GERMANY - Independent financial advisor, MLP, has seen client money outperform by up to 13% over eighteen months.

The assets worth almost €1bn come from 25,000 private clients and their investment has been overseen by consultancy, Alpha Portfolio Advisors since July 2005.

MLP hired Alpha to advise on the portfolio's strategic asset allocation and to oversee selection of asset managers.
The portfolio's investment strategy was designed to fit three risk classes for the clients, namely 40% equities and 60% bonds/cash; 60% equities and 40% bonds/cash; as well as 80% equities and 20% bonds/cash.

More than 18 months later, MLP reports that relative to the MSCI-World equity index and Citigroup's EuroBIG bond index, the 40/60 product had an outperformance of 8%, the 60/40 product 10.5% and the 80/20 product 13%.

According to MLP, the figures included costs for the asset managers and for Alpha's advising. "They do not include sales costs, but I would put those at below industry standards, let's say between 0.8% and 1.2%," said Ulrich Stephan, board executive of MLP Bank.

The co-operation is interesting because last autumn MLP took a controlling stake in FERI, a German financial services provider which advises on fund selection and ratings. The move followed a standing agreement whereby FERI developed investment products for MLP's smaller institutional clients.

MLP's mandate with Alpha expires at the end of 2007. It is renewed automatically unless MLP cancels. "Based on how things have gone, we do not foresee that happening," Stephan said.
To invest the nearly €1bn, asset managers for 12 equity and bond-type asset classes were selected via Alpha. The most active manager is the Cologne-based private bank Sal. Oppenheim. Oppenheim not only handles investing in European aggregate bonds, it also set up a master fund and provides Depotbank services (clearing and settlement).

MLP said that while most of the portfolio's original asset managers had been retained, some had been replaced. "Two examples that come to mind are Mellon and Pramerica. Mellon was axed recently in favour of Schroders for US small and mid-cap equities, while Pramerica was replaced by Goldman Sachs for high yield bonds," said Stephan.

Commenting on the outperformance, Stephan said it was in part due to Alpha's ability to dynamically adjust the portfolio's investing according to market conditions. "I would characterise what Alpha did as sort of a short-term tactical asset allocation that was based on quantitative models," he told IPE from Heidelberg.

"By the end of the year, the equity/bond ratios for all three products were restored to their original values," Stephan added.