(June-2004) MLC avoids hedge fund drain

Private equity represents the focal point of MLC’s alternative investments strategy and the company’s chief executive investment management, Michael Clancy, is making no apologies for his cynicism with respect to hedge funds.

In fact, Clancy is positively blunt when he explains MLC’s rationale for largely avoiding hedge funds when he says that the industry has a remarkable capacity for finding new ways of losing money.

“People seem to have lost their scepticism when it comes to hedge funds,” he says. “They seem to have lost sight of the issues surrounding hedge funds; their lack of diverse strategy and the fact that too much money is being directed towards that sub-asset class.”

“The fact is, we believe there are a lot of hedge funds around today that won’t be around in three to five years’ time,” Clancy says.

“For our part, we’d rather wait and see who is still around in five years time and then consider our options,” he says.

By comparison, Clancy says infrastructure investment is not a bad thing but can be both illiquid and lacking in diversity.

That is why MLC’s focus with respect to alternative investments has tended to be fixed on private equity, with investment manager Charl Pienaar making the point it is a strategy the company has been pursuing for most of the past eight years.

However, he concedes that private equity requires lots of hard work and the acceptance of long time-frames.

“We are highly selective and only invest in groups with a track record of producing good outcomes,” he says.

“You need to have the highest conviction in the management group,” Pienaar says.

He acknowledges that, by definition, this means MLC is competing with other players to invest in these companies and this requires the serious development of relationships.

“The best are fairly evident, so you need to spend a lot of time developing relationships,” Pienaar says.

Both Clancy and Pienaar confirm that MLC’s focus on private equity has paid dividends in more recent times as a result of the spate of Australian initial public offerings and a number of major international floats.

They see the key, however, as being exacting research and a willingness to get in on the ground floor.