Manager selection yields substantial results
Last year, the average long/short equity alternative UCITS fund returned 11.07 per cent according to Alix Capital. It was the first sign that these regulated funds could hold their own against their freewheeling offshore equivalents.
Little wonder, then, that investor sentiment for equity-based strategies (including market neutral and event-driven) has grown. One major beneficiary of this has been Schroders, whose GAIA platform has grown from USD3.4bn of assets at the end of 2013 to approximately USD6bn year-to-date.
This has been helped by the launch of four successful fund products.
“Last November we launched Schroder GAIA Cat Bond (a catastrophe bond strategy) which has hard closed at USD800m. We launched Schroder GAIA Sirios US Equity (a US long/short equity manager), which now has USD3bn in assets, and Schroder GAIA Avoca Credit (a credit long/short strategy) which has USD530m in assets. A few weeks ago we launched Schroder GAIA Paulson Merger Arbitrage which is already up to USD250m in assets,” says Andrew Dreaneen (pictured), Head of Schroder GAIA Product & Business Development.
In addition to Sirios Capital Management, the GAIA platform also houses Egerton Capital (Schroder GAIA Egerton Equity), which launched back in 2009. The fund hard-closed 18 months ago at USD1.5bn confirms Dreaneen, adding: “We still get a lot of people calling us to ask if they can invest in this fund.”
Egerton is historically a European-focused fund but in the last few years they’ve extended their exposure more meaningfully into the US; today it’s around 50 per cent exposure to the US, 50 per cent to Europe/ rest of the world. Both Egerton and Sirios are directional long/short managers.
“The stock market recovery has led to investor interest in capturing the upside but still with downside protection; this has favoured directional long/short managers. We would consider a pure play European manager, a global manager and also an Asia/Emerging Markets manager to offer more of a diversified range to investors.
“As Sirios and Egerton are more directional, we would also consider one or two managers that are market neutral or lower net long biased. Something that delivers strong downside protection to complement what we already have on the platform. It’s certainly part of our current focus,” confirms Dreaneen.
Once a short list of managers has been drawn up by Schroders a rigorous qualitative and quantitative process is applied. Emphasis is placed on the manager’s track record: Egerton and Paulson have 20-year plus track records, 15 years for Sirios, 13 years for Avoca.
As Dreaneen explains: “We look for sizeable well-established managers who were pioneers in their asset class from the beginning and a thought leader in their specialised field. Basically blue-chip managers where we can establish a strong brand partnership.
“We also place a lot of importance on risk and liquidity management, derivatives management and the suitability of the strategy under UCITS. All of our funds have a high overlap between the offshore fund and the UCITS. We also take into account the TER of the fund; certain hedge funds still charge 2 and 20 and if they are distributed through private banks the TER can end up going north of 3 per cent. We have deliberately guarded against that on the GAIA platform.”
Watch this space as Schroders builds out its stable of high profile managers.
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