Multi Asset Total Return
Engagement at a glance
A European corporate pension plan was seeking to invest EUR 100m in a Multi-Asset Strategy, via a segregated account. The net return target was 3% p.a., with a risk tolerance defined by an expectation of not losing more than 6% peak-to-trough.
Driving the need for a dedicated vehicle, the client had a number of constraints that would have to apply to the portfolio: <50% equity exposure, <35% unhedged non-EUR exposure, no high yield exposure etc. Net short exposure to any asset class at the portfolio level was not permitted, focusing the search on long-only or strongly long-biased strategies. In addition, the client had a somewhat unconventional definition of their risk budget, expressed as a maximum drawdown of 6% versus a high watermark that resets every 6 months.
With a number of Multi-Asset strategies already invested in the client’s portfolio, this mandate was part of an overall allocation aimed at bringing asset allocation dynamism to the broader portfolio. Managers were expected to be able to share asset allocation research and views.
- Full view of the sector. The process delivered a comprehensive review of the universe of Multi-Asset Total Return strategies, with 41 RFP submissions. Given the €100m mandate size, managers were willing to tailor their approach to accommodate the client’s risk budget approach and exposure limits in a segregated account.
- A clear picture of the different investment processes involved. The managers’ processes vary widely: some are more discretionary and others more systematic; some are more focused on top-down macro while others are more bottom-up driven; some are more dynamic than others in managing asset class exposures; some make more use of niche asset classes. Prior the quantitative analysis, the team provided the client with a clear overview of the key features of each manager’s investment process and their main distinguishing features.
- Track record scrutiny. Long track records for a considerable proportion of the group enabled the team to prepare a comprehensive analysis of performance and risk data to inform qualitative views on managers’ processes. Of the 41 managers, 19 presented more than ten years of track record while 15 could date their performance to before the 2008 crisis.
- Addressing the client’s idiosyncratic risk approach. With a relatively unconventional definition of the risk budget, it was important for managers to demonstrate how they would adapt their processes to deal with this specific requirements.