AUI establishes sixth joint venture business

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Australian Unity Investments (AUI) has joined with an experienced fixed interest team led by highly-regarded fund manager Mr Bill Bovingdon to form its sixth joint venture business.

Australian Unity Investments (AUI) has joined with an experienced fixed interest team led by highly-regarded fund manager Mr Bill Bovingdon to form its sixth joint venture business.

The new fixed interest boutique funds management business, Altius Asset Management, will be led by Mr Bovingdon as chief investment officer with Mr Chris Dickman and Mr Gavin Goodhand as senior portfolio managers.

Mr David Bryant, head of AUI, said that with the first of the baby-boomers now reaching retirement age, increasing demand for fixed interest investments is expected, forming the backbone of pension payments.

“Australians are significantly under-invested in the fixed interest sector. Of our $1.7 trillion investments industry, only $195 billion , or nine percent, is made up of fixed interest in managed funds via superannuation.

“A recent international study showed that, despite having the fourth largest pension system in the world, Australia’s pension funds allocate, on average, just 14 percent to fixed interest investments. Globally, the average allocation to fixed interest is 33 percent, and as an example, Canada and the Netherlands (which have similar sized pension systems to Australia) hold 36 percent and 50 percent respectively in fixed interest investments.

“The Australian allocation is currently very small by global standards. However, if the superannuation system grows as predicted to around $2.5 trillion in the next seven years and fixed interest investments shift more in line with global standards, we could see superannuation funds invest an additional $500 billion in fixed interest by 2018,” Mr Bryant said.

Mr Bovingdon said that the Altius team has a very strong view that fixed interest should be managed through a diversified and dynamic approach, supported by sensible risk management.

“Altius will adopt a diversified approach to fixed interest investment management, combining both credit and duration strategies to help manage risk and generate stable returns.

“Most fixed interest managers focus on either a thematic or credit approach, both of which have their benefits. But in our view, a diversified approach provides the greatest flexibility to take advantage of opportunities in the market.

“This is particularly important in the post-global financial crisis environment. The fallout of the credit crunch clearly had an enormous impact on markets around the world, and we are still seeing the ripple effect of this.

“In our view the lesson to take out of recent market dislocations is that the biggest risks in a post-global financial crisis world are liquidity and mark to market pricing, which have proven to be just as important as credit default risk. We believe that our experience and our flexible approach will enable us to best manage such aspects.

“For instance, throughout the global financial crisis, the credit default swap market kept operating and the fixed interest managers able to take advantage of this had a risk management tool that proved very useful.

“These lessons, which go to the heart of portfolio design and construction, show that there are instruments and strategies available to managers to improve the durability of bond funds even in difficult times, if they have the flexibility and the skills to access them.

“Between Chris, Gavin and I, we have a complementary blend of industry perspectives and knowledge, as well as over 60 years of combined experience, and we believe that this approach is particularly timely for investors in the current environment,” Mr Bovingdon said.

Commenting on the role of fixed interest in an investment portfolio, Ms Kirsty Dullahide, head of portfolio and strategy at AUI, said that as confidence returns to the market, investors will start to move out of their cash holdings in term deposits and the like.

“Putting money into fixed interest investments is a logical first step for investors to diversify their portfolios. However, the expected growth in funds allocated to fixed interest and the significant increase in issuance of such investments makes it critical that the kinds of problems we saw arise in some areas during the global financial crisis are avoided.

“Just like in equity markets, there are different sectors within the fixed interest market (for example thematic, credit, diversified or index management) and we believe investors will value having access to a broader variety of fixed interest sectors,” Ms Dullahide said.

Australian Unity Investments is the funds management arm of financial services, health and retirement living services provider Australian Unity. It has more than $12.3 billion in funds under management (as at 31 January 2011). Its investment approach is to use its established in-house expertise in property and mortgages while also forming joint ventures and strategic alliances with other organisations with specialist expertise.

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For more information please contact:
David Bryant – 03 8682 4401
Kirsty Dullahide – 03 8682 4404

18 February 2011