Big multi-manager ipac has reallocated its $4 billion Australian equities portfolio to four active managers, and told them where to deploy risk, in an effort to exploit information advantages and minimise overlapping stock positions in large companies.
The mandates – awarded to Lazard, Barclays Global Investors (BGI), GMO and Schroder Investment Management – were designed to enable the managers to concentrate on active positions in which their information advantages are greatest, such as the mid and small cap sectors, and minimise redundant large-cap holdings.
To achieve this, ipac awarded mandates to different strategies being run in different market sectors. BGI was appointed to manage $1.4 billion in a medium-term, quantitative, multi-factor strategy, while Schroder was hired to run $700 million in a long-term, quality growth and relative value product. Both mandates allow the managers to invest in the broad market.
Two customised mandates, focusing on the mid and small cap sectors, were also developed. GMO was hired to invest $800 million in a short-term mandate designed to exploit ‘market signals’, such as momentum and significant price movements, and Lazard was handed $600 million to manage in a long-term, relative value strategy.
“You can focus on a small group of managers with differentiated skills and sources of return, and give them specific mandates to leverage their skills, but in a way that also builds a portfolio that meets our needs,” Jeff Rogers, chief investment officer at the $13 billion multi-manager, said.
“As an asset owner, we’re going to tell managers where we think they’re most useful, and we’ll pay them for their best ideas.”
Rogers and ipac’s Australian equities portfolio manager, Simon Reynolds, intend the portfolio to be comprised of active positions that reflect underlying economic drivers, longer-term insights into company fundamentals and market signals, such as pricing momentum, and other significant shifts in investor behaviour.
“It’s all about getting information, processing it and backing it in our portfolio.”
Rogers and Reynolds found that most of ipac’s Australian equities positions had been larger stocks held with a long-term view. In contrast, the new portfolio aims to spread risk positions more evenly across both the capital spectrum and investment time horizon.
The broad market managers, Schroder and GMO, will hold reasonably passive positions in large-cap stocks. Now that ipac held fewer managers investing in large companies, Rogers expected that transaction costs would be reduced, in addition to tax events, such as the capital gains tax penalty incurred through the sale of shares held for less than 12 months.