AustralianSuper rethinks hedge funds

The A$28 billion ($25.5 billion) AustralianSuper, has reduced its allocation to hedge funds from 3.5 per cent to 1.5 per cent, as part of a process of analysing the sources of beta within the overall investment portfolio.

Chief investment officer of the fund, Mark Delaney, said many important implications about diversification had been revealed in the investigation of the beta sources in all portfolios.

“It’s encouraged us to think that we have to be very conscious of what are the implicit market risks in each of these asset classes and how they relate to each other in different circumstances to get a better understanding of their key drivers,” he said.

As a result of the financial crisis, Delaney said the fund had “found out that hedge funds are a mixture of equity and fixed income strategies, one thing they are not is absolute return vehicles”.

However, overall AustralianSuper is not against hedge funds, with Delaney citing them as another vehicle for investment skill.

“We think there are people out there who are really good investors, but our decision will be made on how skilful they are rather than which strategies they run.”

However the fund is unlikely set up a hedge fund program and find funds to fill it, rather each investment, and manager will be assessed on its own merit.

When the sub-prime crisis hit, the fund directed all its inflows into cash, in April this year it started investing inflows again.

The market value of the fund’s assets invested in absolute return funds was just over $1 billion at June 2008, and the same time a year later it was half of that. It reduced the number of managers from nine to six, with funds managers FRM and Aurora losing mandates.

The funds have been re-allocated to global and domestic equities.

The fund made a radical move earlier in the year to reduce the exposure to active management within its domestic equities to half of the portfolio, which saw nearly two thirds of funds managers lose mandates.