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The secret Alt Ucits weapons driving this sector leading AA-rated duo

The secret Alt Ucits weapons driving this sector leading AA-rated duo

Mark Lynam is probably not a name familiar to many retail fund buyers, but he has been managing money in various forms for almost 30 years, including periods at Schroders, Gartmore and Dresdner.

After being headhunted to run wealth manager SandAire in 1999, Lynam has spent most of the intervening years working behind the scenes with family offices and other private clients.

The years of experience rapidly become evident in conversation with him; that is if they weren’t already obvious from the lead he has built up in Citywire’s Alternative Ucits league tables.

Over the past three years his VT ICF Absolute Return fund has returned 12.6%, almost three times the Alternative Ucits fund of funds sector average of 4.9%. Out of the sector’s 16 managers he is rated sixth for drawdown and has the third-highest Sharpe ratio.

Rated AA by Citywire earlier this month alongside co-manager Jeremy Suffield as he became eligible for the award for the first time, what is also evident is how much his time running private money has informed his thinking about how a Ucits fund can be managed.

‘Working in family offices, it was something we described as “Arlo” – being in finance we feel the need to create acronyms – it stands for absolute return long-only; if you think of someone like Ruffer or Sebastian Lyon, protecting assets while finding opportunity. 

‘A key investment tenet for a family office is that no single asset manager has a monopoly on being the best in all investment strategies at all times. Therefore, the multi-manager approach is a required common-sense approach to portfolio management.

‘Non-traditional strategies and managers are included alongside more traditional investments as a matter of course. It’s most suitable for IFAs and wealth managers. We conceived of it as one of their building blocks and as a one-stop shop for absolute returns.’

The portfolio is a highly focused blend of 14 to 16 mandates, so every selection has to fight hard to earn its place and then stay there.

AA-rated Lynam’s three top fund picks

Polar Capital Global Insurance

‘It’s something which we bought because the cycle was right. Alec Foster, the fund manager, was someone we spoke to for a very long time before making the decision to invest, trying to make sure that we were selecting the right opportunity for our thinking.

‘It’s only been run by Polar since 2010 but Alec had been running the strategy for almost 15 years at Hiscox before that, where the fund was almost invisible and it had no profile.

‘The dynamics of the industry are changing all the time. It’s become a much better capitalised and managed industry, with much closer regulation. We have held it for two years now and some of these things have become recognised so we have sort of taken the top off it, but we don’t want to run to take profits.’

Kennox Strategic Value fund

‘This is run by Charles Heenan, an Edinburgh-based value manager. We have been invested in the fund from day one [in 2007].

‘Over the long term the academic work suggests that value does command a premium but you can end up paying for that in the short term, and they are very good at managing that.

‘While they are value investors they are also happy to use cash and have a strong record of capital preservation.

‘We like how they compare with other global equity managers: volatility is low, and the total return is up there with the best of them. It’s a great example of our idea of Arlo.’

CF Odey Absolute Return

‘We are not great fans of the long/short equity sector in the Ucits III world. There is a tendency for strong long-only managers to put in a few shorts and call it an absolute return fund.

‘But James Hanbury is doing a lot more than shorting Glaxo or just taking out index protection, he is actually finding genuine opportunities in non-core equity holdings.

‘[It’s a sector] where a lot of managers are just picking up beta but he is very strong on stock selection, which accounts for between 60-80% of its return.

‘We hold just over 9% of assets in the fund, versus our absolute maximum exposure to any one single fund restraint of 10% of assets.’

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