A new report “from the coalface” of super fund investing has gone some way to quantifying the cost of shonky investment management, with members potentially losing out on hundreds of thousands of dollars.
Surging equity markets have driven the Future Fund’s return higher, but its prediction that inflation will be stickier than expected has been born out and it “remains conscious of the potential for significant deterioration”.
Funds diversifying more in face of changing markets
Manager search specialist bfinance has ticked over 70 searches for pension fund clients in the Asia Pacific region, 30 of which were in Australia, where it set up office in 2016. The trend with those mandates is instructive – funds are going defensive and alternative.
According to Pal Sarai, a London-based managing director and head of client consulting for bfinance, the firm has worked with 16 different asset owners in Australia in the past two years, covering mandates worth a total of $3 billion.
The firm recruited former eVestment Australia head, Frithjof (Fridge) van Zyp, to set up in Australia and has recently recruited Vishal Sharma for the local office. Fridge said that the search for yield and diversification was a global theme, not just in Australia and New Zealand.
bfinance has performed more than 900 searches in the past 20 years since its inception, with its clients – mainly big pension funds – investing more than US$200 billion through the process.
Sarai said: “Since the global financial crisis, that’s been the case and now, with rising interest rates in the US first, and probably elsewhere, we’re going to see something different. Renewables are a big theme, and infrastructure, private debt, international property and real assets such as agriculture and timber. So, that theme tends to be in private markets. Another big thing of late is liquid alternatives, such as risk premia strategies. There’s also some renewed interest in currency overlays.”
Australasian funds were looking to go defensive, Fridge said, and they tended to be looking at alternatives in private debt and alternative risk premia strategies.
Sarai said Australian super funds tended to be more active in their manager selection processes than their European counterparts. European funds, however, were going more international and into alternatives in the past couple of years.
bfinance has a unique model whereby the successful manager in a search pays the research firm a pre-determined fee, expressed in basis points. The basis point fee is based on the median of the manager universe, and is disclosed upfront. Each search begins from scratch, with an RFP, but Sarai says that this does not mean it is a quantitative model. “We wouldn’t be working with the most sophisticated clients in the world if we were purely quantitative,” he says. “We start every project from fresh, so we have to collect lots of information each time.”
– G.B.
