QIC has increased the exposure to timber in its $225-million Alternative Beta Fund, announcing it has invested with US-based Molpus Woodlands Group as part of a push to further diversify the assets in the fund.
James Dick, the head of alternatives investments at QIC, says real assets now make up more than 20 per cent of the fund, which has attracted commitments from the manager’s client base of 90 institutional investors.
The fund is also open to other institutional investors, with Dick saying QIC is comfortable with assets under management growing substantially beyond the current level.
“There is certainly no target but there are no constraints in the fund growing within a reasonable amount over the next little while,” Dick says.
“The fund could double in size and we would be very comfortable with that. Primarily, the fund was set up for our existing client base but it is a matter of commercial sensibility to open it up to potentially new clients.”
The latest timber investment means QIC has drawn down $158 million invested into the fund, with the remaining capital to be invested at some stage this year, Dick says.
The target allocation to Molpus represents 5 per cent of the overall fund.
The capital invested in the fund comes largely from QIC’s non-superannuation clients, which include insurance companies and corporate funds, according to Dick.
However, he sees growing interest from defined-contribution superannuation funds that could use the fund as a way of gaining exposure to a diversified group of hard-to-access alternative asset classes such as infrastructure and timber.
“One of the big impacts of the GFC has been a wider range of investors who are interested in properly diversifying their portfolios away from the traditional 70/30 fund,” he says.
“The superannuation industry is very peer-aware, however slowly but surely the exposure to alternatives is increasing. So, with that it is allowing more super funds to do what they have always wanted to do, which is to move towards more genuine diversification.”
The fund comprises of a mix of non-traditional assets such as infrastructure, insurance-linked securities such as catastrophe bonds, commodities and long-duration bonds.
Dick says the strategy of the fund aims to provide protection against inflationary events, which will impact a traditional portfolio made up predominantly of bonds and equities.
“We believe in things like real assets and commodities to fundamentally get away from that inflationary discount-rate problem that you get with bonds and equities,” he says.
Dick sees the fund forming part of an overall asset allocation strategy that aims to build out an all-weather portfolio positioned for a range of outcomes including a return to normal growth, a potential slow down and a stagflation-type scenario, which was previously seen in the 1970s.
