US asset management firm PanAgora believes an innovative approach to investing, such as a blend between quantitative and fundamental investment strategies and a ‘risk parity’ approach that diversifies assets based on their risk profile rather than capital value, will appeal to Australian investors.
Many portfolios that may seem diversified actually have a large amount of their risk profile contained in the equities portion, particularly major large cap stocks. For example, a portfolio with 60 per cent equities and 40 per cent fixed interest actually has around 95 per cent of the downside risk in the equities portion, according to PanAgora’s president and chief executive, Eric Sorensen.
By spreading the risk more evenly across assets, portfolios can be protected from events such as the global financial crisis (GFC). PanAgora’s risk parity funds have actually outperformed the world index over a long period and also performed better during the GFC, while recovering losses in a shorter time, he said.
The strategy provides PanAgora with a point of difference, since this relatively new technique has generally not been offered in Australia, he said.
PanAgora’s Dynamic Global Equity Fund recently opened to Australian institutional investors and saw more than A$500 million in commitments prior to the June launch.
PanAgora now manages around A$1 billion for Australian institutional investors, but following the launch of its first locally registered and domiciled fund it was anticipating an even greater take up.
PanAgora is currently assessing the demand in Australia and New Zealand for risk parity products and plans to launch its Risk Parity suite of products here in the near future.
