Russell Investments opened up a new global unlisted infrastructure fund for wholesale market last week, sounding out interest from the NZ market.
Michael Steingold, Russell private markets director, told a NZ webinar that the new fund was designed to tackle some of the key challenges facing investors looking to access unlisted infrastructure opportunities.
Steingold said investors – even large institutional ones – often struggle to achieve adequate levels of diversification in the asset class.
“Unlisted infrastructure is a very idiosyncratic asset class,” he said. “If you only have 10 to 15 underlying assets in your portfolio that’s not diversified enough – this fund has about 100 assets.”
Following the usual Russell style, the new global unlisted infrastructure fund invests via multiple underlying managers – in this case six strategies following different styles.
While the names were under wraps until the official launch date (last Friday, September 29), Steingold said Russell rated several infrastructure managers highly including Brookfield, First Sentier Investors, iSquared Capital, Harrison Street and the NZ-headquartered, Morrison & Co.
Aside from adding diversification, he said the Russell fund model also addresses investor concerns around unlisted infrastructure such as manager selection, maintaining exposure through market cycles and operational details (capital calls, distributions and so on).
“We created the fund with these user-friendly enhancements to give investors access to global unlisted infrastructure in ways that they could not do themselves – or, if they could, in a much more fee-efficient way,” Steingold said.
He said institutional and wholesale investors have shown an increased appetite for unlisted infrastructure to help combat inflation and add uncorrelated assets to the portfolio mix.
Unlisted infrastructure has historically shown an almost zero correlation with equities, Steingold said, while its listed counterpart follows broader stock market movements more closely.
The Russell fund is targeting an annual return of 4 per cent above inflation (as measured by a blended consumer price index across the G7 nations) with yearly distributions of 4.5-5.5 per cent.
Designed as an open-ended strategy, the fund offers quarterly liquidity (both in and out) after an initial three-year lock-in period and a minimum US$1 million investment.
The Luxembourg-domiciled fund includes Russell fees ranging from 0.3 to 0.4 per cent and estimated underlying manager costs of about 0.75 per cent plus an extra performance fee of up to 0.3 per cent if all strategies meet their targeted returns.
Russell will discount its fee for investors who commit to the fund before the first close at the end of this year.
Steingold said as the fund gains scale the underlying manager fees should also reduce with those savings passed on entirely to investors.
Russell manages about US$22 billion globally in alternative strategies, covering private equity, hedge funds, credit and real assets.
Matthew Arnold, Russell NZ head, said the firm was “building out the fund offerings” for local investors.
Arnold said that effort had seen the launch of several low-cost, tax-efficient vehicles over the last year – for example, sustainable global shares and listed infrastructure portfolio investment entities.
“And the other element is through private markets offerings, which is a real global focus for the firm,” he said.
Despite losing a couple of implemented investment clients recently – notably the Aon KiwiSaver as well as the Cook Islands and Tuvalu pension funds – Arnold said Russell NZ had seen a big uptick in institutional clients with about 10 signed up this year.