Amid turbulent market conditions and a growing desire for real-time transparency, institutional investors like the $25 billion (A$38 billion) State Super closed defined-benefit fund continue to look for greater data capabilities and more robust risk management.
State Super on August 29 said it had chosen Premialab to manage and monitor its portfolio of alternative risk premia strategies from sell-side investment banks.
“Premialab demonstrated that they could add capability and efficiency to our processes,” Alan Chan, senior investment manager at the super fund, told AsianInvestor.
“The platform provides a comprehensive database for analysing and comparing the performance and risk metrics of these strategies. The user interface is user-friendly, making it easy for us to navigate and make informed decisions,” Chan said.
Alternative risk premia strategies are hedge fund strategies that aim to systematically isolate and generate excess returns from exposure to specific risk factors,. They may also generate returns from behavioral or structural market anomalies.
Established over 100 years ago, State Super remains focused on ensuring it has the best systems in place to manage its members’ retirement savings in the safest, most efficient way possible, according to Chan.
The super fund is also leveraging Premialab's python API to feed into its internal quantitative models for performance and risk analysis, as well as portfolio construction.
Chan expects that the partnership will allow State Super to identify important and overlapping risks in the fund’s alternative risk premia portfolio.
“The transparency provided by the constituent level risk analysis will be instrumental in achieving this. By gaining a clear understanding of the risks at the individual strategy level, we can effectively manage and mitigate potential vulnerabilities in our portfolio. The company’s capabilities in this regard will be invaluable in enhancing our risk management practices,” he said.
Some of the earliest adopters of alternative risk premia strategies included sophisticated institutions, such as the Nordic and Scandinavian pension funds, according to experts.
Premialab was created seven years ago with a focus on quant and systematic trading strategies, according to Pierre Trecourt, co-founder at Premialab.
Starting out in Hong Kong, it now has offices in Paris, London, Stockholm, and New York. It officially opened its doors in Australia this month.
“The world of asset allocation and asset management is changing. There is more adoption of automation and systematic strategies to reduce fees, to benchmark asset managers and tactically implement hedging strategies,” Trecourt told AsianInvestor.
However, the marketplace is very fragmented and a plethora of quant strategies on offer have made it very difficult for investors to understand how each banks’ strategy works and what risks they might hold, according to Trecourt.
“Premialab was created in partnership with 18 investment banks around the world, which provide us with their data on their quant strategies, so that we could develop a solution for institutional clients on the buy side to compare strategies and build portfolios,” its co-founder said.
With the State Super mandate, Premialab is also launching in Australia, signalling a growing embrace of systematic investing in the country, according to Marc Fisher, Australia managing director and global head of strategic partnerships at Premialab.
Systematic investment data is relevant to all clients as it allows for the measurement of factors driving investment returns, he said.
The data can also help investors assess the value for money they are seeing in management fees, particularly those leveraging active managers.
“These tools can be used to definitively answer those questions and allow funds in black and white to present to a manager and say, ‘Well, actually yes, you made money. But we could have replicated this with passive investments far more cheaply.’ "
The focus on lowering fees in the superannuation space is driving the need for quantitative tools, which can benefit not only the superannuation market but also anyone investing in managers or being benchmarked by the Australian Prudential Regulator Authority, said Fisher.
Premialab is actively exploring these possibilities with various investors in the country.