One Island Sinks Pauline Hanson

Dear Reader,

The Weekend Australian had a photo of a forlorn Daniel Andrews holding a Bible.

The snapshot captured the moment when he made the oath ‘the truth, the whole truth and nothing but the truth’.

My reaction to what was implied in the photo was…yeah, right.

Andrews makes my skin crawl. No way was I going to waste precious time reading his weasel words.

Move on.

What’s Pauline done now…

I glanced to the right of the main article and this headline caught my attention: ‘Gamble on fund hits One Nation’.

What’s Pauline done now?’ I said out loud.

The first few lines of the article drew me in…

Pauline Hanson’s One Nation sank $500,000 into a deeply troubled investment fund that has been likened to a multi-million-dollar Ponzi scheme…

Now you’ve got my attention. Let’s read some more…

…the $500,000 was pumped into Mayfair Platinum debentures paying interest above the standard bank rate.

One Nation had piled into the M+ product, taken in by advertising that equated it to a term deposit with a bank when this has been alleged to be a sham.

As to who authorised this ill-fated investment, well that’s starting to sound a little like the who appointed the security guards fiasco.

Senator Hanson immediately distanced herself from the potentially disastrous investment in James Mawhinney’s stricken Mayfair Group, saying the decision was taken by One Nation executive without her knowledge or consent.

Whoever decided it was a good idea to put money in this alleged sham, fell for the oldest trick in the book…the temptation of the ‘forbidden fruit’ of higher returns.

The sweet taste of those extra returns blinded them to the risks. As reported in the Australian Financial Review on 24 September 2020 (emphasis added):

Investors in Mayfair 101’s $67 million secured notes have been told to brace for a total loss as a report filed by provisional liquidators claimed the company behind a highly publicised purchase of Dunk Island in Queensland was doomed from the start.

Said Jahani and Philip Campbell-Wilson of Grant Thornton branded the business model of the M101 Nominees, in which short-term secured notes were raised from the public and loaned to another company within the group, as unsustainable and insolvent from inception in November 2019.

Brace for a total loss.

Schemes like Mayfair 101 do not come as a surprise. Happens every cycle. What’s surprising is the list of those who fall prey to these ‘investments’.

This is from the June 2018 issue of The Gowdie Letter (emphasis added):

At some stage in the market’s progression there’s a tipping point…an interest rate reduction…a work colleague/relative/friend/neighbour who tells you of their investment success…a noticeable shortfall between income and expenses that’s eroding your capital.

Something triggers a change of heart.

The dialogue that’s happening between your ears, switches from remaining resolute — knowing markets have been artificially inflated from central bank intervention — to “perhaps it’s different this time”. Maybe, just maybe, the central bankers have developed the right formula to effectively stabilise asset prices.

Higher returning offers — once spurned as being too hazardous — now appear to be worth the risk.

Mayfair 101 timed its tempting offer to perfection.

Month after month, the RBA kept rates down at 1.5%. Along comes Mayfair offering 6.45%.

With ‘advertising that equated it to a term deposit with a bank’, that extra 5% was money for jam…well worth the risk.

As I wrote in the 24 April 2020 issue of The Gowdie Letter:

That extra few percent on offer DOES NOT come for free. There is almost always a price to pay. And you won’t know what that price is until it’s too late.

Will it be five, 10, 25, 50 or even 100% of invested capital?

The extent of the downside depends on the severity of the market downturn, the quality of the assets, liquidity (or lack of) and whether there’s any leverage.

However, the longer the markets remained positive and the more rates were reduced, the greater the lure of higher yielding offers.

These offers “sell the sizzle”, but never tell you about the fire.

Attention is focused on reward (the promised higher return) and diverted away from risk (the potential loss of capital).

The provisional liquidators have now revealed what the cost of that extra few percent was…total loss of capital.

The promise of an extra 5% came with a 100% downside…that’s not a good risk versus reward equation.

I bet if those investors in Mayfair 101 could do it all over again, they’d gladly accept a 1% term deposit return on 100% of their capital.

The gaining of wisdom AFTER the event is of little consolation.

One island sank One Nation

This is from The Gowdie Letter on 24 April 2020:

Mayfair 101

One such firm was the subject of an article in The Guardian on 28 September 2019.

Mayfair 101, was keen to spread the word on its higher yielding funds (emphasis added):

“Mayfair 101 is directly targeting investors who are frustrated with the low returns offered by bank term deposits by offering 6.45% a year on investments made in September [2019].

“…a cash splash, estimated to have cost hundreds of thousands of dollars, on a series of full-page advertisements touting Mayfair 101’s superior returns taken out in newspapers including News Corp’s Queensland tabloid the Courier Mail in August and September.”

6.45% is what the BIG print giveth, but it’s the small print that always interests me.

Who was investing the money and where were the funds being invested to achieve the “superior returns”?

‘The Guardian reported (emphasis added):

“After raising $120m from investors, Mayfair 101, which is run by the former boss of a failed media company, last week committed to spending $31.5m to buy Dunk Island, a failed holiday resort in Queensland.

“The island purchase adds to a portfolio of investments into which Mayfair 101 has sunk about $100m that includes cryptocurrency companies, a database formerly used by Barack Obama’s presidential campaign and an accounting software group.”

If you were a prospective investor, are you spotting any red flags in those highlighted sections?

Former boss of failed company. An island. Cryptocurrency companies. A database. Accounting software group.

Perhaps it’s just me who thinks that’s probably NOT the asset backing needed to produce superior returns on a consistent basis…month in, month out.

There would have ended my very limited research into this product.

But as I’ve been told often over the years, my old-fashioned thinking is at odds with new-age thinking…

In the modern age of investing, we are mindful that profit-generation is no longer the sole benchmark for a company’s success (e.g. Uber, SnapChat) he [James Mawhinney, Mayfair 101 Chairman] said.

Well, that changes everything. The Chairman of Mayfair 101 has shown me the error of my ways.

See, I would have thought that to pay investors a promised superior return you’d need to be investing in assets that actually produced profit.

But that’s just me. Obviously in this “modern age of investing” that’s not relevant.
Must be because “it’s different this time”.

I know I’m being sarcastic, but this product and its management affords me that opportunity…in spades.

Everything about this product for sophisticated investors sets of audio shattering alarm bells.

Would I recommend or endorse an investment in this fund? Not in a million years…and even then, that would be too soon.

Mayfair 101 looked, smelt and tasted like doggie doo, yet somehow people thought it was a sweet-tasting apple.

You can tell people the truth, the whole truth and nothing but the truth about these schemes BEFORE they blow up, but they think you’re the one telling the lies.

When it comes to representations on how these schemes can cause disproportionate harm to your financial position, this one seems appropriate…one island sank One Nation.


Vern Gowdie Signature

Vern Gowdie,
Editor, The Rum Rebellion

Vern has been involved in financial planning since 1986.

In 1999, Personal Investor magazine ranked Vern as one of Australia’s Top 50 financial planners.

His previous firm, Gowdie Financial Planning, was recognised in 2004, 2005, 2006 & 2007, by Independent Financial Adviser magazine as one of the top five financial planning firms in Australia.

In 2005, Vern commenced his writing career with the ‘Big Picture’ column for regional newspapers and was a commentator on financial matters for Prime Radio talkback.

In 2008, he sold his financial planning firm due to concerns about an impending economic downturn and the impact this would have on the investment industry.

In 2013, he joined Fat Tail Investment Research as editor of Gowdie Family Wealth. In 2015, his book The End of Australia sold over 20,000 copies and launched his second premium newsletter, The Gowdie Letter.

Vern has since published two other books, A Parents Gift of Knowledge, all about the passing of investing intelligence from father to daughter, and How Much Bull can Investors Bear, an expose on the investment industry’s smoke and mirrors.

His contrarian views often place him at odds with the financial planning profession today, but Vern’s sole motivation is to help investors like you to protect their own and their family’s wealth.

Vern is Founder and Chairman of The Gowdie Advisory and The Gowdie Letter advisory service.

The Rum Rebellion