This year’s Money Management/Lonsec Fund Manager of the Year Alternative Investments (Hedge Funds) award came down to two first-time nominees, but it was Morgan Stanley that was declared the winner with its FX Alpha Fund.
Senior Associate at Morgan Stanley Julian Morrison said because the fund was a pure diversified currencies fund, it provided a non-cyclical asset exposure for its investors that gave steady value even when different currencies were going up and down.
“When you think of the stock market, it’s possible for every share to fall on the same day,” Morrison said.
“The currency markets are the largest and most liquid financial markets in the world, far more liquid than equity and bond markets,” he said.
“So the daily liquidity of the funds has never been compromised,” Morrison said.
Low transaction costs because of the large daily transactional volume of the fund meant they were able to manage the risk of the portfolio much more dynamically, and revamp the portfolio more frequently, without worrying as much about incurring transaction costs and encroaching on returns, Morrison said.
The fund also has a volatility target, measuring the dispersion of returns throughout volatile events such as the financial crisis.
“If you think of the financial crisis, people were using different categories of fixed interest funds to diversify from equities, and people were using them interchangeably, but each category has different risk profiles, and when the market blew up they behaved just like equities,” Morrison said.
“But if we say 2.5 per cent volatility [in our target], that’s what it should deliver, and we have delivered that,” he said.
The fund, which is managed by portfolio managers Justin Simpson and Chris Callan, gave returns of 9.5 per cent in 2009.
A conservative high quality approach and a consistent track record were the reasons behind the nomination of finalist Fauchier Partners’ absolute return fund (distributed by BNP Paribas), according to Rob Harrison, chief executive of BNP.
“That was shown when we had major illiquidity in markets over the last couple of years, including the currency depreciation. It was one of the few funds that stayed liquid during that period,” he said.
Being true to style and investing in the quality of the underlying portfolio managers was the key behind the fund’s success in remaining liquid during the crisis, Harrison said.
The large stable investment team of 45 portfolio managers lent depth to the analysis and operational due diligence of the fund, he said.
The fund’s returns were down 10 per cent compared to a 24 per cent drop by other managers, he added.
