Bad day for core managers as Future Directions backs concentrated mandates

The AMP Capital/Mercer Future Directions Funds have sounded another death knell for the traditional core manager, terminating three low-tracking error Australian equity mandates in favour of four new concentrated funds.

The $3 billion Future Directions Australian equity portfolio has ended mandates with Maple-Brown Abbott, Perennial Value and the Barclays Global Investors trust which targets a 2 per cent tracking error against the ASX 300. The redemptions have funded four new higher-octane mandates, which Future Directions investment director, Sean Henaghan, said would boost the tracking error of the Australian equity portfolio from 1 per cent to 2.5-3 per cent. An allocation of 16 per cent, or an initial $480 million, has been awarded to Tyndall Asset Management’s ‘CVA Plus’ 15-25 stock strategy, which has now closed to new investors with $700 million under management. The shop set up by former McKinsey consultant Saxon Nicholls, Herschel Asset Management, will manage 10 per cent of the portfolio using its style-cyclical process, which targets a tracking error of 5-8 per cent. JF Capital Partners and Lazard Asset Management, meanwhile, have been assigned 8 per cent apiece for their respective deep-growth and deep-value processes. Henaghan said the allocations to both mandates, which in Lazard’s case is with the ‘Select’ concentrated version of its flagship fund, would be tactically altered as the market shifted to suit their two different styles. The Future Direction Australian equity portfolio retains a 16 per cent weighting to Ausbil Dexia’s concentrated equity fund, 14 per cent to MIR Investment Management’s high-conviction value portfolio, and allocations to AMP Capital’s growth and long/short funds of 19 per cent and 4 per cent respectively.