Fund focus: Hostplus' diversification drive

Hostplus currently has the top superannuation product in Australia, based on three-year and five-year returns, according to Lonsec Group. It regularly cites a long-term outlook – the Hostplus member base is relatively young – and exposure to alternative assets as key contributors to this outperformance.

The superannuation fund had A$34 billion ($24.1 billion) under management as of June 2018, including A$2.18 billion in private equity. In recent years, it has shifted towards niche and bespoke strategies within the asset class. A US middle-market mandate recently awarded to Flexstone Partners certainly fits this profile. The brief is to make A$200-300 million in primary and co-investment commitments over a three-year period, specifically focusing on GPs running their first, second and third funds. 

"What institutional funds are looking for right now is differentiation and diversification," says Louise Watson, a managing director with Natixis Investment Managers, the parent of Flexstone. "They are acutely aware of overlapping exposures that exist within their portfolios. HarbourVest Partners, Neuberger Berman, and Lexington Partners have an established footprint amongst institutional funds in Australia. What this program offers is highly differentiated from those names."

She points to an analysis of 62 co-investments previously undertaken by Flexstone, which found only one overlap with HarbourVest and one with Lexington. Hostplus has a preexisting co-investment relationship with Caspian Private Equity, a US manager that merged last year with Eagle Asia Partners and Euro Private Equity to form Flexstone. The new mandate is even more specific than its predecessor: the target GPs are pursuing small to lower middle-market companies with $30 million in EBITDA. 

While domestic fund-of-funds have slipped from favor among Australian LPs, many still rely on these products – or separately managed accounts (SMAs) – to access global PE. Over 75% of the Hostplus portfolio is deployed overseas through the likes of LGT Capital Partners, Lexington, Partners Group, and Siguler Guff. The US accounts for 55% of this allocation.

Outsourced management is a necessity for groups that don't have the bandwidth to deal with a multitude of overseas GPs. But Watson observes that SMAs also allow them to tailor exposure. This was one of the reasons why Natixis, which has 15% of its $1 trillion in assets in alternatives, decided to create Flexstone. In addition to PE, Natixis has been talking to Australian clients about strategies ranging from credit to environment, social and governance in recent months. 

Diversification is the unifying theme, and the same dynamic plays out in terms of geographic exposure. "Clients have been asking for global solutions in private equity," she explains. "Something like Euro Private Equity is of interest to Australian investors because many are underweight Europe. It is typically 65% North America, 20% Asia Pacific, and 15% EU."   

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• Topics
• Australasia
• North America
• LPs
• Fundraising
• Fund-of-funds
• Australia
• USA
• HOSTPLUS
• Flexstone Partners