Finally, Magellan Financial Group provides a portfolio of stocks that are core and quality-orientated and designed to be lower in volatility. Almost 70 per cent of members are invested in the fund’s default balanced option. It is split between 75 per cent growth assets and 25 per cent defensive. Of these 75 per cent growth assets, 55 per cent are in listed Australian and international equities and 20 per cent are in real assets such as property and infrastructure, three-quarters of which are unlisted.
Before joining the fund two years ago, Lazarides was the head of private equity and infrastructure for UniSuper. He says the fund’s size excludes it from taking positions in many private equity and infrastructure projects. “As a relatively smaller fund we are unable to take an aggressive stance in direct assets, notwithstanding there may be return benefits,” Lazarides says.
“So you have to take into consideration the liquidity buffer required and that limits that allocation and the depth of the types of investments that you can access; so we are not in private equity, we don’t do direct investments in infrastructure and we are in very core segments of property.” Lazarides also runs his own consulting business advising clients on infrastructure investment strategies.
The fund has 10 per cent of its balanced option in unlisted property, 5 per cent in unlisted infrastructure and 5 per cent in listed property. After shying away from all hedge fund investments in the wake of the financial crisis, the fund has also looked to reconsider its policy and procedures for this alternative investment class.
Lazarides says the fund has sought to clarify its hedge fund policies, recognising the difficulty in defining the attributes of a hedge fund; and it automatically excludes certain types of hedge funds if they are deemed to have a range of what are seen to be potentially negative attributes. These attributes include a lack of transparency, high levels of net leverage and a significant exposure to illiquid assets. “Hedge funds are a very dynamic component of a portfolio and it is clearly inappropriate to rule them all out,” he says.
“Things like a lack of transparency and very high fees are a negative for us and will remain so, but we need to be flexible enough to be able to access other attributes that may fall within the definition of what we call a hedge fund.” For any smaller fund the question of scale is an ever-present question for the board.
Lazarides says that the fund has had overtures from several funds but has yet to find the right synergies for a successful merger. “Our strategic plan is to grow the size of the fund and there are certain initiatives being implemented to do that,” he says. “I would suggest we are of a scale that lends itself to consolidation. So consolidation is a real possibility, but when you look for synergies that directly benefit our members it is a lot more difficult.”