TWU Super has awarded $70 million in new mandates to structured credit and private equity secondaries managers.
For its only investment in structured credit, the $1.8 billion industry fund awarded a $40 million mandate to Massachusetts-based manager Babson Capital, which focuses primarily on the US market but will also seek some exposure to European credit securities.
The mandate was funded from cashflows and included in the fund’s unlisted equity allocation because it was expected to behave and generate returns similar to equity investments, Andrew Killen, TWU Super chief investment officer, said.
“We expect the returns and volatility to be more equity-like,” Killen said.
Overall, $100 million of the fund’s capital is invested in unlisted equities.
TWU Super also increased its allocation to private equity secondaries by signing its second mandate with Lexington Partners.
It recently invested $30 million in the manager’s seventh secondaries fund, after investing roughly the same amount in a preceding fund.
“We see good opportunities given the sell-off in markets,” Killen said, adding that some assets were selling at discounts of up to 40 per cent of their market value before the financial crisis struck.
While the first mandate with Lexington had generated reasonably good returns to date, Killen expected the new allocation to perform better from the outset.
“It’s been satisfactory. But we expect this [new] mandate to produce better returns given the point of the cycle at which it was invested.”
He said the fund’s asset consultant, JANA Investment Advisors, and its predecessor Mercer identified the private equity secondaries market as an appropriate place to invest given the discounts on offer.
Meanwhile, the fund’s investment committee will decide at month’s end where it will direct the $70 million it redeemed from Warakirri Asset Management’s fund-of-hedge funds earlier this year, Killen said.
TWU Super cited risk management concerns as its reason for terminating the mandate.
In late 2008, amid the sharp decline of the Australian dollar, the fund was unable to maintain its currency hedge for a fortnight.
