If approved, Sunsuper will own 5 per cent of Geodynamics, valued at $19 million. Sunsuper’s other co-investment relationships, with Macquarie Bank and Lazard Carnegie Wylie, are not so direct. The fund recently awarded an initial $150 million mandate to the Macquarie Special Situations Fund.
Hartley expects the deals transacted by the manager to each be exited after one or two years and to be struck across global markets – “wherever Macquarie finds opportunities…We’re happy to accept wherever they’re putting the money.” However these investments must not be strategic stakeholdings but “returns-focused”. The potential for the mandate to be invested in various asset classes appeals to Hartley. “We don’t want to too feel boxed in, like when a mandate only goes into a particular asset class, such as infrastructure. What happens if infrastructure isn’t the place to be in the future?”
One benefit of co-investing with Macquarie Bank is that the deals into which Sunsuper invests should be subject to “better due diligence since they involve [Macquarie] money as well”. Longer-term private equity deals are sought by Sunsuper through a now two-year old relationship with Lazard Carnegie Wylie, with $200 million committed by Sunsuper so far (accompanied by a 5 per cent stake in the LCW business and guaranteed access to further fundraisings).
In 2007 the firm bought a 90 per cent stake in Dun & Bradstreet, an Australian credit reporting, debt collection and sales and marketing data provision company, and a 29 per cent holding in PPI Corporation Holdings, which manufactures and distributes water and irrigation materials. Hartley and his internal team will also seed esoteric investment vehicles.
“One of our favourite questions to ask managers when we visit them is: ‘Which opportunities do you want to take but have no money to take them with?” Hartley says. GMO, for instance, has built a ‘mean-reversion’ vehicle for the fund, which detects movements in stock prices between two and four standard deviations from their respective means. After identifying these movements, the manager sets investment positions in response and holds them until further movement occurs – hopefully towards fair value. Sunsuper has put $250 million into that fund.
Towards the end of the last bull market, the Boston-based GMO also found that investors were dumping large-cap stocks to invest in private equity “at high prices,” according to Hartley. With Sunsuper’s backing, it set up the Large Cap Quality fund, into which the institution poured up to $200 million. The internal Sunsuper team has appointed numerous asset consultants to analyse particular market sectors. “We recognise that we’re not the sole source of ideas…We want significant relationships everywhere in the world,” Hartley says.