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Gars architect triumphs over old firm

Gars architect triumphs over old firm

Euan Munro (pictured), the inventor of the widely successful SLI Global Absolute Return Strategies (GARS) fund, has persuaded a key investor to switch to his new Aviva Investors Multi Strategy (AIMS) fund.

Last Thursday, the £3.33 billion Surrey pension scheme divested its £170.6 million allocation to the fund, after months of deliberation, our  sister publication Modern Investor has revealed.

In a statement (see boxout below) Standard Life said Gars had behaved as it expected in terms of risk, pointing out it had added over 20 members to its team in the last three years. 

At the pension fund’s committee meeting in July, it was decided to exit the Standard Life fund. This was after representatives from Aviva, Ruffer and Fulcrum, were asked to deliver presentations on their respective diversified growth funds (DGF) over the summer.

Euan Munro, who left Standard Life to become Aviva's CEO and set up a competitor product suite to Gars , attended the presentation in person, along with Peter Fitzgerald, global head of multi asset, as well as Matthew Graham, business development director.

Last Friday, at a follow-up meeting, it was confirmed that the capital had now been redeployed equally to Gars’ rival Aviva as well as UK boutique Ruffer.

The two new mandates became fully operational on 22 September, Phil Triggs, strategic manager, Pensions and Treasury, confirmed during the pension fund committee meeting held on 23 September.

'We have completed the transition this week [ending 23 September]. So these two new portfolios with Ruffer and Aviva were up and running as from yesterday [22 September],' he said.

The Aims fund range as a whole makes up £6.2 billion according to the 2015 financial results. The largest individual fund is the Aviva Investors Multi-Strategy Target Return fund, which has £2.6 billion in assets.

As at 30 June 2016, Surrey had £170.6 million invested in Standard Life Gars. The manager fees for the fund equalled £282,000 for the first quarter of the year, or 0.66%. The fees paid by Surrey to both passive and active funds in which the scheme invested averaged 0.34%.

Gars was the second worst performer among all Surrey’s active fund allocations over the past three years relative to the pension scheme's target. However, its performance has deteriorated in the second quarter of 2016, according to Surrey’s data.

In the second quarter of 2016, its performance net of fees was -4.7% against manager specific benchmarks using Northern Trust data.

SLI defended Gars' performance in its statement below.

Performance issues have been consistently raised at the Surrey Pension Fund’s committee meeting over the past several months.

The fund’s representatives met with Ross Campbell, investor director at Standard Life, on 10 May.

According to the minutes of the meeting, Campbell said that the market had feared recession, but SL’s view of the global economy was ‘more progressive’. He also cited that Gars was taking longer-term views rather than trying to chase the ‘vagaries of market sentiment’.

After the meeting, the adviser for the Surrey pension fund, John Harrison, said in a note that he was reluctant to draw too many conclusions from one poor quarter or year, especially for a fund that had consistently achieved its return target in the longer term.

However, he added: ‘Having said that, the performance of both Gars and GFS [Global Focused Strategies, in which Surrey held £71.8 million as at 30 June] in Q1 is disappointing given they are designed to be resilient in difficult market environments.’

‘Investors have two concerns about Gars. The first is whether the loss of key investors to other firms in recent years has undermined the team’s investment flair. The second is whether the enormous size of the Gars capabilities will constrain the team’s ability to find enough investment opportunities. This quarter has done nothing to allay these fears.’

He concluded by saying it would be wrong to take action based on one poor quarter, but the fund needed to keep a closer eye on Standard Life in the year ahead.

However, during the pension fund’s committee meeting on 13 May 2016, many members expressed concern about Standard Life Investments. According to the meeting’s minutes, it was noted that Surrey would not join Border to Coast, one of the six new pooled local authority schemes, until 2018 so acting on the concerns about the fund sooner rather than later would be appropriate.

On the following meeting on 11 July the new managers for the DGF exposure were chosen.

Standard Life Investments' spokesperson comment

In the last year Gars behaved as we would expect in terms of risk, providing investors with low levels of volatility and drawdown relative to risk assets, but returns were disappointing due to our long-term investment views being markedly different from the short-term factors that have frequently driven markets. 

Periods like this have occurred before in the history of Gars and by sticking to our process and philosophy, while adapting to changing underlying drivers, we are confident the fund will resume its upward path.  

The MAI team is 70 strong and has been led by a stable core management team since 2008. We have added over 20 people to the team in the last three years to ensure we have the right structure and to keep ahead of the growth we’ve experienced to date.

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