Swiss asset owners join forces in alternative risk premia foray
A group of large Swiss institutional investors with more than CHF150bn (€138bn) in assets under management is teaming up in what is said to be an innovative move into alternative risk premia.
The group consists of three pension funds and two insurance companies, from French and German-speaking Switzerland.
The plan is to invest in an Alternative Risk Premia (ARP) strategy via a dedicated Luxembourg-incorporated alternative investment fund (AIF), with launch targeted in the first quarter of 2017.
The group is in the final stages of selecting the asset manager to run the investments, having started with a long list of more than 10 managers and then shortening this to five.
The name of the asset manager selected will be disclosed once agreements between the parties have been signed.
The identity of the investors has not yet been revealed for similar reasons.
InPact Advisory has been advising the asset owners, and Antoine Prudent, founding partner at the Geneva-based investment adviser, believes that the arrangement is innovative in several ways.
“To our knowledge, it is one of the first times large Swiss institutional investors are coming together to pool assets and intelligence to invest in new alternative strategies,” he told IPE.
He said this had been done in other countries such as France and Denmark, and that these examples helped provide the motivation for the Swiss initiative.
He also cited instances of pension funds partnering in Switzerland, in investment foundations (Anlagestiftungen), for example.
However, these collaborations have been more focused on domestic assets, and the asset owners are typically smaller, according to Prudent.
“This is different,” he said. “These are five of the largest Swiss institutional investors, targeting pooled investment in an international, new alternative strategy.”
Other institutions have already asked to join the group, according to Prudent.
The investor group is also in the final stage of selecting a Luxembourg-domiciled Alternative Investment Fund Management (AIFM) company, which will be in charge of creating the regulated special investment fund and governing it afterwards.
This includes selecting custodians, administrators and auditors, and making other appointments.
Prudent said: “In the end, we decided to opt for Luxembourg, as Swiss institutional investors are familiar with Luxembourg funds, the quality and pricing of the services are very competitive, and it will also allow institutional investors from other European countries to join and ultimately reduce the costs.”
The group is looking to deploy about $250m (€227m) at launch, with the goal of increasing the fund to $1bn within 12-18 months, according to Prudent.
This would be via increased commitments from the initial investors as well as new investors.
As concerns the investment strategy, the group is pursuing a long/short alternative risk premia approach with a focus on value, carry, momentum, quality and low-volatility premia.
The strategy will be applied across different asset classes (equities, fixed income and currencies) but target beta neutrality with regards to traditional assets.
The group’s investments will take environmental, social and governance (ESG) factors into account, Prudent confirmed.
The investors are working with the asset manager candidates on a screening process that will constrain the investment universe on the basis of ESG criteria.
Still undecided but looking likely is that the investors will ask the asset manager to also exclude exposure to so-called soft commodities, which are agricultural products such as coffee or wheat.
This to avoid becoming embroiled in any controversies about speculation on food prices, said Prudent.