The major issue preventing complete finalisation of the bankruptcy was an outstanding potential lawsuit against Fitch Ratings Agency.  LBA decided not to fund the prosecution of this claim itself (with creditors funds) due to the risks involved, but rather to either look for a funder to bear the legal costs and downside risk of an unsuccessful claim in return for a share of the upside if the claim proved to be successful. LBA also considered the option of simply selling the claim rights to a third party for an upfront fee and was open to offers on this basis or a combination of immediate and deferred fees depending on outcomes. 

This situation has not changed over the last eight months with negotiations with various parties being ongoing. It is now also possible LBA will decide to discontinue with the process if no acceptable offers are received from either funders or buyers. Depending on which of these routes is pursued (when a final decision is made) the bankruptcy may be completed relatively quickly (within the next year) or could extend for the length of the lawsuit against Fitch (an indeterminate length of time and almost certainly longer than one year). 

In all scenarios, Amicus expects any final dividend made to be “small” (although absolute quantities will likely vary substantially between a simple wind-up of the estate and a successful claim against Fitch).  The total accepted claims by the LBA estate exceeds $400 million and therefore while monies being held back or potentially realised from a successful claim against Fitch (including an out of court settlement as has happened in similar cases) may seem substantial in absolute terms, simple maths indicates each $1 million generated and made available to all creditors for distribution amounts to only 0.25c/$ (or 0.25%) of their individual claim amounts. The previous dividend payment in December was “substantial” only because the Liquidator had over $60 million of funds to distribute.

Please feel free to contact Moray Vincent on an ongoing basis with any questions you may have on the LBA bankruptcy.

Throughout its history, Amicus has advised 67 clients under a retained mandate and has helped a further 57 clients on a project basis. Amicus clients have spanned all states and territories of Australia (with a couple of offshore ones as well). Clients have been drawn from a wide range of sectors from local government and professional funds managers to charities, religious organisations, corporates, professional services firms (lawyers, accountants, consultants liquidators and administrators), financial planners and individual wholesale investors.

Amicus is currently in the process of changing its business focus and downsizing its operation. Amicus exited its retained client financial advisory business as of 30 June 2023. Melissa has joined Imperium Markets where she will continue in a client advisory role, helping investors with the management of their conservative fixed interest investment portfolios.

Moray will continue with all the remaining operations of Amicus and so will still be available to support clients already contracted regarding the LBA bankruptcy until its conclusion and on other mixed financial and legal issues going forward should any arise. Moray intends to continue operating the other Amicus businesses for the foreseeable future working more on a project basis in the area of expert witness work and consulting.

Amicus wishes to thank all its clients, both former and current, for the support they have given it over the last fifteen years and the enjoyment and job satisfaction they have provided to Moray, Melissa (and formerly Jason) in being able to provide quality financial advice that has hopefully helped investors towards better financial decisions and improved portfolio outcomes and investment returns.

Please feel free to contact Moray if you have any questions or simply want to chat .

Cumulatively, claimants who made claims early in the process and therefore were able to recover their full amounts from the insurance scheme have now recovered over 78% of their admitted claim amount (approximately 75% recoveries for those who claimed later and were unable to access the insurance scheme).  For most claimants, this amount covers all principal so the resultant loss from these investments is likely a loss of interest only.  Recoveries will also vary depending on the costs of making a claim.  For those funded through the legal action by IMF (now Onmi Bridgeway) over half the recovered amounts may have gone in legal and funding fees (the funding fee alone amounts to around 40% of the latest dividend payment for many clients).

Those who elected not to go with a litigation funder, including the thirty seven claimants who engaged Amicus, made much higher returns.  However, if the original claimants, Parkes, Wingecarribee and Swan Councils had not engaged a funder, there would likely have been no claim and no claimant would have made any recovery at all.

The dividend paid in December is not the final dividend payable as the bankruptcy procedure is not officially concluded.  Our understanding is two issues remain.  The first is a refund of with-holding tax paid from His Majesty’s Revenue and Customs (HMRC) (the UK’s equivalent of the ATO) which is still owed to LBA.  It is unknown when this will occur, but our understanding is payment is largely procedural and the amount of the rebate while substantive in absolute terms will not result in a large dividend payment.

The second issue is a potential lawsuit against Fitch Ratings agency where LBA believes it has a supportable claim after it was discovered that Fitch’s credit ratings on CDOs produced by its model were increased several notches using a hidden table with apparently no analytical basis.  If the claim is progressed and is ultimately successful, then monies will likely flow to the estate and result in further dividend payments to creditors. 

We would encourage clients to treat this final dividend when it occurs as a “windfall” and for all intents and purposes to regard the current dividend as the final “material” payment from the LBA estate.  We make this suggestion largely due to the uncertainties regarding the Fitch claim in terms of its chances of success, the timing of any potential payments made and the quantities of those payments.  In the scenario of a long court case, any final payment could be up to five years in the future.

Ironically, given there is still monies left in the estate, for any investor who lost monies on structured products distributed by Lehman Brothers Australia (or its forerunner Grange Securities), there is still time to claim.  Under insolvency law, any claimant who is admitted now has priority payment status for any back dividends paid to other claimants before any additional dividends are declared.  Hence, a new claimant will recover over 75% of its claim amount should its claim be admitted (which Amicus is highly confident it will be if it is able to mount a similar case to all previously admitted claimants).  Please feel free to call Amicus on a no obligation basis if you have not claimed and think you may have a claim.

In a previous Amicus article, we delved into the details of these two options, discussing the “Three C’s” that investors should consider when making a decision – Compliance (Risks and Security), Convenience, and Costs.  Exploring this topic further we provide an update to our thinking under these three headings below:

Compliance

Our conclusions previously was there was no real difference with the risks in both choices; the main risk being a rogue employee of either the Safe Custody or Proxy provider illegally and fraudulently trading in the client’s Austraclear account (or sub-account) without the client’s permission.  Our view was that if the service was provided by a Major Bank, this was more secure than if it were provided by a smaller organisation with less assets (such as FIIG, Laminar, Curve, ETOS), but only on the basis a larger bank would have the financial capacity to compensate a client for any loss, whereas a smaller organisation might be limited by the size of its professional indemnity insurance. 

Claims that somehow if clients did not have an Austraclear account established in their own name they were not the legal owner of the securities we regard as “hogwash” with every Major Bank and broker willing to make the representation that the clients for whom they hold the securities are the legal and beneficial owners of those securities rather than the bank. Further this has been tested in the past with the default of Lehman Brothers Australia who held its clients’ bonds under this method. In general there was minimal disruption and no disputes as to the ownership of the assets.

One issue we did not explore in our previous article (which could be a Compliance issue for some organisations) is that every Austraclear Proxy or Safe Custody provider (except ETOS) is also a dealer in securities.  This provides a side benefit to the banks and brokers providing the service which is one of the reasons they provide Safe Custody cheaply or at cost, and one of the reasons why Laminar as an active broker provides an Austraclear proxy service at all. 

The operator of the Safe Custody or Austraclear Proxy account gains significant market intelligence having visibility as to which of its clients hold which bonds and at what prices those securities are traded in the secondary market which is effectively what is disclosed through a Safe Custody or Proxy service.  Many will also use this to suggest or initiate trades for the holder that are beneficial to the bank or broker.

Convenience

Amicus concluded in terms of Convenience, Austraclear Proxy enjoyed a small advantage which grew for holders of multiple securities not having to hold their securities with different banks or brokers, but rather having them held in one place being Austraclear. 

Another Convenience aspect that has become more significant is when the Major Banks issue domestically, they typically do “self-led” deals as sole managers.  Therefore, if it is CBA or NAB, these banks will provide Safe Custody for free, ANZ will charge 7bps and Westpac does not offer the service.  This is not an issue for those that use Austraclear Proxy, but makes purchasing Westpac and ANZ deals at new issue more cumbersome or costly for those relying on Safe Custody.

In recent market developments, Curve Securities is offering a paid service for 5bps taking all bonds regardless of whether they have been purchased through Curve. This allows investors to hold all their bonds with one provider negating any convenience arguments although most investors seem to be holding their bonds with CBA where they can enjoy free safe custody service and any other bonds not sold to them by CBA with Curve.

Costs

Regarding Costs, most of the expenses of Austraclear Proxy are fixed (and run into thousands of dollars).  For investors with larger holdings, the lowest cost solution typically depends on the Safe Custody fees charged (if any).  Whereas the costs (if any) of Safe Custody are variable so smaller holders are nearly always better off with Safe Custody. 

As mentioned previously, Curve Securities has become more active in the market offering Safe Custody services for a fee of 5bps.  Barrenjoey, a relatively new market entrant, is looking at its options in this area to facilitate more client flow.  NAB’s service is currently suspended awaiting outcomes of discussions with their custodian.

The cost consideration largely comes down to size of holdings.  For those with a $20 million portfolio, paying Safe Custody fees of 5bps that is a cost of $10,000 annually which will likely cover the first year costs of maintaining an Austraclear account.

If you would like to discuss the key considerations for choosing between Safe Custody and Austraclear Proxy, please don’t hesitate to contact Amicus.  Our Amicus service for retained clients includes guidance on any developments and updates related to this area which remains dynamic with a lot of ongoing changes.

“Benchmark” bonds issued by Northern Territory Treasury Corporation (NTTC) are actively traded and compete with other liquid bonds issued by the six states in Australia (semi-government bonds).  NTTC is rated Aa3 by Moody’s because it is explicitly guaranteed by the Northern Territory government which has taxing powers and a level of implicit support from the Federal Government. 

As interest rates were very low in mid-2020, NTTC bonds appeared very attractive as they were paying relatively high rates of interest above 1% for all terms when rebates were factored in.  However as with all fixed rate investments, the bonds carried risk the underlying interest rate environment would change (i.e. interest rates would rise and investors would be left holding bonds paying below market coupons).

We analyse below how those investors who purchased NTTC bonds back in 2020 have fared over the period of their investment.  In September 2020, annual interest rates offered on the NTTC bonds were:

The rates quoted are annual rates to the maturities shown.  In addition to interest on the bonds, NTTC paid a 0.25% agency fee to organisations with an AFSL who placed the bonds with their clients.  Amicus was able to capture this fee and rebate it to all its clients, thus effectively boosting the yields on their investments.  This enhanced the annual yield on the then 15 month December 2021 bond by 20bps (equal to 25bps / 1.25 years), by 11bps (equal to 25bps / 2.25 years) for the December 2022 bond and so forth for the remaining bonds as per the table above.

On a simple interest basis, a client investing in a 15 month NTTC bond to December 2021 would have earned 1.00% interest (0.80% * 1.25 years) plus, if the investment had been placed via Amicus, a rebate of 0.25% of the placement fee for a total return of 1.25% as compared with a cumulative return of 0.32% by investing in rolling 3 month TD’s over the period (comprised of 11bps (0.42% / 4) from the September 2022 TD maturing in December 2020, 5bps from the December 2020 maturing in March 2021 etc as per the table).  Clearly, the investment in the NTTC bond was a superior choice looking purely at returns.

Similarly, an investment in the 27 month NTTC bond investment to December 2022 was also more favourable with the coupon of 0.90% exceeding coupons paid on 3 month TD’s for all periods except those offered in June and September 2022.  Over the total period, clients would have received 2.03% interest or 2.28% when the rebate is added as compared with 1.56% by investing in TD’s.

Unfortunately with interest rates now much higher it appears as if investing in rolling 3 month TD’s will garner more interest relative to the NTTC bonds for maturities out to December 2023, 2024 and 2025 as per the table.  This is due to the rapid rise in interest rates since the RBA started raising the cash rate in May 2022.

The lessons learned from this analysis are:

There is Always Risk:  Counterintuitively, the most risk is present in situations where the least risk seems to exist.  In September 2020, the yield curve was predicting an average interest rate to December 2025 of just over 0.29% (the swap rate to September 2025).  This turned out to be wildly inaccurate with investors who rolled TD’s now likely to gain an annual return of just over 3.00% for the period (a factor of ten difference).  Even looking at 7 and 10 year rates in 2020, there was no indication of such dramatic rate rises to come.  Further, economists were predicting, and the RBA was stating, there would no interest rate rises until 2024.  Had this guidance proved correct, then investments in the NTTC bonds would undoubtedly have yielded greater returns over all the periods, with the only realistic chance of under-performance being in the period until December 2025.

In short, in the space of two and a half years since the investments were made the interest rate outlook has changed dramatically because of unforeseen and unpredictable events (policy responses to the lockdowns to slow the spread of COVID and Russia invading Ukraine which led to rise in energy prices and supply disruptions, etc).  Everyone underestimated these risks so prudent investors should always avoid discounting too heavily scenarios they don’t believe are likely to occur (”black swan” events).  

The Longer the Term the Higher the Risk:  Predicting economic outcomes in the short-term is always much easier than predicting over a longer period.  The better performance of the NTTC bonds over the shorter period is testament to this fact.  It was far easier to predict interest rates were unlikely to rise in the short term as economies were in deep recession with the pandemic and it was all hands to the wheel to keep households and businesses afloat.  Obviously, how the pandemic would play out in the medium term after the crisis, and the aftereffects of the government stimulus were much more difficult to forecast.

Performance may be more Valuable in one Period than Another:  Feedback we received from many clients at the time was there was great utility in meeting their budgets.  In general, these had been set when interest rates were higher and so many clients were under-performing.  The immediate boost given by the greater running yield on the NTTC bonds and the certainty of the cashflows was of potentially of more benefit at the time than the risk of under-performance later. 

These same clients are no longer under the same budgetary pressures as interest rates have risen dramatically providing them with ample investment opportunities; for them meeting current budget is not a difficult task.  Hence, while over the period the NTTC bonds may have yielded less interest, the benefits of smoother cashflows and meeting or exceeding budgets each year has been a benefit that has out-weighed the likely cumulative lower returns.

Benefits of Diversification:  Although Amicus had few fears on the credit-worthiness of the issuer NTTC, Amicus was always cautious of the interest rate risks taking a prudent view that simply because neither we nor the market, nor any leading economists could see little risk did not mean there was little risk.  Diversification is the last “free lunch” in finance, and it costs investors nothing (or very little) to diversify their portfolios, but inevitably reduces volatility and provides risk protection (particularly against unforeseen and unpredictable events whose probability is perennial under-estimated as is human nature – “Black Swan” events again).

In summary, constructing a well-diversified portfolio will remain crucial for investors regardless of what happens to interest rates in the upcoming year.

One of the reasons for the delayed reaction was, although there was great damage, many investors and traders initially saw opportunities and a bright future for companies that would be involved in the rebuilding.  It was believed the Japanese government would need to provide funds for the rebuilding of Kobe through fiscal stimulus and the resultant growth in GDP would almost exactly offset the economic damage caused.  This argument lost out to the obvious refutation that if natural disasters were good for economic growth why did governments not simply create them with a “bomb their own cities” as a policy to stimulate growth?

A similar economic logic appears to have been applied to the COVID pandemic.  While there was a global recession as economies locked down, the bounce back in global GDP growth caused by government stimulus returned many economies to more or less where they were economically before the pandemic with no loss of trend growth.  There was a widespread belief the economic damage caused by lockdowns and other measures to limit the health impacts had been largely ameliorated by the stimulus measures with minimal side effects. 

The graph below shows the massive impact (in historical terms) on the Australian economy of the pandemic, but then the equally spectacular recovery with seemingly no permanent loss of GDP over the period, with the previous growth trend appearing to be maintained.

In a similar vein to the “bomb your own cities” argument, if government stimulus could completely offset the economic damage why not manufacture deadly pandemic viruses in labs and release them every few years to stimulate economic growth? Alternatively, to avoid any negative health consequences why not simply give the population an extended holiday on “Jobkeeper” every couple of years and watch the economy roar back with a vengeance when you re-opened businesses and everyone had money in their pockets ready to spend after a relaxing and refreshing few months sitting on the couch watching Netflix?  Where does the money come from?  No problem; fund the “stimulus cheques” by simply printing the money through Quantitative Easing.

The reason this policy was never pursued in the absence of the pandemic (apart from being clearly “mad”) was because of what is currently occurring now in the “hangover period the morning after the economic party the night before”. Excess stimulus (or at least the after effects of the necessary stimulus) has caused the current inflationary pressures, both directly through funding pent up demand and indirectly through disruptions that have limited supplies of goods and services which has become a global problem. Interest rates are now rising to combat rising inflation with the resultant slowdown in global GDP and likely recessions to follow in the UK, Europe, USA and possibly Australia.

The policy responses to the pandemic almost certainly minimised the overall economic damage and to implement them was good policy, but the consequence of avoiding immediate pain has simply been to push the problem further into the future.  Using a simple analogy, if you wreck your uninsured car you can take out a large loan to buy a replacement vehicle so you can still get around. In the short term, your life is unaffected or possibly even enhanced with a newer and better car, but it is only in the medium to long term when you need to divert funds you would have otherwise used elsewhere to repay the loan that you suffer any lifestyle pain.  

The truism is that when an event happens which is economically destructive (and as can be seen from the graph above the pandemic was highly destructive to the Australian economy), fiscal and monetary policy responses can minimise the damage but never completely offset it otherwise artificially creating that event or simply the policy responses to it would be good economic policy regardless of the event occurring.  

Only when explained in terms of “bomb your own cities” or “manufacture and release your own plague” it’s clear these ideas are nonsensical. To paraphrase Paul Keating’s famous 1990 quote after the financial excesses of the late 1980’s “This is the recession we had to have” or at least the economic slowdown now necessary to pay for the lost GDP from the pandemic.

The dividend payment is likely to comprise nearly all the cash left in the LBA estate and therefore should be broadly in line with guidance given previously in March 2022 of a payment of slightly above 14 c/$ of accepted claims; although we expect the Liquidator to update claimants with the exact revised figure prior to payment.

For creditors to receive their monies via electronic funds transfer, the Liquidator previously asked all claimants to supply their bank account details (on a manual basis by completing a paper form verifying their claim amount and filling in their bank account details, scanning it and returning it to the Liquidator).  The second stage of this process which is happening now is to verify the bank account details with a trusted third party provider PayOK.  Apart from matching up the bank account details entered via the PayOK website with those the Liquidator now has on file, PayOK also do their own independent verification checks with the relevant banks to ensure the BSB and account details are held in the name of the claimant organisation. When using PayOK, Amicus recommends clients use the “basic” method of verification that requires scanning in a copy of a bank statement rather than the “express” method which asks for more sensitive information that Amicus thinks is unreasonable to provide.

The Liquidator is not forcing claimants to receive monies in this manner, but if the process is not completed the Liquidator will send a cheque to the mailing address it has on file for the claimant.  In our opinion, this is less secure as contact details, organisation names and addresses change so the possibility the cheque is lost or does not reach the intended recipient in a timely manner (particularly before Christmas and into the January holiday period) is not negligible. Amicus has advised all its clients to supply and verify their bank account details so they can receive monies electronically and is currently helping them with this process.

The Liquidator is not describing this payment as the final dividend for two reasons.  Firstly, Amicus understands there is a small amount of money (withholding tax) that is still to be rebated from HMRC (His Majesty’s Revenue and Customs – the UK equivalent of the ATO), but the Liquidator does not wish to delay the current payment waiting for these monies to be remitted.

Secondly, the Liquidator is still progressing expressions of interest in funding its potential claim against Fitch Ratings which will require a minimal amount of monies to be retained in the estate to cover the cost of the storage of LBA records and other minor expenses for the length of the case. 

Obviously if there are residual monies left over when the issues above are resolved, the Liquidator will pay a final dividend at some point in the distant future.  This could be a nominal one if the Fitch case does not progress or is unsuccessful, but could be another substantive one if the courts find against Fitch or, more likely, a favourable out of court settlement is reached.

Please feel free to contact Amicus if you have any questions regarding the LBA dividend, the process of registering to have it paid electronically (e.g. if you have not received an email from Kroll) or the potential legal case against Fitch.

Performance was poor for a couple of reasons.  Firstly, the LTGF is exposed to growth and other volatile asset classes that seek to make higher returns over the longer term, but with the risk of short-term volatility or negative returns (FY22 was one of those periods of negative returns!).  Secondly, the objective is not the same as a benchmark, and the asset classes in which the LTGF invests are perversely mildly inversely correlated to inflation[1] i.e. when inflation rises the value of the assets in which the LTGF invests tend to fall and vice versa making performance against objective even more volatile than absolute performance!

TCorp strongly argues that investors need to take a long term view when investing in growth assets and should ideally take a 10 year view with the LTGF. As per the graph below, the LTGF has had an excellent performance historically when measured on a 10 year horizon.

In simple terms, the chart above shows for any 10 year period (not including the two years of the financial crisis being 2008 and 2009) the LTGF has exceeded its objective. Further it exceeded its objective in three of the nine years including the 2008 and 2009 period and even its poorest performance (the 10 years to 2010) was above an average annual return of CPI+1.5%[2].

Based on this analysis, it appears the LTGF has performed extremely well on a historical basis even including the very poor FY22 result (which was the second worst one year performance against benchmark in its history being better than FY08 and poorer than FY09).  However 10 years is a much longer time horizon than most investors are seeking (few finance managers want to explain to those higher up in their organisations and their communities it may take another nine years to recover from a single bad investment year).

Perhaps a better graph to explain the risks is the five year rolling performance as shown below.  This reveals the poor performance in FY22 essentially wiped out the good performance of the previous four years, leading to a slight under-performance against objective over the five year period.

Perhaps the more illustrative example of a plausible worst case scenario is that once the good performance in 2007 was replaced in the rolling five year returns, the LTGF under-performed its objective by -7.0% in 2012, which meant it had a negative five year return on an absolute basis of -0.3% whilst CPI increased by an average 3.2% over the period, leaving performance a cumulative 19% behind CPI over the period and even further behind the alternative of investing in Term Deposits or Bank FRNs.

On the flip side of the 29 five-year periods since its inception in 1989, the LTGF has only under-performed CPI in the periods ending 2011 and 2012 and its average performance has been to exceed its objective by 1.9% for an average return of CPI+5.4% (a performance way in excess of investing in Term Deposits and FRNs).

Overall Amicus conclusion is the LTGF should provide superior returns to alternative investments in Fixed Income products if historical performance is replicated in the future (and obviously there is no guarantee this will be the case).  However, periods of under-performance are likely and it may take many years to recover from one or two years of negative returns.

Amicus has generally supported its NSW council clients in investing in the LTGF to gain exposure to growth assets with a view to mitigating long-term liabilities to which councils are exposed.  However it has also recommended strategies to reduce the volatility of returns both within the investment itself and the overall portfolio.  Collectively, Amicus clients have a positive mark to market on their LTGF exposures measured from inception to the end of October 2022 despite many of them initiating investment in FY22.

[1] Plotting the one year LTGF returns against inflation shows very little relationship, but a best fit line shows a negative relationship as would be expected on a fundamental basis which very simplistically argues high inflation is bad for the economy and therefore bad for both debt, credit, property and equity investments.

[2] The worst performance in the 10 years to 2010 is -1.8% and the fund’s objective is CPI+3.5% so the LTGF exceeded CPI+1.5% in all rolling 10 year periods.

In addition to the apparent value, there are also some additional compelling reasons to purchase when these offers become available being:

Buying an FRN largely locks in performance over the benchmark bank bill index by the margin above BBSW at which the FRN is purchased.  This is obviously premised on the Major Bank not defaulting and the FRN not being sold prior to maturity; both of which are reasonably safe assumptions for most buy and hold investors.  This is potentially important for investors who measure their performance against the bank bill index given the index is rising rapidly as per our recently published article.

FRNs carry minimal interest rate risk with the coupon adjusting to prevailing market rates as interest rates rise and fall.  This may be particularly appealing at this point in the interest rate cycle where interest rates are almost certainly going to rise in the short term, but after that there is a great deal of uncertainty as to how high they may rise or even if they will subsequently need to be reduced if inflation is brought under-control but in doing so a recession is induced.

FRNs are tradeable and are therefore are a source of liquidity.  In a practical sense the “liquidity value” of any security is enhanced if it can be sold without loss (or even for a small profit).  The chance of this occurring is increased if it has a high coupon margin as there is greater scope for the market trading margin to fall below the coupon margin through time (meaning the trading price rises above par).  This is in addition to the normal “roll down” effect where the trading margin reduces through time due to the shortening maturity of the security.

For most investors who mark to market, 12 month rolling performance relative to the Bank Bill index is quite possibly already negative.  However, since few investors mark their term deposit investments to market and only some investors mark their hold to maturity securities to market, then for most investors, performance relative to the index is still currently positive although it is starting to fall.

As a result, it is highly likely that 12 month rolling investment performance relative to the index for some investors will become negative, either late in 2022 or early in 2023, simply because their investment portfolios cannot increase their average yield by 20bps per month which is what they will need to do keep up with the index until next April (when the 12 month rolling return on the index will be above 2.00% if current interest rates are unchanged).

The graph above shows the monthly returns on the Bloomberg Bank Bill index since January 2022 and a forecast of the monthly returns from September 2022 to April 2023 based on the current interest rate curve being maintained. This is conservative and likely underestimates the possible increases given most economists are predicting interest rates to rise further. 

If these forecasts are realised, the 12 month rolling interest return will continue to rise to above 2.03% as per the graph below before the pace of increase slows as positive returns on the index from May 2022 onwards begin to partially offset the ongoing circa 20bps per month rises.

The more positive aspect is with rising interest rates, absolute yields on most investor portfolios have been rising in recent months.  Amicus has been working with its clients to both re-set budgets for the Financial Year July 2022 to June 2023 in light of forecast higher returns, but also to work with clients on investment strategies to ensure their investment portfolio returns remain above the Bank Bill index on a 12 month rolling basis (an objective we feel is important to demonstrate the “wise and judicious” as well as the “conservative” component of the prudent person rule).