Our client is a charity who reviewed their investment strategy for a large pool of assets that have been designated for a number of specific purposes. We recommended they restructure their investments into several sections, with strategies tailored to each specific purpose and allowing for the timeframe and income requirements of each project.
One section targeted a return above inflation in the short-medium term. We proposed a Multi-Asset Credit (“MAC”) allocation as part of the section’s strategy. MAC is a diversified investment discipline that aims to capture global credit risk premiums by investing in a range of geographies, asset classes and credit instruments and we felt it would fit well with the section’s objectives for several reasons, including:
- MAC provides access to a wide range of credit asset classes, such as high yield, investment-grade credit as well as less liquid classes such as private credit. Many investors do not have the time or research budget required to invest in all of these different credit markets separately, so a MAC fund allows investors to gain exposure to a wide range of sources of credit exposure with a lower governance burden;
- MAC funds produce an attractive yield compared to traditional investment-grade credit alone, and also provide a diversified source of returns which can also take advantage of risk and illiquidity premia; and
- A good MAC manager can switch allocations towards those credit markets which offer the best value for money at different points of the credit cycle
Our independent research team and the client team worked together to narrow down the large number of MAC funds on the market to a shortlist of three managers which we rated highly and considered suitable for the section’s strategic objectives.
The client’s investment committee had a wide range of experience levels and risk attitudes. Each fund manager had strong views that they could back up with evidence, which we believed would supply strong opportunities for discussion and debate within the investment committee. The three funds we selected had varying risk-return characteristics, ranging from one fund with a target of LIBOR+4% pa and more of a focus on investment grade securities, to a high-conviction fund with a target of 8-10% pa, lower liquidity and allocations to more risky assets such as distressed credit.
Before bringing the shortlisted managers to meet with the client, we conducted in-depth quantitative and qualitative analysis on each portfolio. We then condensed this into a comparison document, drawing particular attention to how the funds’ characteristics related to the section’s objectives.
Through the strategy review process, we helped the investment committee implement a new objective and rules-based framework for setting targets for their portfolios.
After hearing the managers present their funds, the client decided to invest the majority of the MAC allocation in the lowest-risk of the three funds, and a small amount to the highest risk fund. The combination allowed our client to access the whole credit spectrum, benefit from the illiquidity and risk premia of the higher-yielding fund, while maintaining adequate liquidity for the needs of the portfolio. We helped the committee decide what percentage to allocate to each fund to maximise diversification and minimise fees.
The LCP difference
- We used our experience to provide advice bespoke to the client’s circumstances and to match their stated objectives.
- Our client care and understanding helped us evaluate the level of risk the investment committee would be comfortable with, as well as ensuring this was appropriate for the strategic aims.
- We negotiated a significant (30%) fee discount for the client on both of their chosen MAC funds, using LCP’s existing relationships with the managers and our commercial knowledge as leverage to persuade the managers to offer substantially lower fees, plus an additional cap on expenses paid by our client for one of the two managers.
- We created a great investment strategy and saved our client money, through our tailored impartial advice and by gaining buy-in from all members of the investment committee.
How we can help
We help central banks design and implement investment strategies to get the most out of their reserves in a risk-controlled manner.
We help charities and endowments construct investment strategies and pick the right investment funds to both meet their financial objectives and be aligned with their missions.
Every sovereign wealth fund has its own unique circumstances and challenges. As an independent consultancy, we’re not linked to any asset manager and we don’t sell investment products.
Setting a good investment strategy and picking the right funds is fundamental for wealth managers and advisers to be able to deliver better outcomes for their clients. Our role is to advise clients on investment strategy and fund manager selection bringing institutional discipline to the retail market.
We help our clients to maintain a competitive edge by improving their investment strategies, generating extra returns in a risk-controlled way.
Our investment team works with trustees of DB and DC schemes to set bespoke investment strategies and select fund managers. Using our market-leading technology, we help you navigate your journey by providing you with clear, actionable insights which enable you to make better short and long-term investment decisions.