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DZ PRIVATBANK’s Willi Oberbeck on the merits of absolute return funds

Many European investors have started using absolute return funds rather recently, viewing such funds as alternatives to their core fixed income holdings that were yielding next to nothing. But Oberbeck was one of the early birds. When he decided to increase exposure to absolute return, 10-year Bunds were still yielding 2- 3%. Finding more sustainable returns than he would get from his fixed income investments was therefore not among his prime considerations.

“In 2010, we introduced a new investment strategy, including alternatives (alternative Ucits funds, CTA’s and REITS) as a separate investment bucket, next to fixed income and equities,” says Oberbeck.

Portfolioberuhigung

“Our main reason to increase our weighting to alternatives was to diversify our sources of return. Of course we want our alternative Ucits funds to deliver a positive return, but this was not our prime consideration for taking on such funds. It’s all about ‘Portfolioberuhiging’ [which translates as ‘portfolio relaxation’], which is the cornerstone of our investment philosophy.”

DZ PRIVATBANK

DZ PRIVATBANK is part of the cooperative financial network Volksbanken Raiffeisenbanken, one of the largest banking groups in Germany with some 30 million clients. A cooperative private bank, it operates from ten locations in Germany and has offices at the international financial centres of Luxembourg, its headquarter where its fund selection unit is also based, and Zurich. DZ PRIVATBANK has assets under management of €17 billion.

The most important thing Oberbeck therefore asks from an absolute return manager is that returns are uncorrelated to bond and equity markets. But an acceptable risk-adjusted return is also important of course. And then there is the question of performance attribution, which has to be relatively straightforward.

A need for transparency

The Morgan Stanley Diversified Plus fund, which Oberbeck held for two years before selling it, is one of these global macro funds with hard-to-scrutinise portfolios: “Performance attribution turned out to be quite difficult because the fund holds up to 700 positions,” he says. Add to that the consistently disappointing returns over the past three years, and the decision to sell was an easy one.   

Find out on the next page which replacement fund Oberbeck chose     

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