Portfolio manager of the Russell Balanced Opportunities (RBO) fund, Andrew Sneddon, expected $800 million under management once the OneSteel members transferred into the SuperSolution Mastertrust from their more customised current arrangements within the Russell PST, a transfer Sneddon expected to happen by next quarter. They will find themselves with a 7 per cent exposure to listed alternative assets, with RBO becoming the seed investor in three new active sector funds: Russell Global Listed Infrastructure Fund ($A hedged); Russell Global Strategic Yield Fund ($A hedged) and the homegrown Russell Commodities Fund.
The listed infrastructure vehicle has US-based FAF Advisors as seed manager, with Sneddon revealing a second manager was weeks away from being added. The strategic yield fund is a four-hander. Logan Circle Partners will be running a high-yield debt mandate concentrating on the higher tier of sub-investment grade names, around the BB rating. Massachusetts-based DDJ Capital Management will handle the lower tier, using a high conviction approach which Sneddon described as “almost like owning the business”. Meanwhile Stone Harbor Investment Partners will invest in emerging market debt, and PIMCO will run a mandate that will tactically rotate between emerging market sovereign debt and high yield credit.
The commodities fund will employ the Macquarie Funds Group for a strategy that “plays the curve”, in Sneddon’s words, by being long on one maturity date of a particular commodity contract and short on another. Set up in 2007, Sneddon said his team behind RBO had considered investing in alternatives in early 2008, but decided the pricing on asset sectors like infrastructure was “late cycle”, and stayed away in deference to a “full investment” in listed equities.
After a bumpy ride, that high equity exposure paid off as equity markets recovered in 2010, however towards the end of 2009 the valuations of liquid alternatives began to look more attractive to the team. Over the next year, Snedden expected the RBO exposure to alternatives to reach “the teens” from the 7 per cent level where it now sits. “This increase will likely be to illiquid altrnatives that are approaching the bottom of their valuation cycle, such as unlisted property,” Sneddon said.