Investment teams’ skill will be tested to the full in 2016 owing to gloomy growth forecasts and less scope for finding differentiated ideas according to Debbie Alliston, head of multi-asset portfolio management at AMP Capital.

Alliston compares the current high correlation in markets to the much clearer trends of a year ago when asset classes such as emerging market equities were a clear underweight in portfolios compared to developed world equities.

She reasons there would need to be a greater reliance on short-term positions that would test investment teams’ knowledge and skill, if funds were to outperform in 2016.

She foresees that the current market conditions would bring opportunities in active asset allocation, but that longer-term positions such as distressed opportunities in credit would probably not arise until 2017.

US equity markets reported the worst-ever start to a trading year in the first two weeks of January, and the S&P/ASX fell nearly 9 per cent in the month to date. Liquidity is also a concern for investors.

Alliston revealed that through a combination of asset rebalancing and a desire to retain liquidity in deteriorating markets, AMP Capital has either slowed down purchases in its private equity program or taken profits from infrastructure.

AMP Capital’s main lifecycle superannuation fund holds around 14 per cent in infrastructure, private equity, property and some opportunistic holdings, which  rises to as high as 20 per cent for the youngest members.

Alliston’s approach to private assets is to focus on core investments in infrastructure, property and private equity investments. An opportunistic program used by AMP Capital, invested across assets such as timber, farmland, aviation leases and maritime, was seen to have too many idiosyncratic risks. Additionally, its complexity turned out to be a drain on the investment team’s time. AMP Capital has now exited most of this fund.

Debbie Alliston is speaking on the subject of strategic uses of private assets at the Private Assets Conference at Crown Towers, Melbourne on March 2. To register click here.


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