The need for dynamic asset allocation is another key factor, he adds.“It can take years for some institutions to invest, but an opportunity might already be gone by that point.”
Turnover in The Partners Fund is around 25% per annum, which largely reflects the changing relative value of different asset classes. According to Cagnati: “In 2008 you could buy leveraged loans very cheaply, for example, and in 2009, 2010 and 2011, private equity secondaries were very attractively priced. Today many real estate funds are reaching the end of their product lifeline, but the assets have not been sold. Investors are asking for the life of the products to be extended, but banks are not able to do so. Stakeholders therefore need to sell on the secondary market, which is presenting some very attractive opportunities.”
Diversification is another significant benefit of multi-alternatives funds, a factor that head of manager research, investment advisory at KPMG, Alex Koriath, believes is driving interest in the product group.
“Most UK pension funds, whether large or small, are not really accessing all the opportunities available in the alternatives space, particularly in private markets. Multi-alternatives funds allow them to get sufficient diversification in a portfolio of alternatives rather than making lumpy allocations.”
Managing drawdowns
As well as the expertise need to identify relative value opportunities across the alternatives space, illiquid alternatives can require significantly more governance than more liquid investments. This is particularly true for private vehicles where investors can face capital calls over many years after committing to the investment. That requires investors to manage their liquidity accordingly, a challenge Lincolnshire’s Ray believes increases the case for delegating governance to a specialist provider.
According to KPMG’s Koriath: “Having to manage drawdowns in private equity vehicles can be quite cumbersome.”
JPMAM’s offering includes a smoothing of liquidity to account for the greater liquidity required in the early days of an investment in their vehicles. Their vehicles are fully funded at day one and investments are locked-in for five years. However, the liquidity profile of the underlying investments changes over time to manage the capital calls associated with private vehicles.
“The result is a higher allocation to hedge funds in the first couple of years,” explains Bob White, portfolio manager in JPMAM’s Asset Management Solutions Global Multi Asset group. “Over the five-year term, the product follows a glide-path from more liquid to less liquid investments.”
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