Invited to join the merger between the Australian Reward Investment Alliance (ARIA) and Military Super, the $3.3 billion AGEST Super will accept or reject the offer only after the form and operational details of the new entity become clear. The $17.4 billion ARIA and $2.9 billion Military Super are scheduled to operate under one trustee board for military and civilian government schemes from July next year. The federal government fund invited AGEST to participate in the merger, but Seton said the fund was awaiting further guidance on the form and operational structure of the new entity before deciding if it would join in. “AGEST is saying there’s no reason to change yet,” Seton said.
Credit default swaps to clear up their act
Hedge fund managers who bemoan their image problems should spare a thought for Susan Kobayashi. The director of fixed income portfolios for Mellon Capital Management (Mellon CM) was in Australia last month promoting a fund associated with not one, but three phrases made notorious by the meltdown – ‘quantitative’, ‘market neutral’ and, most challenging of all, ‘credit default swap’. In Kobayashi’s favour, Mellon CM’s Credit Market Neutral Fund was one of about three products in the world that actually made money in 2008 – a gross absolute return of 828 basis points, in fact, before its fee of 1 per cent and performance incentive of 20 per cent over cash. Kobayashi said that credit default swaps had been “lumped in with CDOs and SIVs and all the other things with three-letter names”, whereas the CDS market has maintained high liquidity throughout the crisis, and has a reputational problem caused only by isolated players using too much leverage.
Credit default swaps to clear up their act
Hedge fund managers who bemoan their image problems should spare a thought for Susan Kobayashi. The director of fixed income portfolios for Mellon Capital Management (Mellon CM) was in Australia last month promoting a fund associated with not one, but three phrases made notorious by the meltdown – ‘quantitative’, ‘market neutral’ and, most challenging of all, ‘credit default swap’. In Kobayashi’s favour, Mellon CM’s Credit Market Neutral Fund was one of about three products in the world that actually made money in 2008 – a gross absolute return of 828 basis points, in fact, before its fee of 1 per cent and performance incentive of 20 per cent over cash. Kobayashi said that credit default swaps had been “lumped in with CDOs and SIVs and all the other things with three-letter names”, whereas the CDS market has maintained high liquidity throughout the crisis, and has a reputational problem caused only by isolated players using too much leverage.
AMP Future Directions to treble alternatives
The AMP Capital Investors ‘Future Directions’ diversified funds have “come off the sidelines” on alternative investments, with investment director Sean Henaghan flagging a build-up to 15 per cent over the next two years. Henaghan declared that potential returns on alternative investments were finally compensating the long periods of illiquidity they demanded, and revealed that Future Directions’ private equity adviser, San Diego’s StepStone Group, had placed the vehicles with three primary private equity managers since their relationship began in January. “If you look at the best times historically to have bought private equity, it was ’92, 2001/2, and I think this vintage will be a similar story – you’re buying companies at two or three times EBITDA that were asking nine or ten times a couple of years ago.”
AMP Future Directions to treble alternatives
The AMP Capital Investors ‘Future Directions’ diversified funds have “come off the sidelines” on alternative investments, with investment director Sean Henaghan flagging a build-up to 15 per cent over the next two years. Henaghan declared that potential returns on alternative investments were finally compensating the long periods of illiquidity they demanded, and revealed that Future Directions’ private equity adviser, San Diego’s StepStone Group, had placed the vehicles with three primary private equity managers since their relationship began in January. “If you look at the best times historically to have bought private equity, it was ’92, 2001/2, and I think this vintage will be a similar story – you’re buying companies at two or three times EBITDA that were asking nine or ten times a couple of years ago.”
Escrow could be the wary investor’s friend
Escrow has emerged as a potential risk management tool for super funds doing direct investment deals in infrastructure and private equity in an environment where counterparty risk is front of mind. Escrow can be used by buyers and sellers of assets where price uncertainty or counterparty risk exists, and is typically used to help settle large investments or merger and acquisition deals. Victor Penna, head of product, treasury services at JP Morgan, said escrow could be used by super funds investing in infrastructure projects such as public private partnerships (PPPs) or toll roads, where the value of the asset is contingent on future performance.
Escrow could be the wary investor’s friend
Escrow has emerged as a potential risk management tool for super funds doing direct investment deals in infrastructure and private equity in an environment where counterparty risk is front of mind. Escrow can be used by buyers and sellers of assets where price uncertainty or counterparty risk exists, and is typically used to help settle large investments or merger and acquisition deals. Victor Penna, head of product, treasury services at JP Morgan, said escrow could be used by super funds investing in infrastructure projects such as public private partnerships (PPPs) or toll roads, where the value of the asset is contingent on future performance.
Longevity risk a commercial threat to super funds
Industry funds risk losing a lucrative part of their membership base if they do not address the commercial threat posed by longevity risk, the head of Macquarie Funds Group’s new longevity solutions team has warned. Andrew Robertson, head of MFG Longevity Solutions and formerly founder of boutique consultancy Ingevity, said the over 50s demographic, which typically have higher account balances and are the most profitable of industry funds’ members, would be an obvious target for retail funds that manage to develop sophisticated longevity risk solutions for retirees. He believes super funds have a role to play in underwriting the longevity risk of their members by pooling that risk and offering guarantees backed by financial institutions, but face challenges in building solutions.
Longevity risk a commercial threat to super funds
Industry funds risk losing a lucrative part of their membership base if they do not address the commercial threat posed by longevity risk, the head of Macquarie Funds Group’s new longevity solutions team has warned. Andrew Robertson, head of MFG Longevity Solutions and formerly founder of boutique consultancy Ingevity, said the over 50s demographic, which typically have higher account balances and are the most profitable of industry funds’ members, would be an obvious target for retail funds that manage to develop sophisticated longevity risk solutions for retirees. He believes super funds have a role to play in underwriting the longevity risk of their members by pooling that risk and offering guarantees backed by financial institutions, but face challenges in building solutions.
Sole purpose test does not apply to trauma: Prime Super
Prime Super’s move to offer trauma insurance to members as an additional product alongside the fund’s investment options was not required to meet the sole purpose test because the fund was the distributor, not the manufacturer, of the policies. An I&T News story covering Prime’s trauma insurance offering, published in late July, drew responses from industry executives questioning how the fund justified the product under the terms set by the sole purpose test, in section 62 of the Superannuation Industry (Supervision) Act,1993. Lachlan Baird, chief executive officer of Prime, said the product was not required to meet the sole purpose test because the fund distributed the product only. “It’s not out product,” Baird said.
Sole purpose test does not apply to trauma: Prime Super
Prime Super’s move to offer trauma insurance to members as an additional product alongside the fund’s investment options was not required to meet the sole purpose test because the fund was the distributor, not the manufacturer, of the policies. An I&T News story covering Prime’s trauma insurance offering, published in late July, drew responses from industry executives questioning how the fund justified the product under the terms set by the sole purpose test, in section 62 of the Superannuation Industry (Supervision) Act,1993. Lachlan Baird, chief executive officer of Prime, said the product was not required to meet the sole purpose test because the fund distributed the product only. “It’s not out product,” Baird said.
Absolute Returns Funds Conference 2009 Speakers
Gregor Andrade joined AQR in May 2003 and is a senior member of the Client Strategies team and Principal of the firm. Prior to joining AQR, Gregor was a finance professor at Harvard Business School. He taught Corporate Financial Management (CFM), an advanced Corporate Finance and Valuation course in the MBA program, as well … Read more
