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HESTA and CFS search for concentrated mandates abroad

Dan Purves




HESTA and Colonial First State are both allocating more of their risk budget to concentrated mandates in international equities because of capacity constraints in the Australian market.

Responding to a question from the floor at the Equities Summit about the challenges in constructing an Australian equity portfolio versus an international portfolio – given the structural challenges within domestic market – Ben Lam, investment manager at Colonial First State, said that almost by definition, they were much more active and concentrated in their global portfolio.

“The variety you get in global is much more significant, and in terms of our risk budget, a lot more of it is spent on global than on Aussie,” Lam said.

James Harman, general manager of listed assets at HESTA, said his fund would love to have very concentrated Australian portfolios, but its size at $32 billion stopped this from happening.

“We’ve just cracked $10 billion in Aussie equity investing, and we simply can’t get mandates with managers.”

“Anyone who has looked at the HESTA website will see we’ve already got a large number of Australian equity manager[s]. As a case in point, in small caps we have six of them with a number of them now closed [because of capacity constraints].”

However, all of HESTA’s mandates are IMA (investment management agreements) which gives them flexibility to work with managers and be a bit more “creative”.

Harman added from a managed perspective, fund managers needed to able to consider the stock from an after-tax perspective and where they could generate better returns overseas, given they could go down that path because the super fund hedged its currency risk.

“All our managers manage on an after-tax basis and we’ve got separate mandates between accumulation and pension investments. And what we’ve done with some of our investments, from a concentration risk [perspective], where a manager has demonstrated capability to consider those seasoned lessons, we’ve allowed that to be within their mandate.”

“From an international perspective, concentrated mandates are a bit easier because capacity issues aren’t as prevalent. We can have more styled diversification in our global equity portfolio and we have a large overweight to emerging markets, which extends the universe.”