The role of alternatives in exploiting opportunities at turning points in the economic cycle
Global Investment Insights
with Arthur Bengasino, Portfolio Manager - Alternative Investments, TelstraSuper
Arthur Bengasino is a Portfolio Manager for the Opportunities portfolio in alternative investments at TelstraSuper.
TelstraSuper was established in 1990 as a subsidiary of Telstra Corporation Limited. Today it is a leading profit-to-members superannuation fund with around AU$25 billion in assets, which it invests on behalf of members.
Arthur joined TelstraSuper in April 2018. He has over 20 years of experience across both, buy side and sell side roles in global markets and he shared his perspectives on some of the key areas of focus for him in his role and the growing role of alternatives in institutional portfolios in this exclusive interview with Global Investment Institute (GII).
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The Opportunities portfolio at TelstraSuper seeks to add value by exploiting opportunities when markets dislocate.
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Q. What are the main areas of focus for you in your role at the present time?
A. The Opportunities portfolio at TelstraSuper is a best and highest conviction ideas portfolio which employs a disciplined process that seeks to identify various pertinent themes that we believe will shape market outcomes over a given horizon (5 years at a maximum). The portfolio also seeks to add value by exploiting opportunities when markets dislocate, either by way of co-investment or best ideas emanating from existing relationships within our universe or broader fund.
Our current themes have been focussed on finding opportunities across private and distressed credit, pricing anomalies in listed markets niche real estate, alternative infrastructure, climate change, commodities and inflation. We have also been deploying into various dislocations where we believe we will be compensated more than adequately for the commensurate risk taken, and recent market movements will be sure to keep us busy.
Q. How are the Your Future Your Super reforms impacting the appetite for alternative investments among superannuation funds?
A. Let me answer this a different way. Alternative investments can achieve a lot for a diversified portfolio. A large part of that is clearly defining what you want them to achieve with the constraints that you have.
A wise person once told me that constraint can bring opportunity, something that perhaps has been broadly forgotten. So, even though the YFYS test does not explicitly cater for the Opportunities portfolio, it has not stopped us from investing in good ideas for our members.
I think we have successfully evolved in the space at TelstraSuper. From how we approach absolute return, to how we allocate the portfolio to each of the given option objectives.
We achieve this by blending market facing insights derived both, from our fantastic internal investment teams and from our extensive global partners, with rigorous quantitative analysis, to truly achieve a multi-dimensional view of the opportunity sets we are invested in, as well as those emerging. This approach ensures that we are consistent with our portfolio objectives.
We think about our investments extensively in the way they interact within the portfolio and against the investment options. This is something we have always done, and the new YFYS benchmark is just a further consideration in the process.
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Our current themes have been focussed on finding opportunities across private and distressed credit, pricing anomalies in listed markets niche real estate, alternative infrastructure, climate change, commodities and inflation.
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Q. Where do you see opportunities for investors to seek out diversification in the current environment, if the 60-40 portfolio is challenged?
A. Diversification is subjective as it is dependent on a few things:
1) What are you diversifying?
2) Where do you want it to work? And,
3) What is your timeframe?
In seeking to achieve this diversification objective we take a broader lens to work out exactly what we are looking to diversify and/or what opportunity we are looking to capitalise upon.
There are not many institutional portfolios that are truly 60/40 and so, in knowing this, the diversification benefits need to be well thought out relative to the constraints that one has.
Broadly, however, in recent times some strategies that promised diversification, did not deliver. That is because of two reasons.
Firstly, investors wanted a one stop low vol solution, and secondly, as a function of that, whilst on the surface these strategies looked diversifying, at certain moments their correlations run to 1; exactly at the time you need them to do their job. That is not to say that these strategies do not have their advantages – again, it comes down to understanding the interaction of a given investment relative to what you are trying to achieve and what you already hold.
In our case, the portfolio seeks to monetise opportunities as they present and, therefore, the portfolio evolves.
To illustrate, in 2020 the portfolio had begun investing in the ‘diversifying’ areas that many seek now. We further evolved our thinking as the pandemic progressed, so pleasingly, as a function of our thematic views, we had some protection coming into the high inflation and rising interest rate environment, which we find ourselves in now.
Our views continue to evolve. We recently made an investment to increase that protection in different ways, as a portfolio diversifier.
Q. What resources do institutional investor organisations need to successfully navigate the alternatives asset class? How does this differ to traditional asset classes?
A. I am reluctant to use the word ‘success’, because it is so subjective. I think you need to have the right governance in place, with the right mindset, to continually evolve given the objectives one has.
There are, however, similarities and differences with more “traditional” asset classes.
The similarities are that you need to understand what you are investing in, you need to have the support of your managers and team when you have conviction, you need the right governance structures, thorough research and stress-testing, and you need good communication.
As an individual, you need to have a mindset that acknowledges your areas of weakness, allows you to be open to having your thoughts challenged and be open to learning something new every day.
The main difference between traditional and non-traditional asset classes is the objective function. Understanding that you cannot just ‘go to weight’ relative to a benchmark, means that alternatives investors must constantly think about what they are holding, how long to hold it for and if it achieves the objectives you have. In my view, good communication and an awareness of total portfolio positioning solves for this.
In my role, I am fortunate to have the support of the fund’s Chief Investment Officer and the Head of Alternative Investments. There have been some “off the beaten path” ideas that we have evaluated, some implemented and some not, but having their commitment to the portfolio has been critical in achieving its aims to date.
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Having a portfolio framework and governance structure that is flexible and well defined has aided us in accessing fleeting opportunity sets.
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The broader investment team leadership (and their teams) have also been a constant source of support and insight. The latter is crucial because those teams are experts in their fields, so being able to access their insights, or having them act as a sounding board, when managing a multi-asset portfolio has been invaluable.
Having excellent external partnerships has also been advantageous. Those partnerships give us access to insights on the ground that have led to actionable outcomes and aided in the research of other ideas for the portfolio.
Having a portfolio framework and governance structure that is flexible and well defined has aided us in accessing fleeting opportunity sets. Having a team mindset that ‘this could be done better’ has seen us evolve that framework since its inception in 2019 which has led to better investment outcomes.
These approaches ensure that we are consistent with portfolio objectives and expectations.
Q. Where do you see greatest opportunities to deploy capital across the alternatives asset class, at this time of significant uncertainty, as we encounter a changing regime?
A. There are always opportunities to deploy capital, that is part of what makes investing so interesting and dynamic. History shows us that turning points in economic cycles are often a great time to invest opportunistically. We think the next little while will be rich with opportunities and we believe our current themes are well placed for the environment we find ourselves in.
We are always on the lookout for great opportunities and this current inflection point will no doubt surface some good ones for the fund. I believe our approach and attitude means we are well equipped to capitalise upon these as they present.
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History shows us that turning points in economic cycles are often a great time to invest opportunistically. We think the next little while will be rich with opportunities.
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Arthur Bengasino, Portfolio Manager – Alternative Investments, TelstraSuper
Arthur joined TelstraSuper in April 2018 and is the portfolio manager for the opportunities asset class in alternative investments. Arthur has over 20 years of experience on both the buy and sell sides in global markets.
Prior to joining TelstraSuper, Arthur was a portfolio manager in a boutique systematic global macro fund. He also worked at Kaiser Trading Group as head of options and algorithmic research, head of execution and senior trader and spent time as a price maker in spot foreign exchange at NAB.
Arthur holds a Bachelor of Arts from Monash University and a graduate diploma in applied finance and investment from FINSIA.
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