Fund industry executives at the Association of Super Funds of Australia conference in Brisbane have called on the super fund industry to start to consider more alternative asset investments than just traditional alternative assets in their portfolios.
QIC Strategy head of alternative investments James Dick said that investing in normal alternatives would not stave off the risks of gross domestic product growth (GDP) and interest rates, which affect every asset class.
“The core risks that we have in our portfolios, which are equities and bonds, always come down to the same kind of economic risks: GDP and interest rates. We find it’s really, really hard to diversify away from those two risks,” Dick said.
More intense investment in gold, using options to profit from market volatility, reinsurance, and investing in the trade in used aircraft parts were suggested as real alternative assets that would not suffer as equities traded badly.
Super funds could use options in such a way that would not be ruinously expensive for investors, to change a future distribution, according to Triple 3 Partners chief investment officer and executive director Simon Ho.
“It’s a tragedy that institutional investors in Australia use options so little,” Ho said.
There is an 80 per cent chance that volatility will go up when the S&P goes down, and options could take advantage of that causal relationship, Ho said.
Investors should also invest more heavily in gold, which had intrinsic value and is liquid and uncorrelated to other asset classes, according to the managing partner of Baker Steel Capital Managers David Baker.
It performs well in both an inflationary and a deflationary environment, Baker said.
