The $7 billion HOSTPLUS aims to expand its incubation program to include emerging global equities managers and is eyeing opportunities for co-investments with other institutional funds in the unlisted sectors of frontier markets. Sam Sicilia, chief investment officer with the industry fund, said he was working with asset consultant JANA Investment Advisers on developing a global equity manager incubation program similar to that run for domestic managers. “The case for an international program is good as it’s no harder and we could be beneficiaries from it,” Sicilia said. Before joining HOSTPLUS, Sicilia worked as an asset consultant for 15 years with Towers Perrin, Frontier Investment Consulting and Russell. He was confident that JANA was capable of assessing offshore managers from an Australian base.

“I have the ability to say to JANA: ‘Why don’t you research this particular manager in Brazil?’ And they go. It’s no harder to go off and do manager research from Melbourne than it is from the UK or the US.” He said a global presence did not guarantee a premier asset consulting service: it was necessary that essential information consistently flowed between offices in different markets. “Being global is more than red dots on the map.” Sicilia said the proposal for a global emerging manager program would be put to the HOSTPLUS board later in the year. “We have one international smallcap manager in IronBridge, and we should have another if for no other reason but for capacity. If we do appoint another, it should be funded through incubation.”

The managers chosen for the program are usually given between $10 million and $20 million to manage throughout 18 months, and graduate to asset class portfolios if HOSTPLUS is convinced their work contributes meaningfully to the fund’s investment strategy. Orbis and Greencape Capital recently graduated from the fund’s domestic incubation program, while a concentrated product from Industry Funds Management was inducted in June. Similarly, MLC’s chief investment officer, Chris Condon, has flagged a discretion to award ‘incubator’ mandates to untested but promising managers across up to 5 per cent of MLC’s asset class portfolios, although he says the program has not begun as yet.

Meanwhile, alongside other longterm institutional investors, HOSTPLUS is searching frontier markets for unlisted co-investment opportunities in order to find assets delivering a reasonably steady income stream throughout a long time horizon. “We will never own 100 per cent or 20 per cent of the asset. We might own 1, 2 or 5 per cent, and need another 10 or 20 co-investors.” A collective of institutional investors buying into an asset meant that the risks were mitigated and “many eyes and much thinking” would examine the terms of the transaction.

This amiable pursuit of a shared interest – long-term returns – among the investors was possible because they were not corporate rivals, Sicilia said. “Why is it that HOSTPLUS, AustralianSuper, REST and HESTA can get together and invest? We’re doing it for our members. There are not the same competitive forces that exist among corporate funds managers.” Sicilia said that no agreements, such as memoranda of understanding, had been signed among funds that have discussed opportunities. “We just need each other. Otherwise it’s divide and conquer, and we lose.” He said the growth rates in frontier markets could surpass those recorded in the past as knowledge and technology became increasingly globalised. “It took the US 200 or so years to get where it is, and China might get there in 30 years, and Vietnam less. One shouldn’t underestimate the exponential rise of that curve.”