Alternatives come in two distinct states: liquid and illiquid.
But don’t mix them up; don’t mistake one for the other, according to Janus Henderson head of diversified alternatives, David Elms.
Elms, also co portfolio manager of the Janus Henderson Global Multi-Strategy Fund, said while both private and public market alternatives offer legitimate diversification benefits, investors should understand the different liquidity dynamics in play.
“It’s fine to invest into illiquid assets but don’t pretend there is daily liquidity,” Elms said.
Mismatches between daily-priced product wrappers and illiquid underlying assets have been the source of investor angst before, of course, including a recent rash of property fund freezes in his current UK homebase.
The fund liquidity question has absorbed regulators, too, resulting in new guidance late last year from the International Organization of Securities Commission (IOSCO) while the Financial Markets Authority has also put the issue on watch.
Despite traversing a wide range of market opportunities, Elms said the Janus Henderson Global Multi-Strategy Fund only invests in highly liquid securities in line with its daily-pricing window.
He joined the Henderson arm of the business as head of multi-strategy in 2002 from the storied Australian firm, Portfolio Partners, when the UK-based manager was part of the AMP group.
Following a series of ownership changes, Henderson formally merged with the US-listed Janus in 2017.
While the strategy run by Elms and co portfolio manager, Steve Cain, has been running since 2012, the firm established the daily-priced fund in mid-2020 with several country-based vehicles – including Australian- and NZ-currency denominated products – feeding into a Luxembourg-domiciled vehicle.
As at the end of February this year, the ‘liquid alts’ fund reported more than €554 million under management with about A$260.6 million in the Australian version and close to NZ$2.7 million in the NZ fund (established in April 2024).
Several NZ institutional investors, though, entered the fund via the Australian dollar-based vehicle. The manager is represented in NZ by Heathcote Investment Partners.
According to Elms, the manager has seen increasing demand as investors seek to diversify away from long-only exposure to equity and debt markets amid mounting concerns about valuation, inflation and geopolitical tensions.
In a release announcing the launch of the NZ version last year, he said the fund is centred on a belief that “diversification works well in up markets but can be unreliable in down markets”.
“This fund addresses those types of challenges by having a protection strategy that is the mirror image of the diversified return-seeking strategies we use to generate returns in more normal markets.”
The protection overlay, designed to limit portfolio losses in a market crash situation, is one of seven core strategies in the multi-tool box that includes other hedge fund styles such as convertible arbitrage, event-driven, market-neutral and risk-transfer.
“Protection also added value,” in February, according to the latest fund update, “with the new Trend strategy benefitting from long positioning in coffee and live cattle as well as equities”.
“Following its re-launch in October last year, the Trend sub-strategy has now been scaled-up to its historic target allocation within Multi-Strategy.”
Elms said the unconstrained approach enables the team of 25 to tap into a full menu of liquid market opportunities from traditional debt and equity securities through to derivatives, commodities and currencies.
Since inception in June 2020, the absolute return-focused fund has underperformed its index (the Euro Main Refinancing Rate) and fallen well below the target mark of 7 per cent above the Reserve Bank of NZ official cash rate (for the NZ-domiciled vehicle).
The institutional-focused strategy, however, has held up well during the current bout of market volatility, Elms said, with a likely above-par performance in March as US equities tanked.
“We haven’t burnt through investor capital,” he said, or frozen any assets.