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The Hedgeweek Interview: Kevin Boscher, Director, Collins Stewart Asset Management

Multi-manager Collins Stewart Asset Management has received an AA rating by Standard & Poor's for six funds of funds it manages. Kevin Boscher outlines the company's investment strategy and success with absolute returns.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

HW: What is the background to Collins Stewart Asset Management (CSAM)?

KB: CSAM is the Guernsey-based investment management division of Collins Stewart (CI) Limited. Our ultimate parent company is Collins Stewart Tullett plc, the London-listed financial services group whose activities span international and private client stockbroking, market-making, corporate finance, fund management and the supply of online financial information.

The group has offices in London, the Channel Islands, Isle of Man, New York, Dublin and Edinburgh. The offshore offices provide asset management services to a mix of institutions, fiduciaries and private clients - Collins Stewart (CI) Limited currently manages in excess of GBP 1 billion on behalf of a variety of clients.

CSAM was formed in 1996 and focuses primarily on multi-manager investing. In total, CSAM has around GBP 500 million under management.

HW: What are the services provided by CSAM?

KB: We offer a range of services broadly divided into four groups, namely Institutional Investment Management, Segregated Portfolio Management, the Guernsey based Hirzel House Funds and the onshore Collins Stewart OEICs.

  • Institutional Investment - We currently manage a number of pension funds and other institutional mandates.  We are also investment adviser to a number of third party funds.

  • Our Segregated Portfolio Management service is designed for clients with a minimum of GBP 500,000 to invest in a personalised portfolio of international investments, diversified across a range of markets, financial instruments and currencies.

  • In March 2000, CSAM launched a range of funds of funds called Hirzel House Funds designed to utilise the same investment management process that forms the core of our segregated services. Three of these funds of funds have achieved the AA rating service from S&P. Through the Hirzel House Funds our investment expertise is available to clients with GBP 10.000 or more to invest.

  • The OEICs managed by CSAM have been awarded an AA rating by Standard & Poor's.  The Balanced and Growth funds were launched in September 2002 and the Income Fund was launched in April 2003.  These funds were initially targeted at the Group's UK clients, but we are now intending to market them to external intermediaries and institutions.

HW: What distinguishes CSAM from its peer group?

KB: I would say that a key factor is our experience in managing portfolios either on a relative or absolute return basis. Given our conservative bias and emphasis on maximising risk-adjusted returns, we are always mindful of absolute returns, even where we include a relative benchmark when reporting.  A natural consequence of this is that we have been including hedge funds, and other alternative asset classes, in our portfolios for many years, alongside the more traditional long only asset classes.

HW: What is your investment approach?

KB:  First, we are conservative long-term investors and seek to provide consistent and superior investment returns without exposing clients to unnecessary risk.

Second, during times of market turbulence our emphasis is very much on capital preservation.  At such times we would increase the portfolio's exposure to market neutral investments and raise cash to protect the value of the portfolio -we are benchmark aware, not benchmark led or constrained.

Third, we're very experienced in hedge fund investing and have included hedge funds in our client portfolios for many years. Indeed, this has been an important factor in our considerable out-performance of relative benchmarks over the past few years. In addition, we run a number of dedicated hedge fund mandates and act as advisor to several multi-manager hedge funds.

HW: What is the background to your fund of hedge funds products?

KB: The Absolute Return Funds range was launched on 1 February 2001 and currently has around US$46 million in assets under management.

There are really two products within the range, namely the Absolute Return Fund, which has no exposure to directional strategies and no gearing, and the Absolute Return Plus Fund, which has potentially high exposure to directional strategies and can gear up to 50%.

The investment objective of the Absolute Return Fund is to provide long-term returns of approximately Libor (cash) plus 2-4% per annum (net of all fees) measured over three year periods, with relatively low levels of volatility.

The investment objective of the Absolute Return Plus Fund is Libor (cash) plus 6-8% over three year periods.

HW: What is the asset allocation of the Absolute Return Fund?

KB: The asset allocation of the portfolio is as follows: multi-arbitrage, 44%; market neutral, 28%; macro systematic, 10%; split strike conversion, 5%; cash, 5%; macro discretionary, 4%; fixed income, 4%.

HW: What is your approach to manager selection for the Absolute Return funds?

KB:  We believe that four main factors determine hedge fund returns; credit risk, market risk, event risk and manager risk.  Our process is thus a combination of our top-down macro views and our very thorough and active manager selection.  We also believe in dynamic style rotation and actively manage the asset allocation of the funds in order to both enhance returns and control risk.  We currently keep around 150 single strategy funds under close review, of which we currently invest in around 70-80 funds.

HW: Where is your edge in the Hedge Fund Industry?

KB:  We believe our edge lies in the fact that we have a relatively large team of analysts and managers with many years experience of hedge fund (and traditional) investing.  We also think that our active and dynamic approach to both manager and style selection, together with a thorough risk monitoring process, will add significant value for our clients.  In addition, our experience, knowledge and contacts in the long-only world also complement our hedge fund skills.

HW:  What are your plans for this year?

KB: CSAM is an independent asset manager with a  seven-year plus track record of managing segregated fund of fund portfolios on behalf of high net worth investors and a three year track record with our Hirzel House Absolute Return fund of hedge funds.

We now want to capitalise on this solid track record by building assets under management, not necessarily by launching new funds but by raising awareness among investors of our investment strengths.

We are an investment-led house, rather than being distribution-led, and we will maintain this focus in building the business. This means we will grow the funds through links with strategic partners. We define these partners as onshore or offshore life companies, building societies, IFA networks and other institutions wishing to outsource the investment advisory role to a focussed, independent asset manager.

In essence, we want to consolidate and position ourselves as a quality boutique with a proven process and track record within the rapidly expanding UK and European fund of funds industry.
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