Neil Power is the new head of hedge fund advisory at Allen Partners in Sydney, a firm that knows where the money is in the Australian institutional sector and what it wants to invest in.
Founded in 2009 by three senior professionals from the asset management and alternative assets industries, Allen Partners seeks to address the growing need for foreign asset managers to be appropriately represented in Australia and New Zealand and to successfully raise capital in these markets.
Founder Craig Gribble was head of private equity in New Zealand for Merrill Lynch while Chairman Ken Allen established Merrill Lynch and Lehman Brothers investment banking divisions in Australia and was also consulate general to New York from 2001 to 2006.
The firm enjoys deep, long-term relationships across the Australian and New Zealand superannuation and investment management industry. Power joined nine months ago to push into the hedge fund space having been head of business development Boronia Capital, a Sydney-based CTA that was at one point the biggest CTA in Asia.
"Our core service is to help international asset managers build up a business in Australia - the goal is to take best of breed international hedge funds to Australia" Power says. He has been on an extensive road trip through New York, London and Bermuda meeting with hedge fund firms. "Basically, the process is meeting and matching supply and demand" he says. "The starting point is with the Australian and New Zealand superannuation sector - that's the customer and they are showing an increasing appetite for sophisticated and well managed alternative strategies."
The Australian superannuation industry is very conservative in its investments by nature but it is a big pot of money and one that is growing. By law in Australia currently Australian workers have to put 9 of their salaries into a superannuation fund of their choice and this will rise to 12% within a couple of years. The current size of that pot is A$1.4tln ($1.43tln) and set to grow to A$8tln ($8.1tln) by 2040.
"It's a large pie and exposure to alternatives is increasing" Power says. Superannuation funds have traditionally had a heavy over-concentration on listed equities, particularly Australian equities. "And they were heavily caught out in 2007 and 8. They weren't diversified enough and were completely exposed during the financial crisis" Power says. "All supers realised they need to be more diversified and all have established dedicated teams to build and run alternative portfolios."
Within alternatives, the supers' approach is very broad based and diversified. "They tend to start with long/short equity and then after one or two of those look at credit, fixed income debt funds, and are increasing interested in less mainstream classes. The goal for them is to construct a strategically created basket of alternative strategies, not just one or two."
Allen Partners' business model is based on the fact that as a hedge fund sitting in Mayfair or New York who wants to raise funds from Australia, they can try the ‘fly in, fly out model' which, Power says, works well but you have to do it often enough and well enough and it requires substantial resources on behalf of the manager, or a second option is to open a local office which can be cumbersome and expensive and can mean you have one person sitting on their own locally, which is not ideal.
"The third is to get local representation on the ground that is well connected to the market who knows what is happening" Power says, "and that is what we do. We find out who does what - which of the supers are interested in a which strategies and based on that we organise road shows for our managers where we make sure we get them in front of the right people."
Crucially there is follow up after a road show ensuring the client hedge fund manager stays connected with the potential source of funds. Fees are charged in a combination of retainer and a success. "For a new manager to any market it could be a one to two year lead time before the flow of money most managers would like to see starts" Power says. "Local investors need to get to know managers, establish sufficient comfort with the firm and strategy and build a relationship prior to being in a position to consider an investment."
"However, it is an increasingly globally significant market, and any hedge fund with international asset raising ambitions will have to pay attention to Australia and New Zealand at some point, and those that start earliest will have the advantage" Power points out.
Australian and New Zealand superannuation funds want the best hedge fund managers in the world, wherever they are based, Power says. Given the broad demographics of the hedge fund industry, it is likely that 60% will come from the US, 30% in Europe and 10% from elsewhere.
Allen Partners' first hedge fund signing is with a London based macro fund, Panthir Capital which has performed well during periods of market volatility while the rest of a portfolio might struggle. "It's an interesting strategy and a quality manager" Power says, revealing he has other managers coming on board over the next few months.
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.