Redpoint is a boutique global equities manager specialising in quantitative strategies across Australian equities, global equities, global infrastructure and global property.

Mr Ying will be responsible for trade execution, and will assist with portfolio management and research, covering Australian and global equities, FX and futures markets.

He joins Redpoint from MLC Asset Management, where he was a senior investment analyst, responsible for monitoring and rebalancing multi-asset portfolios. Prior to MLC, he was a portfolio management analyst at Dimensional Fund Advisors Australia, where he was involved in company and portfolio analysis, cash flows management, and various research, development and reporting projects.

He has a Bachelor of Commerce (Liberal Studies) (Honours) from the University of Sydney, and a Master of Quantitative Finance from the University of Technology, Sydney.  

Redpoint chief executive, Max Cappetta, said Mr Ying brings extensive experience in company analysis, portfolio cashflow and trade management to the role.

“Nick is an experienced and skilled quantitative investment professional with a demonstrated history of success in the investment management industry. He is a welcome addition, and the broader Redpoint team will benefit from his insight and expertise.”

Redpoint has also appointed Tao Chen as quant developer, reporting to head of technology, Andrew McGregor.

Mr Chen will be responsible for Redpoint’s data capture, processing and maintenance, as well as database development, analytics and data engineering.

He joins from PwC Australia where he was a senior software engineer focused on designing, developing and implementing data-driven ways to automate auditing and accounting processes. Prior to PwC, he was a software developer at Services Australia, where he was involved in data and document migration projects. He also took a lead role in a range of IT projects such as robotic development, web application development, virtual assistant development and machine learning capability development.

Mr Chen holds a Bachelor of Science (Physics) (Honours) from Swinburne University of Technology.

Mr Cappetta welcomed Mr Chen’s appointment to the team, pointing to the depth of his knowledge in software engineering.

“Tao’s work with PwC and Services Australia is solid, and his experience and expertise mean he is well placed to take on this role with Redpoint.

“Nick and Tao both join Redpoint at an important time as we see growth potential due to increased investor interest across a range of our strategies including global listed infrastructure, our enhanced responsible investment solutions plus our retail focused Tax Effective Australian Share Fund and Australian Industrials SMA strategy.

“Redpoint is also planning further product development in coming months, in response to market demand, and the expanded investment team will assist as the business grows its footprint in the market,” Mr Cappetta said.

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Ganesh Suntharam

The strengthening of China’s commitment to carbon emission targets, coupled with the return of the United States to the Paris Climate Agreement, sets the stage for a globally coordinated move away from fossil fuels and towards a greener economy, according to Redpoint Investment Management’s chief investment officer, Ganesh Suntharam.

Mr Suntharam believes this energy transition will require investment of additional capital and is set to dominate a host of economic sectors over the coming years, presenting significant potential for above average risk-adjusted investment returns. The transition will likely create opportunities within Global Listed Infrastructure assets, with an increasing number of established, renewable energy infrastructure companies listed on global exchanges.

“These renewable infrastructure assets have a diversified mix of revenue streams from multiple renewable sources and geographies, and are well ahead of many traditional utility companies in terms of the transition to clean energy.

“Many of these renewable energy companies have also established a first-mover advantage and in doing so, have built up significant technical expertise and experience in owning and operating renewable energy generation assets,” he said.

Mr Suntharam said Europe has led the way in the sector and cites Danish company Orsted as being a good example of a leading technological capability in offshore wind farming. However, he said for investors looking to obtain increased exposure to listed renewable infrastructure companies, typical benchmarks will not usually meet their needs.

“Most infrastructure benchmarks typically contain little exposure to renewable energy companies outside of the traditional utility companies, which themselves are still dominated by fossil fuels.

“US-headquartered NextEra Energy is the only company with a majority of its business exposure from clean energy that features in the FTSE Core Developed Infrastructure index flagged in the Your Future Your Super legislation,” he said.

The combination of a widespread structural shift in energy production and the relatively limited exposure of traditional benchmarks to this thematic is also driving a more research-based approach to stock selection, according to Mr Suntharam.

“The need to search beyond the traditional indexes to identify opportunities within global listed infrastructure assets is becoming more apparent.

“From a portfolio perspective, we know renewable energy companies bring diversification benefits and potential for cashflow and dividend growth as they become more mature, so the ability to find these investments using a systematic, research-driven approach is more important than ever,” he said.

“Beyond the investment merits of these stocks, the Environmental, Social and Governance (ESG) attributes are also now more pronounced. Recent global research highlighted that companies involved solely in the clean energy transition are at the forefront of ESG investing, with these companies set to benefit from favourable fund flows and changing ownership levels as investors look to add ESG influence beyond negative screening.

“Developments in the renewable and clean energy sector in recent years has seen the sector transform from a riskier and more experimental investment prospect to one which is more securely established, and ESG investing has been central to this transformation.

“The sector now presents investors with an opportunity to invest in more mature assets with stable yield and growth characteristics similar to those of other infrastructure sectors. Expectations for escalating multi-decade growth and development in the sector is expected to underpin the investment case for renewables as a valuable, long-term investment,” said Mr Suntharam.

Redpoint’s Global Listed Infrastructure Strategy is designed to capture the key characteristics of infrastructure in a diversified portfolio. It aims to provide lower volatility than global equities, along with a focus on quality companies and long-term sustainable income growth. It has outperformed the FTSE Core Developed 50/50 Benchmark since its inception year of 2012.

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What benefits can global infrastructure can provide an investment portfolio?

Infrastructure investing is increasingly popular within retirement savings plans and it’s easy to understand why. An allocation to infrastructure can potentially deliver lower volatility and a higher dividend yield than global equities, and a diversifying addition to a multi-asset class portfolio.

In this article Ganesh Suntharam, CIO and Senior Portfolio Manager with GSFM’s newest investment partner Redpoint Investment Management, discusses the benefits global infrastructure can provide an investment portfolio.

From the roads of Rome in the west to the Silk Roads of the east, society has always recognised the importance of good infrastructure in sustaining a strong and well-functioning economy. The types of infrastructure required by modern day society has expanded from its origins of a broad road network, but the importance of these assets to society has not lessened.

Australia has played an important global role over the last 20 years in helping transform infrastructure assets from sleepy utilities of the past to attractive long-term investment opportunities for the future. To this end, Australia has been at the forefront of financial innovation in this sector and the government alone is expected to commit over $100 billion over the coming decade to keep pace with population and economic growth.

Since the advent of specialist funds targeting infrastructure for investors, Australian policy makers, business leaders and superannuation investors have developed a greater understanding and acceptance of the direct role private investment can play in developing infrastructure, whether on a standalone basis or in partnership with government.

Traditionally, investing in infrastructure was seen as the domain of large corporate investors like superannuation funds as opposed to individual investors. For the large superannuation funds, buying a toll road as an example was a great way to preserve the purchasing power of their cash holdings in a changing interest rate environment. Although this still remains the case for unlisted infrastructure, the emergence of listed infrastructure assets has made the asset class more accessible for retail investors.

The benefits delivered by infrastructure are natural outcomes of investing in a globally diversified portfolio of companies who manage core infrastructure assets and deliver essential services. Across the global economy, these companies include water and electrical utilities, toll road and rail transport operators, and those that own gas pipeline, telephony and satellite networks.

Retirement investments are generally designed to generate steady income. Global Listed Infrastructure provides an asset class with the ability to integrate this requirement with a number of additional benefits. These include additional diversification potential, reduced inflationary impacts and potential long-term income growth. The characteristics of this asset class – less value volatility than equities in general and greater stability and consistency in dividend growth – lead us to believe that listed infrastructure has an important role to play in building a retirement portfolio.

Infrastructure – the building blocks of society

Infrastructure is considered to be a facility or service that is essential for an economy or society to function efficiently. Global listed infrastructure provides a large and growing investment opportunity as demand for new and replacement infrastructure increases and governments rely more heavily on the private sector to finance, build and operate them.

Infrastructure return characteristics are different to mainstream growth asset classes like shares and property in that the risks that they are exposed to, the factors that influence their revenues and the regulated nature of the assets tend to deliver more stable income returns over the business cycle.

The income generation of ‘user-pay’ infrastructure assets like toll roads, public transportation services and telecommunications projects is derived from the inherent demand for, reliance on, and use of the assets. In addition, the usage charges for services of many infrastructure assets are linked to the inflation rate.

This means the real value of these revenue streams are less affected if the economy slows and inflation rises.

The duration of infrastructure projects is often supported by long-term contracts or government regulation. This, in conjunction with stable demand, relative insensitivity to economic conditions and greater resilience to inflation, delivers a pattern of returns that is somewhat independent of other listed asset classes that aren’t driven by the same underlying characteristics. Consequently, while listed infrastructure securities do fluctuate in value from day to day, they can be a diversifying allocation in a multi-asset class portfolio.

Creating a portfolio with defensive characteristics using infrastructure is as much about picking suitable companies as it is about seeking a diversified mix of different infrastructure activities.

Capturing the essence of the asset class

For global and single country equity and listed property investments there are widely accepted benchmarks – often a single, dominant index; and where there are multiple choices the differences are minor. In contrast, the accepted definition of infrastructure assets in the listed space has varied through time and cross-sectionally; with index vendors and individual managers taking distinctly different approaches.

Our analysis of the ‘collective wisdom’ of active managers and index vendors identified a six-way breakdown of the asset class that explains most of the risk (and return) differences between the various indexes and managers (figure one). The six subgroups draw from a wide opportunity set – including stocks from non-traditional subsectors – and then focus on stocks with a significant majority of their revenues deriving from core infrastructure activities.

Redpoint’s research shows that specific subgroups of infrastructure activities (figure one) carry distinct risk characteristics While each sub-group has a lower beta (i.e. is considered more defensive) than listed global equities in general, they also exhibit different risk characteristics relative to each other. The different volatility outcomes delivered by most infrastructure strategies can be explained by the different exposures which they have to these six subgroups.

Figure two highlights these differences with listed Utility companies having lower volatility (and a lower beta) to global equities relative to subgroups of Transport and Networks. This analysis highlights that while Transport and Network subgroups have similar betas to global equities, the Network sub-groups are inherently riskier than Transportation. The volatilities shown in figure two are the residual volatilities of the subgroups after removing the common effect which is driven by their respective relationship with global equities in general.

Another dimension of risk is the correlation between subgroup returns, as reflected in figure three. In theory, the lower the correlation in figure three, the less similar the returns and the better the diversification benefits of combining the two subgroups should be. The negative correlation between energy networks and non-rail transport subgroups are particularly attractive.

As per the volatilities in figure two, correlations shown are between the residual returns of each sub­ group after removing the common effect which is driven by their relationship with global equities in general. This highlights that there are true diversification opportunities across the subgroups which are not simply driven by their respective relationship with global equities in general.

A well-diversified portfolio of infrastructure securities can take advantage of each subgroup’s global equity beta, volatility and correlation characteristics to attempt to deliver a strategy with lower volatility than more concentrated approaches – and this can be rewarded with less negative returns in periods of market stress.

Risk and return differences among active and passive managers can be explained by effective exposures to:

• a global equity beta – characterising the sensitivity of a given strategy to global equity market returns; and
• a set of six “infrastructure subgroup” betas.

The dominant driver of the global equity beta and total volatility outcomes of different manager and index strategies is predominantly explained by differing exposures to these six infrastructure subgroups.

During the Global Financial Crisis, many diversified Australian and global equity portfolios fell 50% or more in value. Compounding this fall in value, many companies, including global giants such as Toyota and the local banks, cut dividends in 2009 and 2010 in response to the market turmoil of 2008.

In contrast, typical, well-diversified listed infrastructure portfolios fell by a more muted 35%.  However, for the buy and hold investor, the dollar-dividends from these portfolios were only marginally affected. Many infrastructure companies – such as Union Pacific Corp (a US rail company), Flughafen Zuerich AG (the operator of Zurich Airport) and APA Group (an Australian gas pipeline owner) – delivered steadily rising dividends through the period.

Geographic and company diversification matter too

Ensuring that infrastructure portfolios are properly diversified at a subgroup level is just part of the story. Investors also need to ensure that they diversify their portfolios geographically. While there may be well run infrastructure companies in Australia, it arguably makes sense to consider companies in other countries that may simply be better investments. Furthermore, with a global perspective, investors can access companies operating in sectors not represented on the ASX, such as satellite owners and water utilities.

Another key consideration is that index strategies and typical active strategies generally deliver relatively concentrated portfolios. While popular global infrastructure benchmarks appear diversified with 75, 100 and more than 150 constituents, depending on the index, market-cap weighting often results in fewer than 20 stocks accounting for more than half of the relevant index’s weight in most cases.

Typical active strategies are generally concentrated by design, with most active managers holding far fewer stocks than any of the indices. As a result, both index and typical active strategies generally place a significant bet on the performance of just a few companies. Redpoint believes that diversifying across individual infrastructure companies to reduce this concentration risk delivers better outcomes in the long term.

Well-managed companies delivering core infrastructure services across the world are arguably well positioned to grow as an investment for retirement savings. Having a global perspective – diversified across a range of different subgroups and companies – arguably assists investors capture the essence of this asset class.

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The information included in this article is provided for informational purposes only. The information contained in this article reflects, as of the date of publication, the current opinion of Redpoint Investment Management (Redpoint) and is subject to change without notice. Sources for the material contained in this article are deemed reliable but cannot be guaranteed. We do not represent that this information is accurate and complete, and it should not be relied upon as such. Any opinions expressed in this material reflect our judgment at this date, are subject to change and should not be relied upon as the basis of your investment decisions. All reasonable care has been taken in producing the information set out in this article however subsequent changes in circumstances may occur at any time and may impact on the accuracy of the information. Neither Redpoint, GSFM Pty Ltd, their related bodies nor associates gives any warranty nor makes any representation nor accepts responsibility for the accuracy or completeness of the information contained in this article. ©2020 Redpoint Investment Management

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Damien McIntyre

GSFM has completed the acquisition of a 49 per cent equity stake in boutique quantitative equities specialist Redpoint Investment Management (Redpoint).  Redpoint management will continue to control 51 per cent of the business. 

The two firms combined will manage over $17 billion.

Redpoint was established in 2011 and specialises in listed asset classes including Australian equities, international equities, global infrastructure and global property.

GSFM specialises in marketing funds managed by high calibre local and international managers to Australian and New Zealand institutional and Australian retail investors and represents approximately $7.4 billion in funds under management. GSFM is majority owned and backed by the listed CI Financial; one of Canada’s largest independent investment firms. 

GSFM has acquired the stake previously held by MLC Asset Management (MLCAM), formerly NAB Asset Management, which provided the initial backing and support capital to grow Redpoint to its strong position with $10 billion in assets under management.

Damien McIntyre, chief executive officer of GSFM, said: “GSFM is focused on identifying under-serviced investor needs and marrying this with high quality investment solutions.

“We see demand in the Australian market for quantitative solutions and Redpoint brings a highly credible and experienced team to provide such strategies.”

Redpoint CEO Max Cappetta said: “GSFM’s acquisition of a 49 per cent equity stake in the business will allow the Redpoint team to focus on investment management, while also introducing our funds to a wider audience through GSFM’s dedicated, focussed and specialist distribution capability.

“As one of Canada’s largest financial institutions, GSFM’s parent – CI Financial – provides the potential opportunity for Redpoint to expand its international footprint in the future.”

Eric Smith, chief investment officer and co-founder of Redpoint will step down as CIO on completion of the sale, and will remain a member of the Redpoint Board and a senior adviser to the business focusing on ESG/Sustainability and Infrastructure strategies.

Ganesh Suntharam, co-founder and leader of Redpoint’s portfolio management and trading functions, will take over as chief investment officer.  This change reflects Redpoint’s desire to elevate its next generation of leadership to drive future growth. 

Mr McIntyre said: “The transaction opens up further opportunity to expand the number of solutions we are providing to our clients in the Australian market. 

“GSFM currently has seven fund manager partners, each offering a differentiated investment strategy in their specialist asset class. These span Australian equities, global equities, fixed income, volatility and absolute return through global equities. This acquisition brings the total fund manager partners to eight.”

Mr Cappetta said: “After an eight-year journey to establish and grow the business, all shareholders have agreed that Redpoint management’s ambitions are best progressed with a new partner.”

Berkshire Global Advisors acted as exclusive corporate advisor to Redpoint.

Transaction terms have not been disclosed.

Since CI acquired a majority stake in of GSFM in November 2016, CI and GSFM have collaborated to introduce portfolio managers to new products and markets. Cambridge Global Asset Management, a division of CI Investments Inc. based in Toronto and Boston, now manages a global small companies fund for GSFM, and Munro Partners of Melbourne manages a global growth liquid alternatives fund for CI Investments.

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