AMP Future Directions to treble alternatives

The AMP Capital Investors ‘Future Directions’ diversified funds have “come off the sidelines” on alternative investments, with investment director Sean Henaghan flagging a build-up to 15 per cent over the next two years. Henaghan declared that potential returns on alternative investments were finally compensating the long periods of illiquidity they demanded, and revealed that Future Directions’ private equity adviser, San Diego’s StepStone Group, had placed the vehicles with three primary private equity managers since their relationship began in January. “If you look at the best times historically to have bought private equity, it was ’92, 2001/2, and I think this vintage will be a similar story – you’re buying companies at two or three times EBITDA that were asking nine or ten times a couple of years ago.”

These primary managers, whom Henaghan would not name given some mandates were still in transition, cover China and US energy and financials, while a secondary investment has been made into the venture capital fund of an Israeli manager, and a green energy co-investment deal has been struck with a fellow institution. In accord with his quest for “equitylike returns with less reliance on the equity risk premium”, Henaghan also unveiled two new fixed income strategies within the Future Directions funds. One of these is a new ‘credit opportunities’ sub-fund, whose three managers have the flexibility to chase high-yield credit, bank loans and emerging market debt in both local and hard currencies, but “are able to chuck it all into ‘guvvies’ [sovereign debt] if they don’t think they’re being compensated for the risk”, Henaghan said.

The portfolio, shared between Franklin Templeton, Stone Harbor Investment Partners and Loomis Sayles, requires capital values to fall by 10 per cent to generate a negative return, Henaghan said. He admitted the high-yield credit component did have correlation to equities, somewhere around 0.5 to 0.6, but pointed out that the high proportion of the return generated by income stream made the profiles “very different”. The three credit opportunities managers will share roughly 3 per cent that’s been redirected from equities within the Future Directions Balanced Fund ($6.3 billion FUM), but will sit on all of the group’s diversified funds which have a total FUM around $9.8 billion. On the defensive side of the fixed interest fence, the Balanced Fund has also just assigned a 5 per cent allocation to inflation-linked bonds, as a hedge against the higher-inflation environment expected as a result of global economic stimulus through government spending. Ardea Investment Management, the Challenger-backed boutique which emerged from Credit Suisse group, will handle the domestic ‘linkers’ while Sinopia, the quantitative arm of HSBC Global Management, will run an ex- Australia portfolio.