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Old Mutual Liquid Macro Goes Live

Distinctive process and return profile attracts assets

Old Mutual Global Investors has rapidly reignited the former Ignis Absolute Return Global Bond Fund strategy, raising over £500 million as of December 2015, just two months after launching two funds and 11 months after hiring most of the team from Standard Life. So far around 20% of the assets are in the Irish QAIF and 80% in the UCITS, which has a minimum investment of only £1,000, making it a ‘liquid alternatives’ product potentially for retail investors. The Ignis strategy had annualised at a return of 5% with volatility of 3.7% and won The Hedge Fund Journal’s 2013 UCITS Hedge award for ‘Best Performing Fund Over Two Years’. The Old Mutual Liquid Macro (OMLM) UCITS targets volatility of 4-6%, and returns of 5% over cash, which effectively means a 5% handle in early 2016. The QAIF structure, broadly speaking, multiplies the UCITS exposure by a factor of 1.6, so the QAIF targets cash plus 8% returns and 7-9% volatility. When interest rates rise – and lead manager Russ Oxley does expect UK, and even Eurozone, rates to follow the US higher – the return target will ratchet up, because most of the fund is sitting in cash collateral that earns interest.

For some investors the pattern of returns matters as much as, or more than, the level. The asymmetry of the OMLM return profile, shown in Fig.1, is unusual because many investment strategies have a negatively skewed return profile, as do most longonly asset classes. As well as seeking a positive skew, over time Oxley expects OMLM returns should have no structural correlation to any traditional asset class, as there is no structural bias to being long or short of interest rates. Between 2011 and 2014, the strategy’s correlation with conventional asset classes was in fact slightly negative, because at that time the team was running a somewhat contrarian stance, profiting during the 2013 ‘taper tantrum’, for instance. They also did well out of themes around the European crisis and Draghi’s decisive ‘Whatever It Takes’ response in 2012.

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