The following provides information about the fund managers Local Government Super uses to manage its investments. The descriptions, broken up by asset class, provide a brief account of the fund manager's investment style and areas of expertise.
LGS has more than $1.2 billion invested in Australian shares. These assets are managed by five investment managers. Approximately half of the funds are with a customised State Street Global Advisors (SSgA) index fund. Index funds are set up to replicate the performance of the whole market by buying shares in each company that is in the index. SSgA is one of the largest index managers in the world. LGS uses index funds to control risk and lower the management fees of the investment portfolio.
There are also four "active" managers running part of the portfolio. "Active" means that these managers use their analysis to make investments in companies that they believe will outperform other companies in the relevant index, and they will change their positions from time to time. BT Investment Management has been managing LGS assets for over seven years.
One of our more recent appointments to the Australian Shares portfolio is Intrinsic Investment Management who have a strict focus on high quality companies. They take a long term approach to investment with a focus on the largest 200 Australian companies.
In July 2009 LGS appointed Independent Asset Management. This boutique manager uses its experience, growth and value rankings plus nimbleness to take advantage of extremes in the market.
The final part of the Australian shares portfolio is a small allocation to the Colonial First State Small Cap Fund. This fund invests in smaller companies, which over long periods have given the best returns. LGS has held this investment since the start of 2007. Since that time the fund has outperformed the broader share market over the last five years.
Investments in this sector total over $1.2 billion. The structure is similar to the Australian Shares sector, with a large index fund allocation, plus a number of active managers. The index fund is run by Vanguard Investments. This fund holds shares in nearly 1,500 stocks, giving LGS an interest in nearly every large listed company in the world.
LSV Asset Management (LSV is named after the founders - Lakonishok, Schliefer and Vishny) has managed funds for LGS for over six years and has done better than the market as measured by the relevant index. LSV has a focus on cheap shares, called a value bias.
Impax Asset Management is a leader and specialist in Environmental Markets. They invest in the best global companies from within the renewable energy, water treatment and waste industries.
Five Oceans Asset Management was appointed as an LGS manager in June 2011. They are a Sydney based manager with sound experience in running global share funds. Five Oceans pays a lot of attention to risk control and takes sustainable investments very seriously.
MFS Investment Management believes in investing in high quality companies. They are based in Boston USA, with offices around the world. The major holdings of this manager include Heineken, Nestle, Richemont (owners of Cartier and Montblanc) and Walt Disney.
LGS also has allocations to two other specialist share funds. There is an investment in the Schroder Global Smaller Companies Fund. Schroder is a large fund manager with analysts stationed around the world. The Wellington Emerging Markets fund gives LGS exposure to the developing countries of the world.
The currency exposure associated with the international shares is benchmarked at 50% hedged but it can vary arount this. Pareto Partners were appointed to help manage the currency hedging for international shares. Note that all other international assets are fully hedged. This includes fixed income, private equity, global property and absolute return funds.
Fixed Income and Cash
LGS has more than $2.2 billion of fixed income assets made up of:
|Australian Government Bonds||16%|
|Australian Government Inflation Linked Bonds||16%|
The Australian Government Bonds, both regular and inflation linked, are both managed in index mandates by SSgA. The International Bonds include an active Corporate Bonds component managed by PIMCO, one of the largest bond managers in the world. LGS has been invested in the PIMCO fund for nine years and it performed comparatively well through the global financial crisis when compared against the index. There is also an innovative active Sustainable International Government Bond fund mandate run by Omega Global Investors, and an emerging market debt fund managed by Wellington.
Omega Global Investors
The Loans and Credit Funds are invested with US managers - Canyon Capital Advisors, Highland Capital Partners and Ice Canyon. The Loans are securitised bank loans and the credit funds invest in long-term bonds issued by corporations.
The Cash assets are invested in the QIC Cash Enhanced Fund. This fund invests in high quality (mostly AA rated credits), short-term bank and company debt securities. The objective of this fund is to beat the returns of the Bank Bill index.
Highland Capital Partners
The LGS investment portfolio has nearly $600 million in property assets, including over $480 million in a direct property portfolio of 11 buildings and over $118 million with AMP Capital to invest in global listed property, that is, property companies that trade on stock markets. The 11 direct property assets are all located in NSW with the following sector split shown in the chart below. LGS runs an award winning Green Building Policy that seeks to limit the impact of the properties on the environment. Some members may have visited one of our shopping centres - MarketPlace Leichhardt, Sturt Mall Wagga Wagga or Village Centre Batemans Bay.
This term refers to equity investments that are not listed on the share markets. With an equity investment, your income comes from dividends (or distributions) rather than fixed interest payments. The returns from successful private equity investments can be high if the timing is right and the best quality managers are used. However, these private investments can be difficult to sell, and often they have to be held until the assets are liquidated. LGS has a growing portfolio of private equity investments, with a total value of over $200 million.
LGS has invested with the following Private Equity managers:
- Terra Australis
- Archer Capital
- Golden Gate Capital
- Oak Tree Capital
- Bain Capital
- Paul Capital Partners
- Hawkesbridge Capital
- Baring Asia
These funds make many direct investments in private companies that range from warehouse development at Ingleburn, to a budget hotel chain in China.
LGS also has investments with Macquarie Clean Technology and Wilshire Private Markets, two funds that in turn, invest with other underlying managers. The Macquarie fund has backed a successful solar thermal company called SolarReserve and the Wilshire fund invests in mature companies located in Asia and Australia.
Wilshire Private Markets
The final part of the investment portfolio is called the Absolute Return sector, and this has over $620 million in assets. The objective for these investments is reliable steady returns with a low chance of negative performance. LGS has been able to take advantage of increased credit spreads caused by the global financial crisis, and make investments in mandates using high quality credit securities.
The first of these is managed by Macquarie Investment Management. It has a strategy to invest in Australian mortgage securities and Australian bank debt. LGS is helping to fund the banks, who use that money to make new loans to the public and companies. Mortgage securities provide loans for people to buy their own house.
The second mandate is run by Kapstream, which invests in the debt securities of high quality companies from Australia and overseas. This is also hedged to avoid interest rate and currency risks.
LGS has recently introduced four diversifying hedge funds to this sector. They are Attunga Enviro Opportunities Fund, H3 Global Strategies Fund, Winton Global Alpha Fund and AQR Delta Fund.