Amundi plans major rationsalisation of absolute return range

Amundi Asset Management is to merge away about three quarters of the master funds in its VaR absolute return series, in preparation for Ucits IV which takes effect in July. Investors will not suffer a loss of coverage of asset classes as a result, it says.

The €690.5bn manager plans to end with six master funds, plus mandates and feeder funds. Presently it has 26 funds, eight mandates and three feeders in the range.

The master funds that will remain will be VaR 2, Var 2X4, VaR 4, VaR 8, VaR 20 and FX. Separate currency classes – currently euro, US dollar, sterling, Swiss frank and yen – will feed into these.

Amundi said the consolidation could take longer than the July implementation date of the EU directive’s fourth iteration.

Pascal Blanque, CIO of Amundi Group, said: “This allows us to increase the efficiency in terms of portfolio management, and you can increase consistency between the portfolios. But we do not want to reduce the overall spectrum [of investments].”

The VaR 2 fund invests in bonds, credit and FX, while the other funds add extra asset classes including equities to this.

Amundi’s pruning forms part of a growing trend in Europe. Last quarter, managers consolidated 230 European funds, according to Lipper.

Last year, 1142 European products were merged away, chiefly equity products, helping to make 2010 the second consecutive year that the number of European funds closed down or merged outnumbered those launched.

Amundi’s VaR range allocates between varying asset classes to meet a total risk budget, rather than having a bottom-up view of the asset classes themselves being the sole determinant of proportions.

Marcus Krygier, deputy CIO in Amundi’s London branch, said a typical way of allocating by asset class left portfolios dominated by volatile equities and FX.

“With risk budgeting we are putting equivalent amounts of risk on different asset classes, and that allows us to monitor more closely the overall risk budget of our portfolio. With all the Black Swans and geopolitical risk, active management is a key to success and delivering positive returns in such an environment.”

Amundi counters the criticism that a risk-based approach over-relies on studying past market conditions, which could differ significantly from the present or future.

It has many years’ data to judge risk, with recent data more heavily weighted in some of its models. It also uses a separate system analysing two years of equally-weighted daily market data, and there is also a “more reactive risk model with a three-month half-life.”

Merrick Styles, head of absolute return in Amundi’s London branch, said: “It is almost like an early warning system, so we do not have to go into a crisis up to our ears in risk”.

Since mid-2009 Amundi has also employed a liquidity tool to identify early changes in market liquidity, and to monitor in real time the liquidity in its own portfolios. Such analysis is important for groups such as Amundi, which did not gate any VaR funds during the crisis.

Krygier said the importance of macro factors at present made it important to take a top-down approach to markets.

“Our strategy now is built on the belief global risk premia are co-moving with global growth. Since our belief is that global growth will rebound, we believe risk premia will be compressing in virtually all the asset classes we have in our portfolios. We are looking for exposure to the compressing risk premia, and to implement risk-loving strategies.”

The French-headquartered group is also considering cutting fees on the VaR range. Currently investors pay up to 30% once funds clear the hurdle of EONIA – the standard interest rate for euro currency deposits. Investors also incur a 0.4% management fee.

Absolute return hedge funds typically charge 20% of performance and around 2% of assets, though this has fallen slightly since the credit crunch.

Crosnier said: “We are currently repricing our absolute range of products and will come very soon to the market with a competitive pricing policy, changing the mix of management and performance fee.”

David Walker

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