AMP Capital’s first foray into co-investments alongside hedge funds is seeking greater diversification of income streams and the ability to customise return profiles around liquidity and exit time, says Anastassia Juventin, AMP Capital’s portfolio manager of hedge funds and alternative strategies.

Juventin joined AMP capital two years ago, and her mandate isn’t a standalone fund; it cannot be bought but is part of AMP’s diversified portfolios. A key priority for her is avoiding doubling up on sources of return by reducing correlation to other strategies such as equities.

Speaking on the Market Narratives podcast with Conexus Financial’s head of investment content, Alex Proimos, Juventin said to enhance the idiosyncrasy of hedge fund return streams, her team is introducing co-investments sourced from hedge fund managers – a practice which is common in infrastructure and private equity deals but less so alongside hedge funds.

“We have had a partner manager do the underwriting process and the research and due diligence,” Juventin said. “Basically adding those co-investment opportunities adds to the breadth of the universe and those differentiated sources of returns.”

About a third of her allocation to hedge funds goes towards co-investments, Juventin said.

“We worked with this partner manager to set up guidelines or constraints in terms of the co-investment deals we are willing to take,” Juventin said. “We aren’t locking up and going into a fund of co-investment deals. These co-investments will be specific to our constraints, some around liquidity and exit time.”

It is AMP’s first foray into co-investments with hedge funds, and it may change how it is implemented in the future, Juventin said, noting she will be able to give more details on the strategy and the hedge fund advisory partner by the end of the year.

Proimos asked Juventin whether her portfolio could be considered partially defensive for the broader portfolio.

“When I look at it it’s just in the diversified part of the portfolio,” Juventin said. “But when you say defensive it might naturally mean to some people it holds or outperforms significantly or doesn’t have a drawdown. I don’t expect this part of the portfolio to never have a drawdown but you can characterise it as defensive by the nature that it has a lower volatility profile, for example, relative to equities.”

She “would not be surprised to see drawdowns in the book from time to time,” Juventin said, but the nature of these drawdowns would likely be different.

In terms of liquidity targets, Juventin’s mandate “sits in the liquid part of our portfolio”, she said.

“With the co-investments we can allow a little bit less liquidity, but given we have a certain target weight to co-investments that doesn’t create an issue for us,” Juventin said. “But I wouldn’t want the strategies to necessarily be classified as liquidity providers. If we needed to, and given we are moving into a custom mandate, another benefit of that is you have enhanced transparency on your strategies and more guidelines in place in terms of how much liquidity you need.”

On the performance of alternatives over 2019 and 2020, some of the marketing from managers around alternative strategies “might have been a little bit too optimistic in terms of the drawdown profile,” giving investors like AMP overly optimistic expectations, she said. Some managers underperformed their objectives and continue to do that in 2020, she said.

“We benefitted from having a combination of managers in that part of the book,” Juventin said. “We had some managers that performed really well last year… so diversification not just across strategies but across the managers helped.”

To listen to the full unedited interview with Anastassia Juventin on the Market Narratives podcast click above or find the series and episode on Apple Podcasts, Google Podcasts or Spotify.

Proimos and Juventin also discussed tail hedging programs, diversification of managers in risk premia, crowding of markets and setting volatility targets.

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