A new survey of super funds by UNSW Associate Professor John Evans would appear to prove Ray King’s assertion that a broad grouping of alternatives is common market practice in Australia. Sponsored by Swiss private equity fund-of-funds Adveq, the survey was particularly interested in how the $250 billions’ worth of respondents categorised their private equity allocation. Just 40 per cent put private equity in its own bucket – for 24 per cent it was lumped in with ‘non-traditional’ assets, 18 per cent filed it under ‘private markets’, 12 per cent thought they had defined ‘alternatives’ well enough to put private equity in a bucket of that name, while 6 per cent classified it as part of ‘total equity’.

Preferring to remain anonymous, our aforementioned insurance fund CIO says that many investments which are referred to as ‘alternative’ or a variant on same are “just mainstream…Why is property development considered ‘alternative’?” His fund separates unlisted from listed investments because of the way they are selected and their different time horizons. Unlisted trusts may have a five, seven or 10-year lock-up: “that makes them a different ball game”. Just as blunt is the chief investment officer of MLC Investment Management, Chris Condon, who calls the ‘what are alternatives?’ debate “a crock…I’m concerned that many insto investors equate ‘alternative’ with ‘illiquid’ and are loading into these things with no clear understanding of the risk to which they are exposing their funds, particularly now that we have fund choice,” Condon says. “My view is that unlisted infrastructure, property and private equity are not truly ‘alternative’, they just have a different method of price discovery, and in fact are not being priced properly in many instances.”

Condon walks his talk. MLC’s Long-Term Absolute Return Portfolio (LTAR) is about as different as they come in terms of investment objective – a 5.5 per cent real return (after inflation, fees and tax) over a genuine 20 year horizon, with ‘neutral’ long-run target allocations overlaid by strategic tilts based on five-to-eight year intermediate outlooks. Yet a glance at the fund’s investment strategy reveals surprisingly little in the way of what one might immediately think of as ‘alternative’ investments.

If we take JANA chief executive Ian Patrick’s elegant definition of ‘alternatives’ as “anything that’s not a straightforward investment at arm’s length in a security listed on a public market”, then the only MLC LTAR exposure that really seems to fit the bill is its global private markets allocation, at only a ‘neutral’ 10 per cent. The emphasis elsewhere is on unconventional approaches to tradeable securities, such as a 7 per cent exposure to insurance-related investments like catastrophe bonds and weather derivatives.