Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
State Super FS looks to invest $200m in hedge funds
(Pictured: Michael Winchester)
State Super Financial Services, which has about A$12 billion under advice and management, has introduced an alternatives program and is looking to allocate up to $200 million across its diversified portfolios to hedge funds over the next six months.
Michael Winchester, investment strategist for SSFS, told the AIMA Australia conference in Sydney last week that the program was introduced as a way to reduce the organization’s vulnerability to equity drawdowns.
“We’re just putting our toe in the water,” he said. “It’s only going to be about 2.5 per cent of the balanced fund at this stage. We’re looking for strategies which will have a low-to-negative correlation (with existing investments).”
SSFS is the separately managed financial advice business of NSW’s big defined benefit fund, State Super (SAS Trustee Corp).
There are about 50,000 clients on its books – mainly retired NSW public servants – serviced by 150 financial planners.
Winchester told the AIMA conference that the trustees understood that in order to reliably reduce volatility they needed to accept a slight reduction in returns. “Transparency is important for us,” he said.
He said that the desire for transparency probably worked in the favour of local managers and the organization had a tendency to stick with the managers it hired. The average manager tenure was about five years, he said.
