UK - Pension funds are beginning to embrace a multi-manager approach which combines top-down asset allocation with a targeted risk multi-manager solution, Baring Asset Management (BAM) has claimed.
The multi-manager team at BAM has said the approach can enhance investment returns while minimising risk. They argue that a targeted risk investment strategy which targets a specific level of risk (volatility) is key to achieving consistently above average returns.
David Coombs, director of multi-manager investments at BAM, who run three targeted risk funds, scaled according to the client’s investment horizon, said:“When we first went with this about 12 months ago we were being told that it was cutting edge and dangerous and new. “In the last four months we have seen that change. Originally we were going out, but now we are getting requests for proposals on it. Things are changing quickly. Targeted return products are becoming more widely accepted and we are seeing much more appetite for this type of approach.”
Four DC and two DB pension funds have already signed up to the funds, which were launched in November 2004.
“The DC ones were right at the inception because the funds were created purposefully for them. The DB schemes have been clients for some time but they converted to this approach in the last 6-9 months, because they closed to new members, so obviously their liability solution changed.”
The targeted risk multi manager funds have returned 19.1% (Extended Risk), 14.7% (Intermediate Risk) and 8.4% (Reduced Risk) since their inception.
The team invests in equity, fixed income and alternative products in both domestic and international markets through pooled and individually tailored multi-manager portfolios to institutional, retail and private clients.
It analyses the risk and return characteristics of the different asset classes available to ensure that the portfolios contain a combination of assets that are consistent with the specified level of risk.
Coombs added: “This year we would like to raise £200m for this particular product, that’s probably a realistic figure. The strategies upon which they are based have been running for individual clients for three to four years but when we launched them the idea was to build the track record before we went out shouting about it.”
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