AustralianSuper has invested $200 million in the JANA TriplePoint hedge fund-of-funds, an implemented consulting offering that draws on underlying mangers, traditional beta and alternative beta vehicles run by Partners Group, a Swiss alternatives manager.
The $28 billion industry fund committed more than other seed investors into TriplePoint, which has garnered $357 million since its December 2007 launch. The fund aims to drive down the fees associated with hedge fund investing, as well as the excessive trading, heavy leverage and beta-fuelled returns championed by some managers.
Jim Lamborn, JANA’s head of implemented consulting and investment solutions, said a challenge was set “to find a solution, to keep the absolute return streams but chisel away at some of the things that we don’t like”. “The pendulum of power swings from one end to the other, and it’s been in the court of the managers for a long time. “AustralianSuper were very keen as an entity to see that the pendulum was not in the manager’s court.”
Lamborn said the product also represented JANA’s “response to the alpha-beta separation discussion”. The fund invests in four “buckets”: underlying hedge funds; alternative beta sources; traditional, “efficient” beta sources; and cash, Lamborn said. Allocation targets for both hedge funds and traditional beta are set between 20 and 60 per cent of the portfolio, while alternative beta sources can account for up to 40 per cent, with 20 per cent the strategic target.
“We implement tilts between the areas. We’re not tactical, we’re enhanced-strategic. We overweight when there’s an opportunity.”
Lamborn said the vehicle was currently overweight hedge funds and alternative beta. Among the strategies pursued by underlying managers are equity market-neutral, global macro, global tactical asset allocation and momentum-driven, commodity trade advisor strategies. Pengana Capital’s global volatility hedge fund was recently added to the portfolio, Investment & Technology understands.
For alternative beta sources, JANA selects vehicles from an investment platform run by Partners Group, which uses quantitative models to systematically replicate sources of return from particular hedge fund strategies. Some strategies, such as merger arbitrage, can be plotted mathematically whereas others, such as global macro, cannot since they are driven by the views of particular economists and traders rather than definable events like mergers.
Partners Group runs approximately 35 alternative beta algorithms. The use of alternative beta is one reason why TriplePoint can charge lower fees than most other hedge fund-of-funds. Retail and wholesale clients pay base fees of 1 and 0.6 per cent respectively, in addition to 15 per cent of outperformance above the benchmark, which is 3 per cent above the UBS Australian Bank Bill rate.
This performance fee also carries a high-water mark. Existing JANA clients receive a discount to these fee levels. “The layers of fees are coming out,” Lamborn said. The underlying vehicles are held on an investment platform provided by Partners Group, and JANA has segregated accounts with each. Inflows are transported into the vehicles through two feeder funds, for super and non-super flows, which are domiciled in Australia.
The Swiss manager also supplies risk analyses of the vehicles to JANA. “They can make a horizontal slice through all the vehicles at once and look at their holdings. We have exposure to every individual cell,” Lamborn said. This allows JANA to provide daily unit pricing to investors. But this demand for daily liquidity means that hedge fund managers trading in illiquid assets, such as distressed debt, cannot be included in the portfolio.
The underlying managers have been “ring-fenced” within the product, Lamborn said, meaning that the TriplePoint team’s research on them is not available to the absolute return researchers with JANA’s traditional consulting business. Michael O’Dea, portfolio manager of TriplePoint, crossed over from his former position as head of absolute return research at JANA to work on the fund.
Prashanthi Nadarajah also works on the TriplePoint team. The name of the fund was drawn from the study of physics: the triple-point defines the particular temperature and air pressure at which the solid, liquid and gaseous phases of a given substance, such as water, are at equilibrium with each other.