Southern Cross Health Society has gone down the multi-management route for about 20 per cent of its approximately $500 million investment portfolio.
Stefan Azzopardi, Southern Cross head of finance, risk and compliance, said the deal recently inked with Russell Investments would see about $100 million placed across three global listed asset classes – equities, infrastructure and property.
Azzopardi said Southern Cross would continue to manage roughly $400 million of cash and fixed income investments in-house.
He said the decision to shift a portion of the Southern Cross investment pool into riskier assets – reported here in April – was driven both by the current low interest rate environment and the need to diversify.
“The search for higher yield was certainly part of the reason,” Azzopardi said. “But our portfolio was also heavily exposed to the New Zealand fixed income market and the banks here, so we were looking for some diversification too.”
However, he said the shift up the risk scale would not compromise Southern Cross’ liquidity profile – always a concern for insurers.
According to Azzopardi, the ‘core and satellite’ model – with Russell taking on the satellite role – would place tight constraints on portfolio risks.
“We will always ensure that there will be enough liquidity in the core portfolio,” he said.
Southern Cross would invest into underlying Russell funds rather than via direct mandate, Azzopardi said, with the transition scheduled to begin after June 30 this year.
“There’ll be a slow transition as we have to wait for some investments to mature,” he said.
The $100 million tender, managed by part-time Southern Cross employee and former Russell consultant, Daniel Mussett, attracted a lot of interest, Azzopardi said, in a market where new wholesale money rarely crops up.
He said the entire Southern Cross investment committee was involved in selecting Russell.