The $450 million Spec(Q) has begun reallocating the 23 per cent cash heap it has amassed back to the market, having directed the $70 million of free cash flow the fund generates each year into cash since December 2007.

Win Hughes, trustee director at the industry fund in Queensland, said the fund has almost doubled its investment in credit risk with Loomis Sayles in the

US, and last month invested 10 per cent in Australian equities to rebalance the portfolio back to benchmark.

Spec(Q) has also terminated an emerging markets mandate with Legg Mason, worth approximately 11 per cent of the total portfolio ($50 million), and reallocated the funds to


The change was prompted after QIC, which manages international equities on behalf of the fund, shifted its portfolio to incorporate emerging markets as the benchmark, resulting in Spec(Q) being slightly overweight emerging markets.

“We don’t have any independent emerging markets activity any more, now we just have QIC managing the emerging markets sector of the international [equities] portfolio,” Hughes said.

“Within QIC, which captured 40 per cent of the total portfolio, there was an allocation to emerging markets in that. Because we’ve got an allocation to T Rowe Price Asia, we pulled off the Legg Mason emerging markets and instead of giving it to QIC, we gave it to


The fund is currently undergoing a review
of its investment strategy in conjunction with its asset consultant, JANA, with
the intention of finalising the new asset allocation by August.

Hughes said alternatives could play a
bigger part in the new portfolio, but there were a number of structural and
philosophical issues that needed to be resolved.

“The question becomes whether the world
will run into synchronicity between portfolios which historically have had
correlations of less than 1,” he said.

“I’ve been looking around for other
alternatives and will be suggesting those for the investment adviser to have a
look at but in those constructs there are some other issues that need to be

The doubling of the fund’s credit exposure
comes despite the Loomis investment performing poorly on the back of the
sub-prime crisis.

“The Loomis [credit exposure] hurt us but
we’ve had a review of that and indications are it’s still high quality
corporate debt so we’ve gone and thrown more money back at that to pull it back
to benchmark, because the opportunity for returns remains very good,” Hughes


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