Craig Turnbull

Two Sydney-based hedge funds have won mandates from the NSW Local Government Superannuation Scheme (LGSS) as it implements a direct hedge fund program after pulling $450 million from the Chifley hedge fund-of-funds (HFoF) last year.

LGSS awarded $28 million mandates to funds run by domestic managers Attunga Capital and H3 Global Advisors, and Winton Capital Management in London, marking the $5.5 billion fund’s re-entry into the hedge fund market.

Craig Turnbull, chief investment officer at LGSS, said the fund sought defensive, liquid strategies that supported significant short positions to serve as the foundation of its new hedge fund program.

“They had to be liquid,” Turnbull said, explaining that the time taken for its HFoF investment to be redeemed “cut down our options and ability to take advantage of opportunities. This confirmed to us that HFoFs weren’t right”.

The managers’ ability to take significant short positions could ideally reduce underperformance during market crashes, making long/short funds “one investment strategy that can make you money in a crisis, along with government bonds”.

But the alpha-extension vehicles could lose money in choppy markets with no dominant trend, he said.

For LGSS, Attunga runs an energy trading strategy in the “relatively immature” Australian energy market, and can invest a small proportion of its mandate offshore. “While they can be long and short, a big part of their strategy is taking advantage of spikes in the energy price”.

H3 was appointed to manage a trend-following strategy aiming to exploit changes in market direction, and is very similar to momentum investing, while Winton, a Commodity Trading Advisor (CTA), makes bets in global interest rate, commodity and stock markets.

A fourth mandate, awarded to a single-manager, multi-strategy fund, would be confirmed in coming weeks, Turnbull said. Formerly an investment director with hedge fund Vertex Capital Management, Turnbull undertook research and due diligence on managers with Harry Liem, a hedge fund specialist with Mercer, LGSS’ primary asset consultant.

In 2009, the fund invested most of the $450 million redeemed from Chifley in the domestic and international credit markets through BlackRock and Macquarie Investment Management.

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