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Australia: Funds foster in-house selection

A growing number of superannuation funds in Australia are turning away from funds of hedge funds and external advisers to set up hedge fund manager selection capabilities in house.

Australian superannuation funds, which are pension schemes to which employers are required to make compulsory contributions, have about A$1.4 trillion ($1.24 trillion) in assets under management, according to the Australian Prudential Regulatory Authority. An estimated 10% of those assets are invested in alternative investments such as hedge funds, real estate and private equity.

According to those in the industry, a maturing market and disappointment with external manager or fund selection into alternatives is encouraging
 the superannuation schemes to turn to in-house expertise. Sunsuper, an independent multi-industry superannuation scheme, and the
 largest in Queensland, is one such fund. It has just hired a portfolio manager to refine the fund’s strategy for investing in absolute-return products. CIO David Hartley says: "We do already invest in absolute-return products and have hedge fund investments as part of a global tactical asset allocation strategy. The newly hired portfolio manager will develop a model to include those funds we have, but actually extend that model in respect to the selection of individual funds."

Hartley says that Sunsuper did invest with two funds of hedge funds but now invests with just one. "Funds of hedge funds generally speaking have not been hugely successful for institutional investors here in Australia," he says.

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