A new multi-asset offering from Australian Ethical Investments (AEI) gives both wholesale and retail investors access to a diversified fund of high-growth assets. It spans local and international equities, unlisted property, plus scope for a 20% allocation to alternative assets that include infrastructure, as well as private equity (PE) and venture capital (VC).
The High-Growth Fund will replace AEI’s Advocacy Fund that had previously held only listed equities.
OnImpact spoke to John Woods, head of asset allocation, and Sandip Pinnawalage, head of product, about the new offering.
Expanding the Product Suite
AEI have a growing suite of managed funds, and superannuation options, but according to Sandip, there was scope to use a multi-asset approach to fill a gap in their offering.
“We wanted to create a multi-asset 100% growth offering that, for super, would actually be really appropriate for someone in the accumulation phase. Our balanced fund has a seven year time horizon, so the 10 year time horizon of the high-growth fund is more appropriate.” Sandip explained.
“And for managed funds, we only had the balanced fund as a multi-asset offering, so this offering actually served that product gap. We did have the advocacy fund, it was 100% growth, but it wasn’t multi-asset.”
The High-Growth Fund replaces the Advocacy Fund, which had previously held listed equities, as well as a nominal holding of shares in companies that AEI would not normally invest in, for ethical reasons, but which they seek to influence towards improved sustainability. The new fund gives AEI the opportunity to continue to hold the nominal holdings by AEI the company, rather than its custodians.
“Our advocacy strategy continues to a critical component of our overall business strategy where nominal holdings continue to be held at the AEI level.” Sandip says.
“It was a good way for us to actually repurpose this fund, adding some asset classes and then changing the name to actually reflect the actual long term time horizon and also reflect the actual underlying asset classes as well. We still do the advocacy programme, and we still do report on our activity every quarter.”
Offering Access to Unlisted Assets
Retail investors often bemoan the lack of opportunities to invest in unlisted assets like property, as well alternatives like PE, VC and infrastructure. They have the potential to offer early-stage exposure to companies that can go on to have a huge impact, but they do come with corresponding levels of risk and volatility. But with this fund AEI has included a modest allocation to these assets, in-line with their risk-returns models, and their ethical charter.
Similarly, the very nature of alternative assets being unlisted shifts the ease with which they can be added to the fund, as John explains.
“Alternatives will be in this fund, but we can’t add them until they raise more capital. Like our existing multi-asset funds, allocations to funds like Artesian, Right Click, Morrison and Main Sequence Ventures will be there. Co-investment will become a significant portion of the allocation as well and is something we plan to add relatively early on – but to go direct requires a specific skill set and we’ll develop that with time if and when we need to.” John says.
“On day one of the fund, our big shift is changing the asset allocation to bring in more international equities to help us manage the risk levels. For illiquids, we believe there will be capital raisings coming soon for our real estate allocation. And then for other alternatives, as I mentioned, there should be further investments in the next few months which will help us increase that asset allocation.”
An ETF on the Way
While AEI recognises that a managed fund is an appropriate vehicle to offer access to alternatives, they also understand that more and more investors want direct access through ETFs, and they have one on the way.
“We just created a new Australian equities fund, it’s a high conviction fund, and it will be a listed offering as well. We launched the wholesale (unlisted) version on October 1st, but the new listed version will come through later in the year which will be open to retail.” Sandip says.
“It’s for investors that prefer to invest through an exchange. The rise of ETF’s has seen a lot of passive investments, but those generally rely just on negative screening, which in our view, isn’t as powerful as investing in one of our funds where we invest based on our Ethical charter. So for us, we’re addressing that gap in the listed offering with this high conviction active ETF. We’ll keep you updated on the launch.”