuation of the building and an idea of the current cycle in the market. This is often referred to as the Net Tangible Asset.

Quality of rental in terms of income amount and tenants: Looking for a good quality organisation or government tenant with a longer term lease will ensure quality income for the term of your investment.

Exit Strategy: What is the plan of the syndicate managers and when will they be looking to sell the property. It is important to know how much of the existing rental agreement will be remaining and also what the sales fee will be.

Income and Fees: What is in it for you as an investor and how much will it cost you for it to be managed?

Debt Position: How much debt is in the trust, and what is the gearing ratio and cost of funds?

The reason I mention Industry House is that this is currently open as an investment opportunity for the next 5  7 years. The building is rented out to the Commonwealth Government to 2021 and is paying income distribution each quarter of 8.15% plus any capital growth on the sale of the building.

Investment in commercial property can be an added strategy to achieve you goals for life, however as with all investment products before proceeding, seek advice and empower yourself to create wealth with understanding.

We currently have access to this investment product for clients in both personal investors and Self Managed Superannuation Funds.

This will be open for new investment from now until 25th March 2010. Please contact our office if you would like to receive the research report or more information on this offering.

The RBA Pulls Rabbit Out of Hat

The Reserve Bank of Australia (RBA) this week left the cash rate unchanged at 3.75%, judging that there was not enough data on the impact of the three previous moves to tighten again. This move came as a surprise, with the market expecting a February move.

The RBA said If economic conditions evolve broadly as expected, the Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term.

Our take on this is that we have moved from the rapid tightening phase, that typically occurs once rates start to rise from the low in the cash rate cycle, to the more moderate tightening phase, where further moves are usually more widely spaced and driven by economic events unfolding. A move in March looks on the cards, if the February reporting season can see the equity market regain some ground and demand indicators hold up. The good news for equity markets is that the RBA appears to have little interest in choking off the recovery and that, by having gone hard early, they may have reduced the risk of a premature end to the economic recovery caused by inflation getting out of hand. Perennial continues to look for a cash rate between 4.5% to 4.75% by the end of the year.

The 2010 Investment Markets

With many of us having just returned from leave, it's probably a good time for a quick primer on what I consider will be the big investment issues for 2010.

Five key facts that set the context for 2010:

1. The world economy appears to be growing again.

2. Companies have either deleveraged or are in the process of doing so, having raised fresh capital.

3. Governments have financed the greatest stimulus in history and now face a huge debt hangover, which is likely to act as a brake on future growth prospects.

4. Severe imbalances exist in global markets that may cause some shocks on the way to an on-going market recovery.

5. Banks will be re-regulated, making credit availability more constrained than in previous recoveries.

Implications for Investment markets

Try not to get too caught up with the doomsayers unduly focussing on global economic imbalances. Essentially there are always global imbalances (it's far from a perfect system) and removing the massive government stimulus that brought the world back from the brink is indeed an unprecedented event. However, in my view, investors should look through the media's noise, remembering that a story about an impending economic disaster gets more headlines than a patchy recovery in global activity. The good news is that stimulus programs have worked (I'm reminded of the old saying "don't fight the fed"), as can be seen in the IMF's new world growth projections (see below) which forecasts overall world growth of 3.9% on 2010 and 4.3% in 2011.

As the global economy gains steam, the forward momentum is unlikely to be smooth, or evenly spread across countries. As the effects of inventory re-build and various government stimuli measures are wound- down, a patchy recovery should ensue. Whereas last year saw a recovery in most growth assets, in my view, a cool head on asset allocation and good stock- picking should be result in successful portfolios for 2010.

January Review

Despite a promising start to the year and a great, stimulus-led US Economic growth number of 5.7% annualised for the December quarter, the Australian sharemarket faltered in the second half of January. I believe that this was essentially due to three factors:

1. China's leaders announcing restrictions to bank lending, which produced fears of a much slower growing Chinese economy.

2. Obama's plans for a new tax on US banks and restrictions on their activities, which saw a sell-off in Financial shares.

3. Weakness in the Australian Dollar (AUD), which forced overseas investors to take profits in Australian shares.

Australian Share Market: February Reporting Season

First, lets reflect on the environment that Australian companies find themselves in:

Australian companies managed to raise AUD $90 billion in fresh capital during 2009, with balance sheets in great shape overall;

Unemployment appears to have peaked at 5.5%, a far cry from the Government's prediction of 8% just a few months ago;

The Australian banking system remains on solid footing, compared to much of the world; and

The Australian economy continues to grow.


Despite this, earnings per share (which have been significantly diluted by the capital raisings mentioned above) are expected to fall for the December 2009 half year by around 17% (Macquarie Equities estimates), as we hit what is expected to be the bottom of the earnings cycle. From here, earnings are expected to grow significantly in 2010 and 2011. Perennials Value and Growth analysts will be focussing on sales, margins and profit guidance, as they examine the reports and meet with management.

Research and comment by Perennial Investment Partners Pty Ltd

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If you have not recently reviewed your product strategy and would like to review the investments you have in place please contact Money Mechanics today 1300 772 643.

Managing on a Low Income
Wednesday 3rd March and 9th June 2010 for one session at REID CIT Campus
Cost $20
Struggling to make ends meet? Sometimes it can be hard to imagine getting ahead, let alone really getting there. Living on a low income can take a lot of energy and require a lot of skill balancing your budget from day to day. Our habits and attitudes have a lot to do with how we relate to our money and making ends meet. You may or may not already have good money management strategies in place. This course is one of the first simple steps to making the most of your money, from getting a greater grasp on your day to day budget and debt strategies, to your longer term superannuation strategies.

Superannuation Demystified
Wednesday 14th April 2010 at REID CIT Campus
Cost $50
This evening will cover the taxation strategy of superannuation including the taxation on contributions while in the scheme, and on the way out of the scheme. Technical strategies such as advantages and disadvantages of salary sacrifice to superannutaion and defined benefit superannuation schemes in the context of your financial life and estate plans will be covered.