Market will force selector performance into the spotlight

Laurent Auchlin, head of open architecture at Lombard Odier in Geneva, says the market will force more fund selectors to work to transparent targets.

The link between performance and portfolio construction also needs to become clearer, he says.

‘You need to prove you have a clear value-added to qualify for retrocession. We keep the retrocession, we are quite clear about that, because we can show we can add value,' he said.

Highlighting a recent EFAMA report on fees, he pointed that LODH kept the fee collection and retrocession negotiation in completely separate departments from fund selection.

His own performance goals are clearly laid out. 'Our target is to have two-thirds of our selection in the first or second quartiles in Lipper categories, over both three and five years, and we're above that now.’

‘We will never, ever come back to a fund manager and ask: "What is your monthly performance?" Every fund manager will have periods of underperformance. It's written.’

But while this move to greater transparency can benefit fund selectors as it allows them to demonstrate how they add value, Auchlin is less enthusiastic about some other market trends.

He feels the new wave of absolute return products and theme funds, for example, has not been a positive force overall. This trend has produced some good new ideas, but a significant number of these products are not interesting at all. ‘A lot of it is marketing spin,’ he says. ‘But it does mean that people become more aware of the differentiating factors.’

Poor returns from traditional asset classes, coupled with the rise of these new types of proiducts, has led to calls in some quarters for a radical rethink of the way professional investors build their portfolios.

‘Yes, we have to find a different way of doing asset allocation,' says Auchlin. 'But it’s not simply going to be a switch to absolute return and theme products.’

He highlights GMO as a good example of intelligent contrarian asset allocation. ‘Go back a few years  and you find the global equity strategy had very few US stocks and was heavily biased to emerging markets,’ he says. ‘People are thinking more in terms of GDP-weighted indices.’

While he may be sceptical about the noise surrounding absolute return funds, Auchlin is nevertheless finding good products in this space.