French asset manager DNCA Finance has restructured its absolute return team, in a bid to get its absolute return division back on track after a difficult year that has seen the group’s absolute return and alternative Ucits funds post negative returns.
Deputy CIO and absolute return fund manager Cyril Freu has left DNCA and Mathieu Picard and investment strategist Alexis Albert have been made co-managers of the group’s absolute return fund range.
In addition, DNCA has also hired Pierre Valade from GLG Partners to join the absolute return team. Valade used to co-manage the GLG European Alpha Alternative Fund in London.
The last few months have been tough for absolute return funds following Swiss manager Gam’s high-profile liquidation of its €9.5bn Absolute Return Bond fund range and surging market volatility.
DNCA’s absolute return Invest Velador B fund has slumped 12.7% this year. The team’s other funds such as the long/short equity DNCA Invest Miura B fund and the DNCA Invest Miuri B have fallen 12.7% and 8.9% respectively.
Sector outflows
Net outflows from Europe-domiciled absolute return funds hit a seven-year high of €7.4bn in September, according to Morningstar.
“Absolute return strategies remain a key strategic priority at DNCA Finance and we are convinced that this new restructure will deliver strong performance over the long term,” DNCA CEO Eric Franc said, adding that Freu – who had been at DNCA for a decade – had been thinking about taking a break from fund management for some time before he resigned.
The restructuring of the absolute return team will lead to tweaks on the group’s strategy rather than a radical overhaul, Franc said. “It’s been a very difficult year for our absolute return funds, but we still think there is a lot of potential value in the portfolios,” he said. “2018 has been a bad year for a lot of portfolio managers.”
The change in strategy will lead to more diversification in the funds’ portfolios with no holding more of than 2-3%, Franc said. At present, some securities – such as Union PEA Securite which makes up 9.25% of Invest Velador B – make up as much as one tenth of some of the group’s absolute return funds.
“The world is changing, and risk is increasing so a lower concentration makes sense but many of the stocks will remain the same,” Franc said, adding that he felt the scandal at Gam has had little impact on investor sentiment towards DNCA’s absolute return range generally. Many of the group’s clients come from Italy and Spain, as well as France, he said.
Absolute return funds offer hedge fund-style investment strategies that focus on returns an asset achieves over a set period as oppose to relative return funds that measure against a benchmark.
The underperformance of Standard Life’s flagship €17.4bn Global Absolute Return Strategies (Gars) fund – down 5.77% year-to-date – has further discouraged investment in the sector.
The asset class also had one of the largest negative shifts in sentiment during Q3 2018 with a 15.5 percentage point drop, according to Last Word Research, which surveys hundreds of fund buyers across Europe every quarter.
