Aberdeen Standard Investments (ASI) and BNP Paribas have teamed up to establish an index designed to provide institutional investors such as pension funds an effective route to mitigate their equity risk and reduce portfolio volatility.
ASI is advising on the composition of the index while BNP Paribas is providing the infrastructure and index calculation.
Investor interest in risk mitigation strategies has increased over the past few years. In the UK, for example, local authority pension funds for South Yorkshire, Tower Hamlets and Merseyside have turned to equity protection strategies in recent years.
“At the same time,” said Russell Barlow, global head of alternative investment strategies at ASI, “efficient implementation routes have been notoriously hard to identify.”
“Given this, and based on our extensive experience in this area, we decided to solve for the challenges we identified ourselves. Our desire was to create an index that would specifically address aspects such as liquidity, transparency, minimising carry costs and the delivery of a convex return profile without introducing path dependencies to the risk event.
“The resulting index now provides allocators with a risk mitigation route that will allow them to monetise their holding on any dealing day and also aims to minimise the impact of path dependency – by allocating to 30 underlying sub-strategies – and reduces carry cost though efficient active management.”
The Global Risk Mitigation (GRM) Index aims to deliver a downside beta to equities of -0.2 or lower and “generate a reasonable level of additional convexity in large equity market falls”.
The index, launched in August and since then the average beta, versus the S&P 500 has been -0.21. ASI said that despite this negative beta the index was able to substantially protect its first quarter gains as equity markets subsequently recovered, returning 12.9% to 22 September.
Man AHL, Baillie Gifford China moves
Man AHL, Man Group’s diversified quantitative investment manager, has received approval for a qualified foreign institutional investor (QFII) licence in China, it announced today.
The licence will allow Man AHL’s strategies based outside of China to gain greater access to the country’s domestic capital markets, complementing other existing access routes such as Stock Connect and the China Interbank Bond Market.
According to Man AHL, it is one of the few systematic fund managers that has been granted a QFII licence so far.
Earlier this week Baillie Gifford announced it had opened an office in Shanghai and registered as a private securities fund manager in China, two developments that it said would allow it to invest in more exciting Chinese companies and launch private funds to Chinese investors.
Until recently, Baillie Gifford’s global investment teams had all been based in Edinburgh, but the asset manager said its partners believed a local presence in China would deepen existing relationships with companies there, improve understanding of cultural developments and forge more academic partnerships.