Colonial First State (CFS) has dished out $300 million to three managers as it builds a new ‘alternatives manager allocation’ into the multi-sector funds on its FirstChoice platform.
To build the new alternatives exposure, CFS allocated an $85 million mandate to California-based manager First Quadrant, $105 million to New York’s Neuberger Berman and $110 million to London-based Aspect Capital, confirmed Scott Tully, head of investment services at CFS.
The alternatives play aimed to provide investors in FirstChoice multi-sector funds with greater diversification and a source of return that was uncorrelated to equity markets, Tully said.
“This was part of the review process we went through after the financial crisis, and we felt an allocation to these types of alternatives [would] provide good diversification and, therefore, should reduce some of the volatility in the diversified or multi-sector funds.”
Tully said the strategies were selected to diversify the portfolios by providing returns that were not correlated to equity markets, and to deliver lower overall volatility.
“They are all loosely under the category of managed futures or global macro, but the three-manager combination in total is intending to provide diversification to the equity market exposure in the portfolio.”
There were 19 multi-sector, multi-manager options on the FirstChoice platform, with $20 billion in funds under management, he said
Tully said a key consideration was that these strategies were highly liquid.
“We still believe liquidity is important and using managers that invest in liquid assets is important,” he said.
First Quadrant invests in a number of uncorrelated strategies, such as long/short equity, relative-value in developed-world equity markets, global macro and credit strategies.
“They run global macro strategies which have a high level of quantitative processing to it, but essentially they are trying to identify trends in markets in a relative sense and come up with returns based on that,” Tully said.
Aspect Capital described their investment strategy as: “applying an entirely systematic and quantitative approach to investment management”.
The investment manager staffed two physicists on its board and claimed to develop a range of hypotheses that identified key trends in market behaviour, and the drivers behind these trends.
Neuberger Berman melded quantitative techniques with general economic and market forecasting to invest in liquid instruments in global developed and emerging markets, according to the manager’s marketing materials.