• The Bennelong Alpha 200 Fund is a new fund with a 6 month track record.  The Fund is broadly modelled on the strategy used for Bennelong's original Equity Long Short Fund which uses a market neutral "pairs trading" approach to invest in Top 100 stocks, and which has been managed by Richard Fish since the inception of BLESM in 2002.
• The Alpha 200 Fund however primarily invests within the top 200 by market capitalisation, using a similar "pairs trading" approach while remaining broadly market neutral on a cost basis.
• The Fund will hold 70 - 90 stocks comprising 35 to 45 pairs,although it can hold up to 100 stocks and 50 pairs. Each pair contains one
  long and one short position each of which is thoroughly researched and,where possible, from the same market sector. The pair positions are dollar neutral at cost, limited in terms of sector exposure, and give theportfolio a target beta of zero over time.
• In addition to Richard Fish, the team is composed of Sam Shepherd who joined BLESM from Credit Suisse, where he ran the Melbourne institutional equities desk. Shepherd's 20 year experience also covers JP Morgan and Norwich Investment Management. Tim Hall recently joined BLSEM as a specialist mid and small-cap portfolio manager to work on the expanded universe of the 200 Alpha Fund. The team is supported by experienced investment analyst, Sam Taylor.

ATTACHED FILESBennelong Alpha 200 Fund June AFM Fund Review (pdf format)

This week's release of the interim report of David Murray's Financial System Inquiry (FSI) was a mixture - part interim report, and part seeking further feedback and comment from interested parties. At 460 pages it has, or will, take some time to go through the complete document, but our initial impression is that the final report will be a major influence on the direction of the financial system, including superannuation for some time to come.

Courtesy of modern technology and the Internet (which the report itself focused on) the presentation and ease of understanding the report was a breath of fresh air. While not everyone might agree with all the directions it is going in, one has to be impressed by the quality of its scope, coverage, and production.

Distilling all 460 pages (even if I had read them all) is not the purpose of Hedge Clippings, so we will just focus on some specific areas of interest. The main one to us is Australia's superannuation system, currently around $1.8 trillion and forecast to grow to 7 or $8 trillion by 2030 according to a recent report from Deloitte. The FSI interim report inevitably spent some considerable effort on superannuation, partly in the area of fees, and also flagging that the final report will have a fair amount to say about superannuation's retirement phase, as opposed to the accumulation phase which seems to be the focus of so much attention.

Firstly the fees. The FSI points out that while the total superannuation pool has grown dramatically over the past 20 years, partly as a result of time, and partly as a result of the SGL levy rising from 3% to 9%, fees as a percentage of total funds has hardly budged. The interim report estimates that whilst one of the largest superannuation systems in the world, it is also one of the most expensive by a factor of two or three times, and that a reduction of around 0.4% in fees would save superannuation members a total of $7 billion a year at current levels.

Given Deloitte's forecast, a simple calculation suggests that figure will be closer to $30 billion a year by 2030 unless competitive pressures (or legislation?) come to bear.

As we are normally at pains to point out, fees are one thing, but net performance drives the bottom line return. Whether net performance, or choice and a preference for being in control of one's own retirement destiny is the cause for SMSF's to be 35% of the total superannuation pool is debatable, but self-managed super funds, while not impervious to fees, would from our experience seem to be far less fee focused than their institutional counterparts.

The FSI also put considerable focus on potential changes or implications to the retirement phase of superannuation. At the current time, and in fact since inception, the pointy end of superannuation has been contributions, returns, and fees in the accumulation phase covering the time up until retirement. David Murray's interim report suggests, correctly in our view, that as the objective of superannuation is to provide for the retirement phase, there should be a greater focus on how the retiree's final superannuation balance is handled.

Given increasing longevity and an ageing population it would seem illogical to force people to save for 40 or 45 years of their working lives, only to allow them to take a lump sum in the hope of carrying them through the next 20 or so years of retirement. We are obviously not aware of how the final report will come down on this, but it would seem that the recommendation might fall somewhere between incentive (the carrot) and legislation (the stick) to increase the focus on annuity style incomes over the longer term.

While they're at it they may want to consider either a carrot or stick approach to encouraging an increased allocation of the superannuation pool to infrastructure assets. Both have a long term timespan of 30 to 40 years, and infrastructure should be able to provide the necessary steady returns without the volatility of equities and other financial markets.

Our focus on the superannuation aspects of the FSI are not meant to diminish the importance of other areas the report, including the quality of financial advice, and Australia's dependence on overseas capital. We'll leave that to others, or another day.

Specific results received this week include the following PERFORMANCE and NEWS UPDATES:

The Nanuk Global Alpha Fund returned 1.16% during June, with 12 month performance coming in at 14.83%.

Pengana Australian Equities Market Neutral Fund returned 1.8% during June.

Performance for the Aurora Fortitude Absolute Return Fund was -0.31% during June, its first negative month since January 2013.

Avenir Value Fund returned 0.22% during June, a month in which the Global Equity Index fell -0.76%. The Fund's financial year performance was 30.04% (Index 17.87%)..

Performance for the Insync Global Titans Fund over the 2014 financial year closed at 10.70%.

FUTURE EVENTS:

14-15 August in Sydney: Alternative Investments Conference - Investigating the rise and rise of non-traditional high yield and low risk investment products, strategies and allocation in an era of prolonged volatility and low returns.

If you would like your Event listed in our calendar, please contact us.

And so to something completely different: on what would have been his birthday today here are 7 things we can learn from Nelson Mandela's life. Seven pretty important principles but in my world there's one that rises above them all: Happy Wife, Happy Life!

On that note, I hope you have a safe and happy weekend.

Best wishes,

Chris
CEO, AUSTRALIAN FUND MONITORS

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Australian Fund Monitors are helping to raise awareness to support research into prevention and cure for cerebral palsy.  For more information visit www.cpresearch.org.au or contact me by email.