The mandate drought of late 2008 will break early next year as super funds position themselves for an inevitable rebound in Australian equities, and Bennelong Australian Equity Partners claims the five-year deal with its backer is a differentiator from the boutiques with whom it will compete for the inflows.
Bennelong AEP’s chief executive, Paul Cuddy, and CIO Mark East talked to nearly every incubator in town after making the decision to leave ING Investment Management last year, but Cuddy said the typical deal offered two years where "you are their risk capital, and if you want a third year you have to give up a lot more in terms of their stake".
Cuddy’s observation chimes with anecdotal evidence that some start-ups have had capital pulled by their backers after plummeting equity markets made short-term deal structures unviable.
Cuddy said the five year deal his team has with Bennelong Group, in which the philanthropic group’s significant minority stake will generate profits towards its charitable projects, had allowed the "alpha engine" to be fine tuned and the portfolio to get set in an orderly fashion.
"We’re interested in making this a ten or twenty year proposition," Cuddy said.
Bennelong AEP began investing its $20 million-plus seed capital on October 1, and to the end of November had beaten its ASX 300 benchmark by 600 bps, albeit a benchmark which fell 25 per cent in that time.
Mark East said the portfolio was "defensively" positioned, but that did not include two sectors once considered defensive – LPTs and infrastructure – as both had become debt-laden and lacked the financial strength required by Bennelong AEP.
"We don’t want companies which are at the mercy of their banks," East said.
The team’s focus on earnings risk has lead to overweights in healthcare stocks such as CSL and Sonic, which East observed had "definite earnings" and as exporters had also benefited from the sharp depreciation of the Australian dollar.