Funds SA drops active LPT managers in favour of indexing

The $13.5 billion Funds SA has pulled mandates with two domestic listed property trust (LPT) managers in preference for tracking the Australian LPT index, while simultaneously building its exposure to private equity.

The SA government-owned manager has terminated active mandates with SG Hiscock and Perennial and allocated approximately $200 million to Vanguard Investments to manage its exposure to the Australian LPT sector. The fund concluded that the Australian LPT market was too narrow to provide substantial opportunities for active managers to outperform and preferred to assign active mandates to LPT managers in offshore markets, Richard Smith, Funds SA chief executive officer, said. “The Australian LPT index is very concentrated, which does not provide reliable active returns, so we source alpha from the global LPT index,” Smith said. “The top five LPT Australian stocks account for about 60 per cent of market capitalisation in the index.” The fund appointed Morgan Stanley to manage its international LPT allocation more than a year ago. More recently, Funds SA brought its private equity allocation closer to its 4 per cent target by distributing two new mandates and increasing existing allocations. It gave a US$25 million mandate to the TCW Energy Infrastructure Group, which makes private equity and mezzanine debt investments in energy projects and companies worldwide, and a US$30 million mandate to an Asian private equity fund-of-funds, focused on expansion and buyout deals, run by Partners Group. “We wanted a dedicated Asian [private equity] fund to complement our existing program. We already had US and European private equity funds.” The fund also recently awarded a $100 million Asia ex-Japan equities mandate to the Barclays Global Investors Alpha Advantage Fund.