Lyxor Asset Management continues to push the envelope when it comes to bringing innovation to its market-leading managed account platform. Lyxor currently supports approximately 100 managers and over USD12bn in AuM, of which 80 managers sit on the commingled platform with a further 20 managers offering dedicated funds to institutional investors.
At the heart of Lyxor’s investment philosophy is ensuring that the best-in-class managers are made available to its investors with a strong focus on transparency and risk management. One initiative that Lyxor has recently launched involves identifying early stage managers. Last August Paris-based Melanion Capital became the first such manager to join the MAP.
“Melanion has a unique investment philosophy that involves investing in equity dividend futures in Europe. The strategy is innovative and has the capability to deliver strong performance to clients,” says Philippe Ferreira (pictured), head of MAP Research & External Relations.
Identifying further early stage managers will continue throughout 2014 and beyond but not every manager will necessarily join the MAP, the strategy may be offered through other vehicles. In addition, Ferreira says that identifying less liquid strategies for the platform will be an important initiative going forward: “We want to start identifying less liquid strategies in order to capture the illiquidity premium. Bank loans in Europe are not liquid enough. However, in the US the secondary markets for loans, infrastructure, real estate etc are more liquid and offer wider possibilities.”
Bringing early stage managers and less liquid strategies are two important trends for Lyxor as they reflect exactly what institutional investors are looking for.
“Institutions are now the largest investors in hedge funds and as a result the profile of hedge funds has changed; it’s more about capital preservation and less about risk taking as we can see by the fact that leverage among managers has fallen since May 2013. We think 2014 could be a strong year in terms of AuM growth on the platform,” says Ferreira.
Managers have been reducing leverage since May 2013 when the first signals of tapering were announced by the Fed according to Ferreira who adds: “This led managers to reduce their gross exposures, which have fallen 15 to 20 per cent since that time. Long/short equity funds, event-driven funds and global macro funds have reduced leverage to some degree but they maintain a positive outlook for 2014.”
One interesting trend is that many managers have increased their exposure to Europe versus the US. They are betting on a recovery in Europe both in the equity and bond markets.
“We note that global macro managers have net long positions on European equities and net short positions on US equities. The same for credit and fixed income: net long exposure to Europe, net short exposure to the US. This is a big theme that has been playing out in recent weeks,” says Ferreira.
From a performance viewpoint, some of the better performing long/short equity managers are those running variable bias strategies; that is, less directionality to the markets and active short books.
“These managers were able to flexibly adjust their beta exposure in January and at the same time take advantage of the market rally in February. They were winning on both sides,” explains Ferreira.