Multi-asset funds spark fights for capital

By

06/12/2017

Multi-asset funds can help investors achieve diversification and low correlation with traditional asset classes such as equities and credit bonds, an expert panel told the 2017 Conexus Financial Absolute Returns Conference.

Institutional investors are also looking to multi-asset funds for lower downside risk if markets turn bearish, and potentially some knowledge transfer from dynamically allocating between various asset classes, the panellists said. However, winning the support of the investment committee and managing expectations can be a challenge.

These were some of the issues explored in a session titled “What is the Role of a Multi-asset Fund in the Total Portfolio?” facilitated by Jamil Barmania, a senior alternatives portfolio manager at K2 Advisors and Franklin Templeton Solutions.

Barmania pressed the panel on whether discussions about multi-asset investments tended to become complicated internally and with the investment committee.

“With respect to absolute returns, everyone is fighting for capital…Do those discussions become complicated?” he asked.

Mine Wealth + Wellbeing senior investment analyst Robert Graham-Smith said the $10 billion industry super fund looks at multi-asset investments as something akin to a “global macro hedge fund”.

“The fact that you are looking for different things competing within a section of the portfolio against each other makes it more complicated but…I think it makes you think about the potential overlaps and resulting exposures, one versus the other,” Graham-Smith said. “It’s not easy and it’s a work in progress for us but one that we are pushing pretty hard on.”

Columbia Threadneedle Investments head of institutional sales and product development, Asia-Pacific, and head of Australia, Jon Allen, said the asset manager’s clients are looking to multi-asset funds as investments that “do something a bit different to the current exposures [they] own” and deliver a different return profile.

But he added that investors need to be clear about why they are employing them.

“What we worry about as a firm is that they might not work, and removing equity risk premia, in particular, from these sorts of things is very hard,” Allen explained. “That requires a pretty scalpel-like focus on what the underlying risk exposures are, and also requires a dialogue with your clients as to what they will let you do.”

Columbia Threadneedle is a diversified asset manager of about US$500 billion ($660 billion), including about US$120 billion of multi-asset investments for its internal parent client and external clients.

How much is enough?

Barmania asked the panel how investors size their multi-asset strategies, compared with other low-volatility approaches, and where the capital comes from when allocating to it.

Energy Industries Superannuation Scheme chief investment officer Ross Etherington said it depended on the strategy, but if it is one with a 12 per cent volatility target, it would probably come out of equities and fit in the growth side of the business.

“If you are going to put money into a fund, from my perspective you have got to front the investment committee and explain it, and the more complex, the more difficult it is to put a bigger allocation to it,” he explained. “How new it is, are you the first investor in the country to do this or not…Obviously the more vanilla it is, the easier to explain it and the more you can put into it.”

The fees involved are also a major element to explain, he said.

Conexus Financial is the publisher of Investment Magazine, top1000funds, and Professional Planner. For details on upcoming events, visit conexusfinancial.com.au/events.