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.
Alternative Future Foundation puts its reserves to work with charity fund
The Alternative Future Foundation (AFF), responsible for the annual Hedge Funds Rock (HFR) charity event, has begun investing financial reserves built up since its 2017 inception with a host of alternatives managers as it looks for new funding solutions its charities.
While HFR – now in its 23rd year – has raised millions for the charities like Redkite and Women’s Community Shelters, it was effectively a “one-trick pony”, AFF chairman Michael Gallagher tells ISN.
“It meant we couldn’t go to our charities and go and align ourselves with a specific project or funding for an initiative,” Gallagher says. “We were also concerned about the longevity of HFR, because there’s a tight group that’s been involved in the planning and implementation of it for a number of years, and we wanted it to go on beyond us.”
“We looked at some models of foundations that were similar in nature globally, and many of them invested the sponsorship or surpluses they’d raised over a number of years. The Robin Hood Foundation in the United States is a good example. Given we have 23 years of (AIMA) IP, and – as part of HFR – the Australian Alternative Investment Manager Awards, and literally hundreds of years of experience sitting around in our committees in manager selection, we thought it was a no-brainer to invest our surpluses and create an extra revenue source for the foundation and in turn for our charities.”
The foundation is targeting an absolute return of 4-5 per cent over Australian CPI, measured over a rolling three-year period. Its manager line-up includes Antipodes Partners (emerging market equities), Betashares (Australian and US equity bear market ETFs), Carrara Capital (global macro), Macquarie Investment Management (global bonds), Opal Capital Management (equity market neutral), Revolution Asset Management (private credit) and Totus Capital (equity market neutral). All have either waived their fees or significantly reduced them.
“We want to make sure the managers fit the alpha, beta and SAA objectives that we put together with the investment committee. As things progress, we don’t want to take money away from what we’re allocating to our charities, but any surpluses that we create we will look to add to the investment pool we have and increase the allocations to managers we already have or add new ones to the mix… The majority of the people associated with the AFF come from an absolute return background and that’s what we’re looking for.”
It comes as AFF beefs up its philanthropic events schedule as part of what it’s calling the Sydney Alternative Investment Week, modelled off similar events in Miami and London, with the proceeds either flowing to the charities or allocated to managers. And while so far the foundation is just investing its own financial reserves, Gallagher also notes the existing ecosystem of charitable investment vehicles in Australia open to outside investors.
“Who knows into the future? We’ve seen other foundations open up to external money and there’s Sohn Hearts & Minds, Geoff Wilson has a few charitable LICs. I’d dare say it’ll be a good problem for us to have if we can start looking in terms of those things, but for the time being it’s another revenue source for the foundation so we can add to the money we’re donating to our charities.”
