Queensland-based $1.6 billion industry fund BUSS(Q) has “dipped its toes” into two distressed opportunities funds, identifying flailing debt-ridden companies as a means of boosting performance according to chief executive David O’Sullivan.
The fund has awarded two $10 million mandates to US-based managers Siguler Guff and Quellos. Both mandates are for distressed opportunity funds. The $20 million exposure to distressed debt has been funded from BUSS(Q)’s international equities portfolio, which had spoken for 23 per cent of scheme assets. “Distressed debt is a bit like private equity in nature but it’s more focused in the credit space,” O’Sullivan said. “It sees buying opportunities in companies where the equity is gone – where they’re technically insolvent. [These funds] buy the debt at a high discount, so they own the liabilities, then they take control of the company and re-equitise it.” He said these initial mandates were kept small deliberately as BUSS(Q) was not wanting to go into distressed debt “in a big way, straight away” although it does see the sector as opportunistic at the moment, and a possible good performer if the rest of the international equities portfolio is struggling. “We think it might actually be negatively correlated to the rest of the international equities portfolio,” O’Sullivan said.
Future Fund chief investment officer Ben Samild said that FY24 has been a great year for alpha creation, thanks to strong returns in equities and, unusually, across multiple hedge fund strategies all at the same time. He reflected the past few years have been “a difficult time to be an asset owner and to generate positive returns for risk assets” but the Future Fund is tracking well of its long-term mandate.
Simon Hoyle and Darcy SongSeptember 4, 2024
