RESEARCH FOCUS

TIME RUNNING OUT FOR MULTISTRATEGY ABSOLUTE RETURNS

Originally billed as saviours in a crisis, absolute return funds now seem to be hurling headlong into one of their own. Nisha Long gets the measure of their past failings and uncertain future

Absolute return funds, which fall into the Alternative Ucits – Multi Strategy sector, were the stars of the Global Financial Crisis, offering capital preservation and the promise of positive returns in all market conditions. They levied higher fees compared with standard equity funds, but most investors were happy to pay, given the all-weather absolute returns on offer.

However, these funds have failed to protect portfolios when investors needed it most and have not delivered positive returns for multiple periods.

Twelve years on from the financial crisis and most of these funds have suffered extended periods of underperformance along with eye-watering outflows. These strategies were last year’s worst sellers with the largest redemption coming from the Merian Global Equity Absolute Returns fund (GEAR), managed by Ian Heslop, Amadeo Alentorn and Mike Servent, leaking a mighty €7 billion, as Chart 1 shows.

PARENT AND OFFSPRING Three other absolute funds we look at here all feature in the top 10 for outflows in 2019 out of all funds, and all come from the same ‘family’. The granddaddy is the SLI Global Absolute Return Strategies (SLI GARS) fund launched in 2008 just as the financial crisis ravaged the markets. SLI GARS was marketed as a source of positive returns in any market environment, with less volatility. The hedge-fundlike strategy invests in a mix of equities, bonds, derivatives and currencies to achieve its absolute returns but these have fallen short more recently.

Thanks to its earlier success, the SLI GARS fund ballooned to €53.6 billion at the end of Dec 2015, when combining both UK and Lux versions. This phenomenal popularity encouraged rival launches. The Invesco Global Targeted Returns (Invesco GTR) fund was unveiled by ex-SLI GARS managers David Millar, David Jubb and Richard Batty in September 2013. However, the manager musical chairs did not stop there for the SLI GARS fund, as original team member Euan Munro later moved to Aviva Investors to set up the Aviva Investors Multi-Strategy Targeted Returns (AIMS) fund. This strategy, launched in July 2014, overtook SLI GARS as the bestselling fund in Europe by October 2016. Yet another round of personnel changes was to follow. Ian Pizer, who joined SLI GARS when Millar, Jubb and Batty left, also jumped ship after two years to join the Aviva Investors’ fund in December 2014. Pizer was accompanied by one of the original members of the SLI GARS team, Brendan Walsh.

SLI GARS is now managed by a team led by Aymeric Forest, following the departure of founding member Guy Stern in 2018.

FUND SIZES AND FLOWS Chart 2 shows the evolution of fund size over the past five years for the four strategies. SLI GARS peaked in size in December 2015 before going into freefall. The fund currently has assets of €7.8 billion, representing a contraction of almost €50 billion in the last five years. This jaw-dropping fall reflected the fund’s poor performance during this time.

Invesco GTR and AIMS have had steadier outflows during this period but both fund sizes are considerably lower than their peaks over the past five years. Invesco GTR reached €6.96 billion in January 2018, and is now €2.55 billion. AIMS was at €4.57 billion in October 2017, and is currently at €1.71 billion. Merian’s GEAR fund has also dwindled significantly in the past five years. In August 2018 it was at €13.8 billion and currently stands at €3.24 billion.

Merian GEAR was quick out of the blocks initially and overtook GTR and AIMS in terms of fund size in 2018. However, it was a different story by the end of the year and the fund saw hefty outflows at the end of 2019. This came at a time when all funds in the Alternative Ucits – Multi Strategy sector fell out of favour with investors.

Table 1. Discrete yearly performance

Total Return % (EUR) Managers Analysis Shareclass 2015 2016 2017 2018 2019 Aymeric Forest & team SLI Global Abs Ret Strats A Acc EUR 3.81 -2.33 2.82 -6.60 7.09 David Millar/David Jubb/Richard Batty/ Gwilym Satchell/ Sebastian Mackay Invesco Global Targeted Ret A EUR Acc 2.67 3.13 0.84 -4.10 3.76 Peter Fitzgerald/ Mark Robertson/James McAlevey Aviva Investors MltStratTrgtRet A € Acc 4.94 1.27 -2.10 -6.32 9.75 Ian Heslop/ Amadeo Alentorn/ Mike Servent Merian Global Equity Abs Ret I EUR H Acc 5.44 2.91 7.90 -2.84 -13.45 Average manager - Alternative Ucits Multi Strategy 1.45 1.32 3.19 -5.82 3.95