This approach could be a good way of combining a long-term horizon with an “ongoing, third-party derived valuation” – that supplied by the 30 per cent free-float listed component – according to Lachlan Douglas, a director at private equity placement agency Principle Advisory Services.

Maintaining a daily market valuation would help tackle a problem common to many less liquid alternative asset classes, whereby managers are tempted early on in the life of a fund to over-emphasise positive aspects of their holdings to third-party valuers – who as Douglas says “can rely to a great extent on what they are told by management” – in order to bring forward payment of their performance fees.

The possibility of including long-only equity investments in an ‘alternative markets’ fund is not the only foreign ground being trod by the ipac investment team. Jeff Rogers and his colleagues have also been “agonising” over where to put an intended exposure to life settlement funds – which purchase life insurance policies from people who are typically over 65, and typically are expected to die in less than 10 years.

The manager skill involved in selecting the most lucrative underlying policies would seem to make life settlements a candidate for ipac’s “alternative alpha” bucket, but Rogers says there is an argument for the funds containing a “demographic-driven insurance beta” as well, even though the funds typically only cover a few thousand elderly Americans.

More clear-cut is what will constitute the core of the “alternative alpha” bucket, which like the alternative beta portfolio is earmarked for 3 per cent of ipac’s flagship diversified portfolio. Last month, ipac seeded the US-based hedge fund-of-funds, Prisma Global Multi-Strategy Fund, with $160 million. It was the first fruits of its relationship with specialist alternatives placement agency, Brookvine. By short-selling the beta exposures of underlying managers, the Prisma fund-of-funds aims to have low correlations to equities, be as volatile as bonds and deliver similar returns to those earned by equities. It has recently invested in fixed income, volatility arbitrage and distressed credit strategies, and in the past year sought managers who were short subprime securities and financial companies.

While ipac’s “alternative markets” bucket will broadly be characterised by underlying economic exposures and be more suitable for end-clients who are in the accumulation stage, Rogers says that alternative alpha is risk-reducing and more suited to decumulators. “The anchor is a well-diversified hedge fund-of-funds with strong risk management, but any manager who can demonstrate repeatable skill to us belongs in there too,” Rogers says.