Founder of Guardian Vaults Neil Tremaine
Neil Tremaine has a strong preference for investing in hard assets like property and bullion. That’s because he understands them and has learned from earlier mistakes, including a brief dabble years ago with shares. Cryptocurrencies like Bitcoin are totally off his radar, which is curious because that craze is behind a surge in new clients to his business. He owns safe deposit boxes. The jump in popularity for vaults raises the question: why does something that doesn’t physically exist, like Bitcoin, need to be stored behind bars in underground bulletproof facilities that deploy seismic detectors, infrared sensors, biometric hand scanning and much more?
The answer is theft. Just like gold bars and jewels, cryptocurrencies are the target of sophisticated criminals. Perhaps the biggest heist occurred in Tokyo in January when security flaws in the Coincheck exchange let hackers pocket a cool $670 million. Traders using the Mt Gox bitcoin exchange were similarly hit in 2014 when an estimated $570 million was nabbed. No wonder crypto traders are now acutely aware of the need to protect their private keys.
A key is actually a unique string of letters and numbers that identify crypto owners. Without it, they can’t prove who they are. They also can’t access their accounts. The upshot is they lose their investment. But anyone else who uses the key is assumed to own the account, even thieves. Keys are almost impossible to memorise, unlike bank PINs, because they comprise 64 characters. If stored on their computers, they are vulnerable to hacking. Instead, they can be kept offline in what is called a "cold wallet" or printed on paper. This is where the age-old business of managing safe deposit boxes comes to the rescue.
“They are like the old bearer bonds,” Tremaine says of cold wallets. “The thieves of 25 to 40 years ago wanted to steal bearer bonds. They were easy to carry, they only had to present them to get the funds. Say someone had $10 million of Bitcoin. They could hold that on 10, 20 cold wallets. They may put some away for the longer term. They may have one which is used effectively as a transaction account. It’s like having a savings account at the bank, another account for fixed interest and a savings account to draw on as required. One cryptocurrency wallet can be used for that
latter purpose, and it might contain a lesser sum. The others they store with us.”
He doesn’t know how many crypto traders use his vaults, because customers don’t tell what is in their boxes. But the number of new clients has spiked since the craze hit. That has prompted Tremaine to spot an opportunity for another service. His Guardian Vaults has long arranged purchase and storage of bullion for clients but now it accepts cryptocurrencies in payment for gold and silver bars. That way investors can not only safeguard their assets but they can also spread their assets.
Vaults used to be owned by banks but they want out because they are no longer seen as a core business. There are pesky regulatory issues that banks would rather not deal with, and their vaults are often old and outdated. Guardian has three modern, hi-tech vaults in Melbourne and one in Sydney with plans for more.
Tremaine had owned self-storage units around Melbourne when an associate suggested he try vaults. “They are like self-storage but on steroids. I decided the idea was worth proper investigation, and I was dismayed to find how antiquated most Australian facilities were. Security was lax and their procedures woeful.” He opted to build new vaults to comply with modern standards. The thing is, vault break-ins still occur. Tremaine notes that $44 million of jewellery and gold was nabbed in 2015 from an old vault in Hatton Garden in London when a gang of elderly
men used basic cutting machinery. The loot is still missing, and the case is featured in an upcoming TV mini-series starring Michael Caine.
On average, a safe deposit box costs $400 a year to rent. Tremaine looks at it as a numbers game. His company has 10,000 safe deposit boxes, which return annual revenues of $4 million. It’s like an annuity income stream. While it takes an average of seven years to fill all of the boxes in a new vault, once that’s done the payments regularly come in. Because there are thousands of clients, a few who leave impact less on income, for instance, than when tenants leave a building.
Vault owners have to comply with tight anti-terrorist and anti-money-laundering laws. Customers aren’t forced to disclose what they store in their safe deposit boxes, which could be family heirlooms, personal documents or cash from ill-gotten gains and stolen cryptocurrency keys. But vault staff are trained to spot suspicious behaviour, and must report any suspicions to authorities. Among the clues they look for are the frequency of visits, boxes that are accessed by people other than the owners, people who take a long time in a vault and suspicious customer profiles.
Tremaine, as it happens, is a client too. What does he store? “Items that belonged to my late father. They are photographs, awards that he had won – he was in the air force. Since my mother passed away, I have stored all of her jewellery and knick-knacks. They are not valuables but they are precious to me. There are also passports. Before I knew it, I needed a second and then a third box. Now I have a digital backup of my laptop, with all of my photos on it. To me, business is one thing but my life outside of work, my family, having photos of my children when they were young, is important. I wanted to make sure that they were stored away and I never lose them.”
Certain cultures use vaults more than others. Gold and jewellery are important to people with Indian and Chinese heritage, for weddings and religious celebrations. For Hindus, gold is an important part of celebrating the Diwali festival of light every northern autumn. People also tend to seek the security of a safe during tough economic times as they focus on holding onto what they have.
Tremaine was born in a country pub, the Stone Jug, in Clophill, England. His father, Len, bought it after serving with the Royal Air Force in Egypt, Greece and Malaysia. He found the weather was too cold, however, so the family moved to Australia. “We were 10-pound Poms.” They lived first in Geelong and moved to the Gold Coast and other plac- es because jobs were scarce. Tremaine studied for a degree in accounting and finance, and took his first job at Victoria’s Statewide Building Society while still at university. There he learned how to manage a branch office and worked with a team setting up an in-house investment bank. Later he moved to a merchant bank, Chase NBA, where the general manager, Russell Smith, became a mentor.
“He ran it like the old English merchant banks, not like an American investment bank. We took financial risk and we had a lending book. How to write and how to analyse people’s accounts to make a determination whether or not you are going to lend them money was important. I was fascinated by that. He was a great teacher.”
Cautious as he is about business and investing, Tremaine says one regret was a dabble in shares. “I bought based on improper advice, and that is what put me off the sharemarket. Advice is extremely important, having the right broker or adviser telling you what to buy. If you don’t have that, then invest in an index fund or something of that nature.” He concluded that to truly make a good share investment, you needed to know whether a company could deliver on expectations, what the board was doing, what its investment criteria were and what it was about to buy. Was it about to do something wrong? “I would rather have control of my own destiny.”
Tremaine advises investors to diversify because markets can be volatile. When interviewed, a warming sign for him was that the Chicago Board Options Exchange’s VIX index, which measures the wild swings that sharemarkets can take along with the quiet times, had been flat lining for an unusually long period. To him, that was a sign that shares faced a period of volatility. “The market is fully priced, at a level that is ridiculous. If one of my children asked me what to would invest in, I would say that cash is good, some gold and silver is good. Just don’t have debt.”
“If one of my children asked me what to invest in, I would say that cash is good, some gold and silver is good”