Superannuation funds were forced into rush reviews last month as they tried to figure out how ASIC’s 30 day ban on most new short-selling would affect the long/short managers that have become an increasingly prominent presence in their portfolios.
The main concern for super funds was how it would affect their securities lending programs, a valuable offset for their custody fees, and the ability of long/short managers to fulfil their mandates. Sam Sicilia, chief investment officer at the $7 billion Host Plus, said while some funds were thinking about calling back stock on loan, Host Plus would continue its securities lending program, and its custodian (JPMorgan) had guaranteed its stock. “But obviously the volume of stock we lend and the revenue it brings will decrease,” he said.
In terms of its managers, Sicilia said Host Plus would examine each on a case by case basis, as they were affected to different degrees. “We have to be tolerant; we believe all our managers are working for us and doing their best. We won’t hold it against them if their performance is temporarily affected by something beyond their control,” he said. “Some may have a problem, and we will look at that at the end of the month, but you have to be fair and reasonable about fees and performance in these circumstances. We have a moratorium in place, so we will wait for the dust to settle before making any decisions.” There would be little impact on Mercer’s multimanager funds, according to Russell Clarke, chief investment officer at Mercer, since the firm did not hold any domestic long/short equity managers.
Its only long/short allocation, managed by Acadian, was a global mandate affected by the ban on shorting financial stocks in the US and UK markets. Mercer’s alternatives portfolio is made up of mainly of multi-strategy hedge funds, which can implement strategies that are not based on equities, and global tactical asset allocation, infrastructure, private equity and structured products managers. “Few of our multi-strategy managers are exposed to Australia,” he said, adding Mercer did not participate in lending stock within its funds.
Barclays Global Investors, which has of late been converting long-only clients over to its Equitised Long/Short Fund in Australian equities, said the majority of its long and short positions were of a long-term nature, and so it was comfortable in maintaining them. A spokesperson said BGI was confident the ban was temporary and that both the government and regulator were supportive of legitimate covered short selling.
Similar refrains were echoed by a spokesperson at Macquarie Group regarding its wholesale Asia Long Short and Australian Long Short Equitised funds. AMP said the clients of its Australian Long Short Equitised fund were institutional, and had been advised the fund would be managed, albeit with some adjustments, while the ban was in place.
Dom Hamson, head of Plato Investment Management, was not anticipating much in the way of inflows over the month, but said clients (such as Russell and ING Optimix multimanager funds) had been supportive in initial discussions.