Around a quarter of the $200 million alternatives allocation has been awarded to Standard Life Investments’ global absolute return strategies Australian Trust, while the remaining $150 million has been allocated to a trend following strategy and a volatility strategy provided by two other fund managers.
Speaking to InvestorWeekly, SSFS chief investment officer Damian Graham said the allocation to alternatives will “address capital risk and drawdown risk, which is most impactful to retirees”.
“Alternatives managers have more flexible investment approaches that can act as a buffer to sharp declines in share markets, and therefore reduce the risk of capital loss across portfolios,” said Mr Graham.
“We view this alternatives allocation not as a method of obtaining higher investment returns, but rather as a shock absorber to help offset capital losses when share markets are losing value.”
Mr Graham said SSFS’s main focus is to provide members with “income certainty in their retirement”.
“The global crisis underlined that volatility can have a dramatically bad impact on retirement savings and achieving reasonable returns needs to come with less volatility.”
Mr Graham said SSFS was attracted to Standard Life Investment’s strategy because of its “strong track record and ability to perform well in a variety of market conditions”.
“The strategy invests in traditional asset classes and also uses several advanced derivative strategies to construct a highly diversified liquid portfolio which can help withstand market shocks – an important attribute particularly for retired investors,” he said.
Mr Graham said Perpetual Investments’ enhanced cash strategy will provide an above cash return without the “incremental additional risk”.
“It sits between cash and fixed interest in the risk/return and liquidity spectrum, and the generally floating rate return generated helps provide a degree of protection against inflation and assists with income generation.”
