SYDNEY, Australia -- A unique partnership between Pareto Partners, London, and Lend Lease Corp. Ltd., Sydney, has just ticked over A$700 million (U.S. $447 million) of equity assets under management.
Pareto contributes its intellectual capital and Lend Lease its investment engineering abilities, including product design, refinement and marketing, to the five-year-old partnership.
The new investment fund is offered by Lend Lease Investment Management, the third-largest investment funds manager in Australia based on assets under management.
Bruce Coleman, chief executive of LLIM, said he knows of no other case in which two investment managers are using their specialist skills to deliver Australian equity investment.
The fund, known as Pareto Australian Equity Alpha, was seeded with A$400 million of LLIM's internally managed equity portfolio in September. A second tranche of A$300 million was invested in mid-November, shifted from existing Lend Lease portfolios, Mr. Coleman said. The eventual target for assets under management is in the A$2 billion to A$3 billion range.
Pareto, founded in 1991, has made its name in currency management and has been acting as a currency overlay manager for LLIM since 1993.
Equity Alpha is an active, quantitative stock selection fund designed to outperform the Australia All Ordinaries index by two to three percentage points. It uses sophisticated statistical methods -- technically, an advanced stochastic evolutionary search algorithm -- to identify stock portfolios with optimal weightings for the best returns.
The evaluation model focuses on three fundamentals -- leverage and price-to-book and price-to-earnings ratios -- and tracks how these factors can change in importance in the market. The model calculates each stock's exposure to these fundamentals and uses optimal weighting to construct a portfolio.
Donald Hellyer of Pareto Partners' Sydney office, a former manager of the Mobil Oil Corp. pension plan, Fairfax, Va., said the Pareto style is aimed at risk budgeting. "To manage risk, you've got to measure risk," he said.
Backtesting of the two-month-old fund shows a 1.98 percentage point return above the benchmark for the 10 years ended Dec. 31, 1997.
The Equity Alpha fund took two years of research after LLIM approached Pareto. LLIM adopted an outsourcing approach more than 10 years ago, hiring sector specialist managers for its Australian and international funds in addition to its own "core" portfolios.