As Covid19 wreaked havoc with traditional investment portfolios, alternative strategies were somewhat insulated though not immune to the Covid19-related superannuation drawdowns and broader economic disruption.
“It’s almost like a bad dream you don’t want to revisit,” Bruce Tomlinson, head of alternative strategies at Sunsuper said during a panel at Investment Magazine’s Absolute Returns Conference.
“But we had plenty of cash and public market areas to liquidate which facilitated early release payments, so as an alternative fund we aren’t a source of liquidity for the superannuation fund.”
That said, Sunsuper’s alternative program did take advantage of some more liquid ‘hedge fund-type’ investments as the economic impact of the Covid19 shutdowns sent markets tumbling.
“We were mostly topping and tailing during that time, there weren’t any big top down calls,” Tomlinson said.
“But we had some relationships in place, specifically in credit across stressed and distressed assets,” he said.
“So we made some commitments that haven’t drawn down yet, so we’ll see those play out over the next six to twelve months, or longer.”
Anastassia Juventin, portfolio manager of hedge funds and alternative strategies at AMP Capital, agreed the hedge fund segment wasn’t a liquidity source during the March and April selloffs though it did make moves to capitalise on the selloff.
“It wasn’t a fun time, that’s for certain,” she said. “But we did have access to credit lines, which we used in April when opportunities arose.”
Those alternative opportunities for Sunsuper exist across both public and private sectors.
“There’s a mixture of equity and debt, public and private for this opportunity set,” Tomlinson said, using technology companies as an example.
“There’s less private credit from those companies, they can raise equity and perhaps don’t have cash flows to support a particular debt load.”
Tomlinson added the bank’s regulatory capital requirements, instigated following the GFC, have also piqued the fund’s interest.
“Banks are reducing their loan exposures to certain industries and companies,” he said. “That has created opportunities for alternative providers of capital like pension funds.”
With diversification strategies struggling as fixed income fails to perform as equities slump, both panellists maintain diversified alternatives are not necessarily a replacement form of protection.
“I wouldn’t consider alternatives as a substitute,” Tomlinson said.
“Things like sovereign bonds and investment grade credit have very different characteristics to alternatives, particularly private alternatives.”
Juventin agreed, adding: “It’s very dangerous to cut out one whole asset class and reallocate to the private domain.”
While managing partnerships is a key part of developing an alternative investment strategy, both Tomlinson and Juventin acknowledged working remotely has made this more difficult.
“We look to have fewer, larger relationships rather than smaller ones that don’t scale as much,” Tomlinson said, pointing to partnerships with Macquarie, StepStone Group, HarbourVest and Blackrock.
“And if we haven’t seen and met them already, it’s not going to happen in the current environment as we’re not going to allocate to someone we haven’t seen.”
Juventin has noticed an increase in communication between managers since March, however AMP hasn’t added a new manager this year.
“The knowledge and understanding you get from actually meeting people in person is definitely missing from the online world,” she said.