30 April 2021
ALTERNATIVE INVESTMENTS SUPPLEMENT
How private market investments offer real benefits for pension fund members BY DAVID MOORE Head: Alternatives, Alexander Forbes Investments
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ith private markets, your investments are made tangible and real. They are investments into small and medium enterprises (SMEs), schools, retirement villages, roads and power plants that you and future generations will benefit from. Private market investments in our everyday life John is a newly employed member in a pension fund. Each month when his contribution towards his employer-led pension fund gets deducted from his salary, a certain portion gets allocated to the investment portfolio of his choice. John’s investment portfolio is an accumulation portfolio that aims to grow his retirement savings. Among other investments, an allocation to private market investments means John directly contributes to companies with which he interacts constantly, even if he doesn’t know it yet.
“Private market investments are those that keep on giving” John has just bought a home in a new development that offers affordable, quality housing in an estate close to his place of work – social infrastructure managers within private markets often fund such developments. John can easily work from home using the highspeed fibre connection in the estate. Interestingly, the fibre-to-home provider that installed the connection was funded by a private equity manager within the private markets asset class. Something that could interrupt both his work from home and his Netflix viewing is load shedding. Fortunately, his estate uses an off-grid renewable energy installation as their main energy supply, which is provided by a solar power supplier. Here too, the estate’s solar power supplier was a private market beneficiary of a domestic infrastructure manager. During the day, John receives a call
from his sister who has some good news: she has just landed a job at a newly built shopping centre in her community – a bricks-and-mortar asset built, owned and operated by a direct property manager within private markets. This centre is also conveniently positioned near the retirement centre that John’s mom stays in and close to his younger son's primary school – both the school and retirement accommodation were financed by unlisted credit practitioners within private markets that filled the funding gap between sponsor and commercial banks. All the above assets form part of private market investments that John had contributed to with his first salary – and will continue to do so with each contribution over his working career. Social impact with commercial returns Private market investments are those that keep on giving. Their multi-dimensional benefits are a key rationale for their entry into mainstream investment portfolios, globally. This is a far cry from being ignored in the past because they were difficult to convert into cash, at short notice. However, they have consistently added significant value to domestic institutional investor portfolios by: • Boosting economic growth in creating jobs and key social infrastructure • Delivering lower volatility by not depending as much on investment performance relative to traditional investments.
36 www.moneymarketing.co.za
Why including hedge funds in a portfolio enhances returns
T
he blended five-year performance of a basket of Amplify Investment Partners hedge funds proves that the inclusion of hedge funds in investment portfolios enhances returns and reduces risk, ultimately benefiting investor portfolios both pre- and post-retirement. Marthinus van der Nest, head of Amplify, told the 2021 annual Meet the Managers conference that hedge funds provide for asymmetry of returns, or the ability to protect an investment on the downside but capture returns on the upside. “There is a common misconception that hedge funds only protect on the downside, which isn’t accurate,” Van der Nest said. “Access to tools such as short-selling, leveraging, and derivatives enables hedge funds to generate better risk-adjusted returns than long-only funds and to produce positive returns in both up and down markets that are uncorrelated to those of other asset classes.” The importance of including hedge fund investment has become clear in the past five years’ low return environment when equity performance has been poor. This is reflected in the All Share Index (ALSI), returning 8.23% per annum, while the blended performance of four Amplify hedge funds, over the same period, has reflected a return of 13.85% – from August 2016 until the end of February this year. But Van der Nest warned that not all hedge funds are created equal. “There are various hedge fund strategies and manager styles available to investors. These broad set of skills and offerings can be daunting to new investors and, without a proper understanding of how the strategies and styles work in various market conditions, can result in a negative perception of the alternative asset class as a whole.” Amplify appoints who it believes are the most appropriate independent hedge fund managers to manage their mandates. In fixed income, Amplify chose four specialist managers – Marble Rock Asset Management, Terebinth Capital, Acumen Capital and Matrix Fund Managers – as it wanted a diverse range of strategies, with the funds generating returns and taking positions at different areas of the yield curve. “Different managers, when blended together, provide a more diversified portfolio and range of outcomes,” he said. For Amplify, one of the significant advantages of hedge funds is the low correlation to traditional multi-asset portfolios. When included, it provides higher growth, lower drawdowns and an overall better risk/return profile. “For clients in the last couple of years before retirement, or those that are already in retirement, the last thing they can stomach is drawdowns. They are looking for real, smoother returns that ensure that their income in retirement isn’t going to be lower than expected,” Van der Nest said. “In an environment where you are getting poor returns from traditional asset classes, clients drawing an income from their investment could find themselves in a spiral of eating into their capital.” As the local economy’s outlook is bleak, people think the possibility of a low return environment is here to stay. Coupled with globally high equity markets, many investors ask what if there is a downside from these levels. “This is where the benefit of hedge funds and low correlated returns comes to the benefit of investors, protecting clients when markets are under pressure, while still providing positive returns should they continue to reach new highs.” For Amplify, investing in hedge funds is critical as they: • Provide a smoother return profile, protecting an investment on the downside while still capturing returns on the upside • Offer a broad range of strategies that are suited to various market conditions • Are an alternative asset class providing diversification and enhancing returns to traditional multi-asset portfolios • Ensure lower volatility and greater investment longevity for investors drawing a regular income from their investments. Amplify has seven distinct retail hedge funds managed by hand-picked experts specialising in multi-strategy, equity and fixed income.
Marthinus van der Nest, Head: Amplify Investment Partners
