The $6 billion NSW Local Government Super (LGS) is up to due diligence on its first-ever active currency manager, has invested in a hedge fund beta strategy, and questioned whether it can continue to offer free financial advice to members following completion of the sale of its FuturePlus stake to Energy Industries Super Scheme.
LGS recently reduced the currency hedge over its $1 billion international shares portfolio from 50 per cent to 25 per cent, reflecting the investment team’s view that there was “more downside than upside” to an Australian dollar flirting with USD parity, according to LGS chief executive Peter Lambert.
However he said it was “difficult to be fully repsonsive to signals” with only a top-down strategic hedging position at one’s disposal.
“You can sometimes lose some short term value if, for example, you’re not able to manage your entry to a position over a couple of weeks,” Lambert said.
A preferred active currency manager has been identified by the fund following a review process assisted by asset consultant, Mercer. The manager, which is being put through final due diligence by CIO Craig Turnbull’s investment team, will have discretion to go below or above LGS’ strategic hedging level by 25 per cent, meaning it could currently hedge anywhere between 0 per cent anf 50 per cent of the fund’s international shares exposure.
LGS policy is to fully hedge foreign currency exposures arising from its fixed income and private equity portfolios.
Meanwhile, LGS Super has filled the 20 per cent allocation reserved for hedge funds within its $600 million alternative assets portfolio.
Earlier in the year, LGS Super CIO Craig Turnbull said the fund filled three of four intended berths, appointing H3 Global Advisors (a Sydney-based absolute return fund founded by the Kaleel brothers with backing from Ascalon), Attunga Capital’s energy futures hedge fund, and the Winton Global Opportunities Fund, a futures manager distributed in Australia by Macquarie Investment Management.
A fourth hedge fund did not make it through due diligence at the time, according to Turnbull, so it was decided recently to use the AQR Delta Fund, a quantitative product aiming to produce ‘hedge fund beta’, as a low-cost alternative.
Meanwhile, LGS Super yesterday finalised the sale of its stake in FutuePlus to Energy Industries Superannuation Scheme, a transaction which Turnbull said would not effect the investment strategy of the $6 billion fund.
LGS has however entered a four-year contract with FuturePlus to continue to provide it with administration and accounting services, as well as some investment implementation services.
