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Target funds to return, or will they?

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  • Target funds to return, or will they?

EUROPE - Target return managers will see major inflows into their funds in the wake of the crisis, but not all pension funds will be receptive to this type of product, an investment consultant has argued.

Quentin Fitzsimmons, responsible for managing these assets of Threadneedle's target return portfolio, said his fund has seen assets increase from $100m (€79m) to $800m in 18 months and demand "is growing rapidly".

He is convinced that target or absolute return strategies are being used more now by institutional investors, including pension funds, in order to diversify their holdings.

"Only last month we won a mandate with a UK local authority pension fund which dedicated £40m (€43.5m) to absolute returns," said Fitzsimmons, though he refused to name the fund.

He confirmed Threadneedle will now be starting talks with retirement vehicles in Austria and Germany about the product as a result of interest.

However, Alfred Gohdes, director of Watson Wyatt Heissmann in Germany, claimed there is no great interest from pension funds.

He said all strategies will come under closer in the wake of the crisis and this will include absolute or target return funds as well as other packaged solutions.

Gohdes said he is convinced "these structured and all-in-one packaged products will be used less, either because they are opaque or because they turned out to be less of a hedge than expected".

He admitted when absolute return funds were first introduced they did not attract great interest as "the first funds were set up in an environment of low volatility and performed poorly," he explained.

That said, target return models make sense again since volatility has increased considerably.

Complicating matters further, Fitzsimmons noted there are a large variety of absolute or target return strategies around, and some are performing slowly while carrying high risk, even in the current market environment.

Threadneedle's German target return fund is invested in fixed income and returned 5% in 2008.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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