Multimanager ipac has signalled it won’t allocate to passive managers, but will aim to minimise redundancy among active managers as it nears the implementation stage in the review of its $4 billion Australian equities portfolio.
Jeff Rogers, chief investment officer at the $13 billion multi-manager, said the concentration within the Australian market, which saw a lot of capital allocated to a small number of companies in the resources and financials sectors, often resulted in overlap among manager holdings and was driving a new approach to mandate structuring at ipac.
Rogers said many domestic equities managers included big names in the index to manage risk and keep liquidity at hand for when opportunities among smaller stocks emerged, which caused a lot of turnover and could adversely impact the outcomes of alpha strategies.
“There’s a lot of excess turnover at the top end, and position-taking that is view driven and risk management driven,” he said.
“They just can’t say: ‘I like this list of stocks,’ and buy them.”
He said ipac aimed to enable managers to “focus on the views” and not spend too much time managing risk and liquidity, “so that at the top 10, top 20 index names we don’t have many redundant positions and excess turnover – which is all alpha-seeking behaviour but doesn’t have impact”.
In aiming to minimise redundancy among ipac’s Australian equity manager holdings, Rogers all but ruled out the use of passive managers.
“I don’t think there will be a specific passive allocation. There will be active risk across the whole portfolio but we aim to make sure there is no redundancy.
“It won’t be something like one-third passive, two-thirds concentrated active. It’s more about trying to engineer who’s taking risk across various parts of the cap spectrum.”
This would require managers to build mandate portfolios specifically for ipac.
“The starting point would be working with the incumbents, and looking at a shortlist of others to get a sense of whether they would be able to play a better role in what we’re trying to achieve, rather than rank them from best to worst. “
If the new approach was implemented, the consequent portfolio would appear to be taking on less risk, but this perception would primarily be due to lower turnover of stocks, Rogers said.
