Godliman Partners Multi-Asset Newsletter Q1 2018

May 30th, 2018

Godliman Partners

Multi-Asset Newsletter

 

Q1 2018 Edition

 

SHIFTING OF THE GUARD

Many firms have been looking to build out Multi-Asset teams with many of the traditional players seeing key portfolio managers leave to join a firm that aspires to become a player in Multi-Asset.   This is primarily due to the lack of consistent performance across Flexible/Balanced Absolute Return strategies which Consultants suggest should provide an opening to new entrants.  Whilst clients in regions such as Europe and the US are increasingly moving away from the under-performing larger brands, the decision makers in the Far East continue to favour established Multi-Asset brands despite relative under performance.

diagram 4

Net Multi-Asset Headcount Turnover by Firm (2015 – 2018)

LOOKING EAST

Firms are either opening dedicated Multi-Asset divisions in the Far East or increasing the footprint they already have in the region.  Hiring growth can be seen across the region with Singapore, and Hong Kong being the primary locations chosen.  These teams typically have a focus on Multi-Asset Liquid Alternatives across China and Korea to allow their Global Multi-Asset teams to be truly international and capitalise on these growing markets.

FUTURE PROOFING

As Multi-Asset finally becomes a more competitive landscape, CIOs and Heads of Multi-Asset have been looking at what they need to do to stay relevant.  Firms feeling more bullish about their prospects have already started to build their Alternatives capabilities as well as investing in Technology to the levels now needed to compete.

Another concern for many Multi-Asset businesses, is that the skillset on existing teams is not diverse enough.  Established players tend to have a lot of long-only individuals running Absolute Return strategies that are lacking the skillset you would get from people with a market-making background.  The concern being that taking long terms bets is not living in the “real market” and prevents investments teams from being able to dynamically react to ever-changing short-term conditions.  As a result, firms are looking to Hedge Funds and the Sell-Side as a talent source to find people that bring a more Absolute Return mindset.

ILLIQUIDS & MULTI-ALTERNATIVES

Multi-Asset managers are still skeptical of wrapping Illiquid allocations into what is mostly, a Liquid portfolio.  In some instances, managers can allocate a small percentage into “less Liquids” but many are hesitant to do so.  To compensate, derivatives and alternatives are used extensively, with a focus on risk premia.   Some managers have seen increased demand in dedicated “Multi Alternatives” strategies which offer a solution to clients who have increasingly large allocation to Global Alts.

QUANTIMATIC

Quantitative Multi-Asset strategies have been becoming increasingly popular with many large asset managers and boutiques alike launching strategies in the space. These strategies either follow a traditional systematic model (rules-based investment) which attempt to predict the market movements algorithmically, or a measured systematic model that condenses the dimensions of risk across Equities, Fixed Income and Alternatives into quantitative models and is actioned on a discretionary basis.

EMERGING MARKETS

Following on from the point above, Multi-Asset houses that have historically had large allocations into Emerging Markets (up to 20%), have been developing dedicated EM Multi-Asset products to follow a “local approach for local markets” strategy, which has proved successful.

Dedicated EM Multi-Asset strategies have grown significantly in recent years and have been selling well, particularly to Asian clients.  Other dedicated regional strategies such as European Multi-Asset have seen less interest from clients.

EUROPEAN FLOWS

Amongst European clients, flows have increased across all major asset classes including Multi-Asset when you compare Q4 2016 to 2017, with net assets increasing by 20.4%. Early indications for Q1 2018 suggest another positive quarter for Multi-Asset flows in Europe.

diagram 3

Europe Net Asset Flows Q4 2016 to 2017 ($Bn) Source: International Investment Funds Association (IIFA)

Comments are closed.