Nick Dignam from Fortitude Investment Partners shares insights with Lachlan Maddock from Fortitude Investment Partners on how a diversified portfolio in mid-market private equity is structured. The Inside Adviser
The world of alternative investments is at a crossroads. As markets defy expectations and liquidity concerns take centre stage, investors find themselves forced to rethink how they deploy capital in an increasingly complex environment.
Federation launches second private equity strategy
Federation Asset Management recently launched its second alternative investment fund, the Federation Alternative Investment Fund II.
The strategy will invest in unlisted private assets, with a dedicated approach towards allocating capital to renewable energy investments, real estate investments and investments in operating companies with strong growth potential.
The renewables and sustainability tilt is seeking to capture the outsized returns on offer in the sector, of which the founding partners have extensive experience.
It is the second alternatives strategy the fund manager has launched following the success of last year’s foundation strategy. The key difference this time around is the introduction of a liquidity option, offering investors flexibility not usually afforded by private equity investments.
Federation seeks to take ESG to a new level by investing in private assets and incorporating its own rigorous investment strategy and negative screening. In some respects, it even has an impact investing style to its strategy.
FAM’s positive screening focus is on renewable energy generation activities, including wind, solar and other renewable technologies. It includes renewable energy storage and hydrogen fuel, sustainable infrastructure and waste management facilities.
The second area of focus is “social infrastructure,” such as housing for the disabled, social and affordable housing, hospitals and healthcare facilities. And finally, the team look to invest in property investments where there is a significant impact investing, environmental component or where there will be significant use of renewable energy.
The fund’s ESG styled investment strategy uses negative screens that exclude investments in companies that are involved in “fossil fuels, including any company that mines, burns or extracts fossil fuels or in companies that provide specific and significant services to fossil fuel industries; and gambling, tobacco, armaments and militarism, live animal export and old growth logging.”
The fund’s universe spans the Asia-Pacific region but isn’t limited to it. Investments will look to form both direct and indirect equities with the team using a three-stage investment committee approved process for all new investments. Here is a visual representation of the investment process:
After sourcing about 200 investment opportunities the team has cut this filtered list down to just 2 per cent – 1 x Renewable Energy, 2 x Real Estate and 3 x Private Equity. Here are the holdings in the portfolio as at the 30 June 2021.
What makes this fund unique for financial advisers, is that it provides them with an opportunity to offer their clients both equity and non-equity exposure to assets that are:
- Not correlated to the stock market. As we saw during the pandemic, global equity markets gripped with fear and panic triggered a global sell-off and fell in tandem. With unlisted equities, this knee-jerk reactive panic selling simply doesn’t occur, as it takes time to redeem and sell investments.
- Clients gain exposure to private unlisted companies selected by management owing to their sustainable investment characteristics.
- Importantly, the liquidity offer means the fund will be available on more platforms.
The new fund builds on a proven track record gained from Federation’s first successful fund and looks to build on it by delivering strong investor returns supported by quality assets and a thoughtful investment approach.
