Roy Keenan from Yarra Capital Management shares insights with James Dunn from The Inside Network on the role of active management. The Inside Adviser
After the Hayne Royal Commission many advisers decided to steer away from large dealer groups in favour of becoming self-licensed. In the last six months, however, that trend has taken an abrupt turn.
Private markets remain key to income, diversification
News that Australian Super had reported a negative return of just 2.7 per cent for the FY22 financial year likely came as a surprise to many. Whether due to the speed at which they were able to release said performance data, just four days after the end of the financial year, or more so due to the quantum, with most benchmarks and portfolios delivering negative returns of at least double that rate.
The group, along with the industry super and sovereign wealth sector in general, have been among not only Australian but global leaders in their embrace of alternative asset classes. Whether driven by their sheer size and reducing pool of listed market opportunities, or for the significant diversification benefits large allocations have been central to strong long-term returns.
When announcing the returns, CIO Mark Delaney was quick to highlight that a key reason behind the strong performance was the fund’s holdings in unlisted assets including private equity, unlisted property and infrastructure, so-called real assets. These types of asset classes aren’t valued daily like those listed on a sharemarket, rather they are valued primarily based on comparable sales of similar assets.
Taking a closer look, you can see that the Balanced investment option has as much as four to have times more capital invested into unlisted infrastructure, property and credit than their listed counterparts.
While the benefits are well appreciated, gaining access to the types of investments popular with industry funds and institutional investors remains challenging. Advisers and investors must give up significant liquidity, sometimes as long as 5 to 7 years without access to capital, and buy into existing portfolios of assets, making a call on whether they are fairly valued or not at the time.
We know that circumstances change regularly, and retirees tend to need access to capital at unexpected times. This has been a key driver behind the significant growth in the availability of private credit and direct lending strategies, whether on the ASX or not and in many cases of direct-to-consumer investments.
One of the homegrown leaders in the sector is Alceon Group, which was founded in the aftermath of the Global Financial Crisis by Trevor Loewensohn, Morris Symonds and Phil Green. The group has invested some $3.8 billion in assets for their diverse range of clients, primarily being small institutions or high net worth family groups and family offices.
With several decades of experience, the group have sought to bring the benefits of real and unlisted assets to wholesale investors and advisers, but with less of the restrictions and drawbacks. Among the more unique strategies are the Debt Income and Australian Property Fund.
The latter strategy seeks to combine the benefits of investing into direct property with the listed market, by combining both directly owned and externally managed assets, including syndicates, into a single strategy, while offering monthly redemption windows.
This approach that involves investing into what many may consider to be ‘competing’ investor funds is somewhat unique as it allows the fund to deliver a truly diversified exposure to multiple sectors of the property and infrastructure sectors.
It is a similar story for the debt income strategy, but without a listed component. The strategy seeks to utilise several decades of experience to build a portfolio of loans secured by first ranking mortgages over property for purposes ranging from construction to land-banking and refinances.
The strategy has benefitted from the withdrawal of the major banks from the sector in recent years, with the monthly liquidity delivered via a portfolio of loans with duration of less than 12 months. A secondary benefit, which has been central to the popularity of direct lending in recent months, is the fact that each mortgage is made on a variable rate basis, meaning it increases as the cash rate does, potentially offsetting inflation.
