Article written by Cliona O'Dowd. Published in The Australian May 17, 2024.
Private equity, real estate and collectibles commonly form part of the wealthy investor’s portfolio. But lesser-known niche strategies are coming into their own as investors look to steer further away from broad based market risks.
Adviser to the ultra-rich, LGT Crestone, will, in the coming weeks, bring three of these niche alternatives to the Australian market as part of a multi-strategy offering it says can deliver strong returns, with defensive qualities.
The PG3 Longreach Alternative Strategies Fund, developed in partnership with PG3, the family office of the founders of global private equity firm Partners Group, and local alternatives specialist Longreach Alternatives, will offer investors exposure to insurance finance, royalty finance, and litigation finance.
The fund is new to the market but is based on long-running investment strategies within PG3’s portfolio.
“These three strategies have provided a consistent source of returns to the PG3 family office during significant market downturns,” Swiss-based co-founder of Partners Group, Urs Wietlisbach, told The Weekend Australian.
“Overall in the insurance finance fund we have done $US1.4bn in investments, with annualised returns of 13.7 per cent. And that’s not correlated to markets.”
The family office is “always searching” for investments that are uncorrelated to other asset classes, he said, with this approach leading it to litigation finance in 2015.
Within the legal finance strategy, the funds are either used directly in legal cases, or in broader law firm financing.
“This is when you give a credit to a law firm, and these are mainly in the US. (We get) 15 to 20 per cent interest rates on this and loan to value against the whole portfolio of cases of about 30 per cent. It’s a very niche (investment) but very good returns,” Mr Wietlisbach said.
PG3 has invested $US1.2bn in legal finance over the past nine years, with an annualised return of 8.3 per cent, and is “still in the J curve”, meaning annual returns should rise from here, according to Mr Wietlisbach.
The third strategy, royalty finance, was established in 2021 and has delivered annualised returns of 8.4 per cent.
Formed in 2015 from a management buyout of UBS Wealth Management Australia, Crestone was acquired by the private banking and asset management arm of the Princely Family of Liechtenstein, LGT International, in 2022. LGT Crestone has $30bn in assets under management while globally, LGT has about $500bn in AUM.
LGT Crestone head of private markets, Martin Randall, said the appeal of the new strategy was that it offered numerous streams that were uncorrelated to both traditional and alternative assets.
“In this sense, it represents an ‘alternative’ to traditional alternatives,” Mr Randall said.
“We have one of the largest exposures, if not the largest exposure, to alternative asset classes in Australia. We’ve been growing private equity, hedge funds and unlisted real assets, to the extent that (alternatives) are effectively 20 per cent of our assets under advice today.
“But private equity is still equity and private debt is still debt, so you still have the same economic market-related exposures. We continue to look to diversify our portfolios to access a group of genuinely uncorrelated assets that are producing strong risk-adjusted returns with strong downside protections,” he said.
The PG3 Longreach Alternative Strategies Fund, which has a management fee of 1 per cent per annum and a performance fee of 12.5 per cent over a hurdle of 6 per cent, fits the bill.
“We would probably put it more towards the defensive (side),” Mr Randall said.
“The fact that you have a PG3 overlay, with all of their specialists finding the right funds and those funds also structuring additional downside protections, that rigour combined with the diversity of the multi-asset class exposure, means that a lot of risk is taken off the table.”
