The global financial crisis prompted significant change among the world’s alternative fund managers – a move to greater liquidity, a move to a more institutional client base and a move to more diversification and customisation of investment offerings.
The Man Group, the world’s largest listed alternatives manager, provides an interesting case study in the evolution of the sector. Its next investment strategy launch in Australia is likely to be a real estate platform. It is also developing a suite of alternative beta strategies that have been launched overseas.
According to Hersh Gandhi, the managing director of Man Investments Australia, the firm has “vastly expanded” its investment options in recent years, partly through acquisition and partly through natural growth and diversification.
Its various businesses – operating under four main brands – have evolved themselves in response to the GFC and shifts in demand for alternatives.
The four fund management arms are: Man AHL, GLG (acquired in 2010), FRM (acquired in 2012) and Numeric Investors (2014).
Man AHL is its traditional quant managed futures business, which is best known in Australia, especially in the retail market where it has offered a successful capital-guaranteed product.
Of the US$78.7 billion under management globally for Man Group, as at December 2015, Asia Pacific accounts for about 20 per cent, Gandhi says, with “several billion” coming from Australia.
GLG is a London-based discretionary manager with US$30.5 billion across both alternative and long-only strategies. FRM is a hedge fund-of-funds business, which had a separate Australian office for many years, and about US$12 billion under management. Numeric Investors is a Boston-based quant long-only and long/short equity manager with US$19 billion.
Gandhi says: “Five-seven years ago AHL was almost exclusively managed futures but these days it’s also got a significant quant, multi-strategy business using factors other than momentum [the main factor used by managed futures managers]. So it’s much more diverse.”
The group now customises accounts for institutional investors, which has been a strong trend since the GFC among funds-of-funds managers, and it also operates the largest buy-side platform in the industry, which it uses for clients.
“We’re continuing to branch out into other areas you wouldn’t consider hedge funds,” he says. “For instance, we’re putting together a real estate platform… The core of our business is quant investing.”
Meanwhile, in the currently volatile and relatively uncertain market conditions, Man AHL believes its trend-following managed futures strategies are well placed even though predictions are difficult to make.
Because of the nature of managed future investing – across asset classes and both long and short markets based on momentum signals – the most important thing is persistence of a trend rather than the trend itself.
In a recent research note for clients, ‘Managed Futures: Why Now?’, Man AHL says that both history and theory provide evidence of trend persistence. And all a manager needs to make money is for a trend to last at least a couple of months, which is the typical holding period for a medium-term trend follower.
One of the benefits of managed futures strategies is that they show little-to-no correlation with equities or bond markets.
“What is also clear,” the note says, “is that when the S&P 500 Index has had its worst calendar years, trend-following returns have tended to be strong. It would seem that when equity markets are in crisis, trends can be strong and trend followers can be profitable.”
* Greg Bright is publisher of Investor Strategy News (Australia)