Multi-asset strategies gaining traction in Asia, says Pictet

Multi-asset strategies are gaining a better understanding amongst investors in Asia, says a multi-asset portfolio manager.

Shaniel Ramjee, London-based investment manager for Pictet Asset Management’s dynamic asset allocation strategy, said clients in Asia were looking to have more control over their asset allocation and aspects of risk control they had previously not addressed.

“Multi-asset is coming to Asia and volatility is something Asian institutions are looking particularly closely at,” he said.

Investors have not been getting the returns they traditionally expect from their bond portfolios, given lower coupons and an increase in volatility. And as Ramjee pointed out, “Sometimes absolute return mandates fail to deliver on their growth targets.”

So there has to be a balance between security and growth, but also, as Ramjee said, “an asset mix that takes account of what each asset class is realistically capable of giving you over a specified period.”

Pictet’s multi-asset strategy seeks equity-like returns (cash + 4%) with less than 75% of equity risk.

Institutional investment boards are treating their portfolios with a greater level of tactical awareness. Ramjee said the appeal of a multi-asset approach is in allowing investors to apply their risk budget to prevailing market conditions.

He said a key aspect of this approach was “understanding when to use your risk budget, and using your conviction in the correct way.”

In particular, he said Pictet’s analysis shows how important it was to utilise one’s risk budget when the dispersion of returns was larger.

“There will be times in the market cycle when dispersion is larger and the ability to generate excess return will be greater,” Ramjee said. “At other times, when the charts are showing flat, perhaps because of a lot of macro influence on the markets, your active decision is not so valuable.”

There has been a lot of talk recently about fiduciary responsibility and the need for more prudent investment policy, especially in Asian pensions. Ramjee sees multi-asset as serving a purpose for investors as part of the governance and asset allocation challenge. “We see the move to passive investment, but investors should ask, is that the best way deploy their assets? Not always.”

The best risk control model, he said, “is a deeply sceptical fund manager. One has to be critical of data that goes into any model.” The Pictet investment team, which moved wholesale from Barings last year, under the leadership of Percival Stanion, spends “a lot of time thinking about and looking at data over different time sets and in different market scenarios".

The benefits of their collective experience (the team has been working together since 2001) are shown in the performance of the Barings dynamic asset allocation fund, which the team formerly managed. Between 2007 and the end of 2014, the annualised net return was 6.34% compared to a benchmark return of 4.99%, with annualised volatility of 6.4% compared to 16.2% for the benchmark.

Above all, Ramjee said, “It’s no longer acceptable to have a relative performance mindset. Managers have to recognise that we are there to help investors, especially pension investors, to meet their liabilities.”

The practical reality of putting across any new concept such as multi-asset investing was the lack of understanding as to implementation. “The most common question we get in Asia is ‘where does this fit in my portfolio’,” said Ramjee.

Earlier this year, Jim McCaughan, CEO of Principal Global Investors, told AsianInvestor that multi-asset products would only become essential in Asia with a move towards a defined-contribution type of pension structure.

In the US, McCaughan said, the multi-asset market was all about pensions and a lot of money was tax deferred through pensions or annuities. “You don’t have those pension structures in Asia and you have a modest mandatory plan and fund set-up in Hong Kong,” he said.

Meanwhile Cerulli Associates research has shown that multi-asset funds have been generating healthy demand from Asian investors, at least in Singapore and Hong Kong.

It estimated that the AUM of mixed asset funds in Hong Kong was $22.4 billion as of the end of October 2014, nearly three times more than the figure of $7.7 billion in 2012. In Singapore, mixed-asset funds took up 20.7% of the total locally-domiciled assets at $39.1 billion in September 2014, up from a 14.3% share in 2012.