New Diversifying Returns fund offers downside protection

Brunel Pension Partnership Limited (Brunel) is delighted to announce the successful launch of its £1.2bn Diversifying Returns sub-fund (DRF).

Our clients asked us to create a portfolio offering meaningfully different exposures to others in their Strategic Asset Allocations. Our selected blend of four leading investment managers delivers that solution.

The most important feature of the new fund is to offer downside protection, especially in times of market stress. The DRF is designed to act as a stabiliser when returns in other client portfolios come under pressure.

“The DRF is proof that client needs can drive product innovation,” said David Cox, Head of Listed Markets at Brunel. “Although protection was the priority, the fund also needed to provide returns strong enough to meet future liabilities, whilst offering liquidity. By targeting client outcomes in this way, we have ended up developing a more tailored product outcome.”

Manager search

Brunel offered a broad brief during the manager search phase, in order to find the optimal blend of strategies and managers for the fund. In all, Brunel received 102 submissions, chose 16 for a formalised tender process, and ultimately invited eight to final-stage interviews.

During the search phase, we welcomed strategic research, thought pieces, strategy presentations and more, to ensure we were in a position to consider all possible angles on this complex puzzle. The strategies we selected offer exposure to a wide range of traditional and alternative risk premia. Managers have scope to tactically allocate amongst these based on their relative attractiveness. The sub-fund has been designed to withstand phases of positive equity-bond correlation as well as damping drawdown when equities fall.

Client-focused

“It’s gratifying to see the DRF being launched, as it reflects our desire for a fund that
offers protective diversification within our investment strategy,” said Liz Woodyard, Investment Manager, Avon Pension fund, a Brunel client. “However, we also wanted a fund that has the potential to provide equity-like returns and is relatively liquid. The Diversifying Returns fund has been forged to meet these various needs. As a result, it significantly enhances our capacity to provide for our members’ long-term retirement needs.”

The fund targets reasonable levels of absolute volatility, at below 10%, and uses the Sterling Overnight Index Average as its benchmark. It aims to beat this risk-free rate by 3-5% per annum. At a portfolio level, its diversified approach ensures exposure to a wide range of risk premia via holdings in equity, credit, commodities, interest rates, currency, value, carry, momentum and quality risk premia.

Fund manager views

Stephanie Braming, CFA, Partner, and Global Head of Investment Management at William Blair, said:
“The Brunel Pension Partnership has an exceptional reputation for delivering innovative, robust solutions for its clients. We are delighted to partner with them following a rigorous selection process, and believe our shared commitment to delivering sustainable value will drive a successful long term collaboration.”

Malcolm Gordon, Head of UK Institutional Client Coverage at UBS Asset Management, said:
“We are delighted and extremely proud to be working alongside Brunel on their innovative Diversifying Returns Fund. Being awarded this mandate, following a detailed and rigorous due diligence process, is an endorsement of UBS Asset Management’s ongoing commitment to LGPS and recognition of our unique Currency Allocation Return Strategy. We look forward to working in partnership with the Brunel pool over the coming years.”

Ritesh Bamania, Head UK and Ireland Institutional Clients and Solutions at Lombard Odier Investment Management, said:
“The Brunel Pension Partnership is recognised for its rigorous risk management and sustainability focus. We are pleased they identified the same rigour in LOIM and have chosen our All Roads range as part of their Diversifying Returns Fund. The importance of seeking strong returns and low drawdowns is greater than ever for long-term investors such as pension schemes, especially in periods of high volatility. We are delighted with the confidence shown by Brunel in our strategy and years of experience in multi-asset investing and look forward to a mutually beneficial relationship.”

Monique Stephens, Client Adviser at J.P. Morgan Asset Management, said:
“We’re delighted to be partnering with Brunel and its clients, to help deliver a bespoke solution for their portfolios. The team at Brunel has designed a fund that offers diversification across a range of complementary return drivers and we’re very pleased to have been selected to manage the alternative risk premia component. We look forward to helping deliver risk-adjusted returns to Brunel’s clients over the long-term.”

If you have further questions relating to the Diversifying Returns Fund, please contact Alex Monro, Head of Communications, at alex.monro@brunelpp.org