‘The way money is managed in North America is very strategic,’ says Rohit Ahluwalia, co-chief investment officer at DPZ Capital and head of its model portfolio service.‘If you come out with a 60/40 equity/bond split and stick with it, which is how they do it there, that doesn’t fly in the UK.’
Ahluwalia, a Canadian transplanted to the Channel Islands, has a pretty good handle on the potential for cross-cultural misunderstanding in portfolio management – and believes the British method has greater global appeal.
He originally came to the UK as a Royal Bank of Canada (RBC) investment director reporting to former head of UK investment Tracy Maeter, with a mission to tweak the company’s models to appeal to local investors while keeping Canadian bosses happy. In early 2012, he jumped ship to DPZ.
Since then, the model service has gathered £70 million over the last year, contributing the majority of the near £100 million increase in assets the company has chalked up since late 2012, to stand at a total £425 million in client money.
Rather than looking north to the ferociously competitive UK (‘we are not trying to be a Brooks Macdonald or Brewin Dolphin,’ he notes) the company has racked up the air miles by linking with intermediaries in South Africa, Cyprus and soon, hopefully, the Middle East.
While Ahluwalia’s previous job as a troubleshooting funds analyst for Canada’s flagship bank took him to all the company’s major international markets and left him ready to take a wider view of the global market, he says that in some very crucial ways it felt lacking.
‘For nearly eight years I supported RBC’s global wealth management [fund research] and you know, it’s a big organisation so you get to do a lot of different stuff, a lot of projects in Asia, in Europe, on integration.
‘But I really wanted the chance to get my hands dirty. I had sort of learned from text books but had no experience of the emotional aspect of dealing with clients: being accountable for client money and having to answer these questions about why we took this risk exposure, why we avoided risk.’
That said, he still clearly relishes the wonkish detail of fund research and selection. Having squared the circle of RBC’s portfolio management requirements with their desire to run money in the UK by introducing a 30% tactical allocation outside the traditional prescriptive 60/40 asset split, he sees the company’s job as digging out opportunities not offered by plain vanilla funds.
While the service is fully bespoke, he says much of its popularity derives from its balanced, cautious exposure to non-mainstream alternatives.
The company has deliberately avoided the crowded market of the UK, and DPZ Capital chief investment officer Darren Zaman has spoken persuasively about the dangers of becoming hostage to clients demanding ever lower margins, but the service is nonetheless competitively priced at an annual charge of 0.5%.
Over the year to the end of September, the Balanced mandate returned 10.8% versus the ARC PCI return of 6.9%, while the Conservative mandate returned 8.14% versus the ARC Cautious return of 5.16%.
‘We have developed it to do what a lot of the bigger names won’t or can’t do,’ he says of the 65-strong white list. ‘What they are paying is a fee [to us] to find something different.
The biggest holding in client portfolios is currently the Skyline Ucits fund, a $156 million (£96 million) long/short emerging market equity mandate managed by the small London-based boutique Skyline Capital.
‘It is a relatively smaller shop. The catalyst for investing was that First State closed to us, so that gave us a reason, or an excuse, to build in another fund,’ Ahluwalia says.
‘It is not a direct substitution; they tend to take more cyclical bets and First State tends to focus more on the upper end of the market capitalisation. But more cyclical mid and smaller cap businesses in emerging markets is where we think the additional juice will be over the next few years. ‘
Sticking with equities, the company also holds the Trinity Street Global Equity fund, run by Trinity Street Asset Management, the investment boutique founded by former GLG star Richard Bruce. Like the Skyline fund, it has been an added buy recently as the company has sought to reorientate assets away from US growth.
‘We are running a big skew toward non-US companies. These guys are more like concentrated stock pickers and we think that globally there will be great opportunities for [investors] like them.
‘We think there is going to be a huge dispersion in returns over the next three to four years. Emerging markets have a lot of suppressed value and the way to access that is not through exchange traded funds (ETFs).’
Within the US however, the company is investing in a continued domestic recovery via the pure beta exposure of the iShares Russell 2000 ETF. ‘Small caps have more of their revenue tied to the domestic economy. We are happy to be taking pure beta. In fact, when you consider it has outperformed the main indices all this year [and we expect that to continue] it’s a no-brainer.’
Most active has been the company’s hedge exposure, however. Ahluwalia extends his idea about the return of market dispersions, declining intra-equity correlation and increased arbitrage opportunities to the sector, saying the conditions will offer richer opportunities for market neutral and macro funds in particular.
His core pick in the sector is Citywire AAA-rated Ian Heslop, head of quantitative management at Old Mutual and manager of the company’s OMG Global Equity Absolute Return fund. He also holds the Morgan Stanley Diversified Alpha fund, which after a long period of going nowhere through the risk on/risk off period of 2009 to 2012 has returned 19.6% so far in 2013.
Following a masters in economics from Ottawa’s Carleton University, Ahluwalia graduated in 2002 with aspirations to work in fund management ‘at probably exactly the worst time ever to look for a job in the industry, right after the tech bubble burst’.
Undiscouraged, he took a lateral route into the business, taking an internship at RBC and ultimately accepting a position as a financial analyst on its insurance team. He stayed at the division until 2005 when he moved across to a funds research position with the wealth management team.
Pivotal to this was his work helping to integrate Abacus Financial Services, a £25.39 billion assets under management acquisition by RBC in 2005, and later his work during Maeter’s brief but relatively decisive period as RBC head of investment for the British Isles.
‘One of the big things I was tasked with was translating the North American method of portfolio management for UK clients. One of the key lessons that I took away was that [what RBC had tried before] wasn’t flexible enough,’ he says.
‘We started making a 30% allocation to tactical management, and it worked really well. It allowed us to punch up a lot of assets, and lo and behold, we got to run more money [for UK clients].’