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.
Longreach branches out along income theme
Longreach Alternatives, a multi-affiliate manager started by Sam Mann in late 2016, has added to its range of boutique offerings with the launch of a fisheries quota firm. A common theme for the range is “sustainable income”.
Mann, best known for setting up and running for nearly 10 years the K2 Advisors hedge fund business in Australia, plus a period as regional head of FT Solutions after K2’s acquisition by Franklin Templeton in 2012, has embraced his roots in real alternatives with Longreach. The group offers a range of liquid and illiquid alternative asset solutions covering private debt, real assets plus a systematic quant equity strategy using machine learning. Longreach’s first established business, Longreach Credit Investors, is in the private credit space. It was a pioneer in offering private credit, providing corporate lending backed by business cashflows rather than real estate. The direct lending fund has been available to Australian wholesale investors.
This has been followed by Longreach CAI, a systematic quant equity firm, then Longreach Energy, which is a joint venture based in the US investing in mineral rights and their royalties, and now Longreach Maris, which will be the fund of its type in Australia, when launched soon. Maris invests in the State and Federal Government-controlled wild-caught fishing rights called ‘individual transferrable quotas’ (ITQs). There are about 400 ITQs around Australia.
Longreach Alternatives’ fifth line of business is offering CQS to the Australian market via a third-party marketing role. CQS head is based in the UK and was founded by Sir Michael Hintze in 1999. The other four businesses are all in partnerships with their operators and have been started from scratch, with Longreach having a significant equity ownership.
Another common theme is that the bulk of the strategies target a sustainably strong income stream. Mann says he has thought about having a separate Longreach strategy which combines those and other income streams into a single offering suitable for the burgeoning retirement market. But, for now at least, he is content to maintain a silo approach for that market.
The manager, which has eight people overseeing all the businesses and, usually, also working with the hands-on managers on investments when required, has about $1.4 billion under management and advice. They invest alongside both the operators of the affiliates and the end investors.
Alex Haynes, an experienced funds management marketer, was recruited in 2018 as head of distribution. More recently, Linda Wu was recruited from NAB Asset management as head of product. She had spent 13 years at MLC and NAB.
Longreach has another arm, Alternative Portfolio Solutions (APS), which was set up early in the piece mainly to help with Ironbark Asset Management, an initial sponsor of Longreach, looking to transition clients away from hedge funds of funds to single-manager strategies. It rarely takes on new clients.
Prior to K2, Mann worked across various alternatives strategies outside of hedge funds at Deutsche Asset Management (now DWS), including the associated RREEF alternatives business. Ironbark was set up by a former funds management chief executive of Deutsche, Chris Larsen.
Mann says that, with Longreach Maris, ITQs have a social element because the manager owns the asset, with its investors, on terms which are ‘just’ and the licence is leased back to the operators.
“We’re building a portfolio of ITQs with strong terms around that social impact,” he says. “The concept is very similar to [fresh] water rights. It will target about 8 per cent a year in income.” Examples are western rock lobster, southern bluefin tuna and gummy shark, which have big international as well as domestic markets.
Longreach Energy is not too dissimilar, involving the management of mineral rights in the US, where, unlike Australia, land-owners also own whatever is underneath their land. These rights can generate attractive income streams via royalties..
This group was started in partnership with two former Macquarie investment managers, Andrew Sinclair and Thomas Wagenhofer, who lead a team based in Oklahoma and Texas. Longreach Energy is predicated on the shift to renewables and mainly focuses on gas extraction.
Longreach Energy was seeded by an Australian institutional client and has recently launched a wholesale offering. This fund is available on the Netwealth platform and targets a return of 15 per cent a year of which 8 per cent is uncorrelated income.
