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5/9/2019
5
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Henley Business School publishes guides for non-executive directors

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Judith MacKenzie
Judith MacKenzie

Partner and Head of Downing Fund Managers

Downing launches new actively managed liquid alternatives fund aiming to deliver 7% to 10%+ per annum and positive returns in most markets. The new MGTS Downing Active Defined Return Assets Fund (‘Active Defined Returns’, the ‘Fund’), is the first fund from its new Liquid Alternatives team.

The Fund is aimed at institutional investors, Discretionary Fund Managers, IFAs and advised sophisticated individual investors, and will primarily consist of UK Government bonds and large-cap equity index options, which provide significant scalability and strong liquidity. It aims to deliver 7% to 10%+ per annum and positive returns in all markets except for a sustained equity market fall (generally more than 35%), over a period of at least six years.  

The Fund is the first to be launched by the new Liquid Alternatives Team established by Downing. Collectively, the team has over 125 years of experience and sector knowledge, and includes Tony Stenning, who held senior roles at BlackRock and most recently was CEO of Atlantic House Group; Russell Catley, founder and also a former CEO of Atlantic House Group; Huw Price, a former Executive Director at Santander Asset Management, and Paul Adams, former Head of Cash Equities and Derivatives Sales, Royal Bank of Canada.          

The Fund offers investors a compelling building block for multi-asset portfolios, aiming to add consistent and predictable returns, typically secured with a portfolio of UK Government bonds. The unique proposition includes a hybrid approach of using systematic derivative strategies and active management, combining liquid investments with predictable returns, and an equity like risk profile.

Investment strategy: Maximising the probability of delivering predictable defined returns across the economic cycle.

  • Systematic Liquid Derivatives:  Systematic, derivative strategies optimise the equity risk-return profile. The Fund uses rules-based derivative strategies linked to the most liquid, large-cap global equity indices (i.e. FTSE100, S&P500) with the aim of harvesting well-proven consistent returns across a wide corridor of market conditions. 
  • Strong security:  The Fund will hold a high-quality portfolio of assets as secure collateral – typically UK Government bonds.
  • Active benefits: At times, rules-based, passive derivative strategies can underperform when markets move strongly – this is when specialist active management can add incremental gains by monitoring and monetising positions and applying active risk management.

Key benefits

  • Increased consistency and predictability of returns: Positive returns in all markets except for a sustained equity market fall of more than 35% over at least six years.
  • Diversification of risk: The Fund’s risk components are diversified across large, liquid equity indices, observation levels and counterparties. Secured with high-quality assets – typically UK Government bonds.
  • Active management: Our experienced team will actively manage the Fund and its investments to optimise risk and reward for investors.
Russell Catley, Head of Retail, Liquid Alternatives at Downing, said: “Put simply, we focus your investment risk on the probability of receiving the returns you need, not those you don’t.  We target the highest probability of delivering 7% to 10%+ per annum with active management adding material incremental gains. We believe that we are building the next evolution of the proven success of Defined Returns funds
The Downing team is seeing strong demand from clients looking for alternatives to large-cap equity funds which are becoming concentrated in technology stocks, or alternatives to UK equity income funds and illiquid alternatives.”   
Tony Stenning, Head of Liquid Alternatives at Downing, said: “The launch of our Active Defined Return Assets Fund is a significant milestone in the ambitious build-out of our new Liquid Alternatives strategies. It is a solution-focused fund that should deliver stable high single or low double-digit returns across a wide spectrum of equity market conditions, except for a persistent multi-year bear market. The Fund is designed to enhance balanced portfolios by providing consistent, predictable returns and is suitable for accumulation or drawdown.
“We aim to deliver a unique combination of proven systematic derivative strategies and specialist active management, and we are doing so at a very compelling fee level, below our closest competitors and in line with active ETFs.”

How the Fund is expected to perform in different markets

  • In bullish markets:  UK Government bonds secure the capital, and the equity index options deliver a predictable 7-10%+ return per annum – giving up some less likely upside.
  • In neutral markets and normal market corrections:  UK Government bonds secure the capital, and the index options deliver a predictable 7-10%+ return per annum.
  • In a sustained sell-off:  if markets fall more than the cover to capital loss and do not recover for six years. Then capital is eroded 1:1 in line with the worst performing index.
  • The average Cover to Capital Loss is targeted at 35%:  the average cover to capital loss represents the average level the Global indices within the Fund could fall before capital is at risk.

Fund key risks

  • Performance:  Capital is at risk. Investors may not get back the full amount invested.
  • Liquidity:  Access to capital is always subject to liquidity.
  • Counterparty risk: Other parties could default on the contractual obligations.

Fund Structure

  • UK regulated OEIC fund structure, fully UCITS compliant
  • Daily dealing, at published NAV
  • Minimum investment: £100,000
  • SRRI: 6 out of 7
  • Depositary: Bank of New York
  • Authorised corporate Director (‘ACD’): Margetts Fund Management Ltd.
  • I share-class:  SEDOL: BM8J604 / ISIN: GB00BM8J6044
  • F share-class: SEDOL: BM8J615 / ISIN: GB00BM8J6150

Learn more about the Fund here.


Risk warning: Opinions expressed represent the views of the fund manager at the time of publication, are subject to change, and should not be interpreted as investment advice. Please refer to the latest full Prospectus and KIID before investing; your attention is drawn to the risk, fees and taxation factors contained therein. Please note that past performance is not a reliable indicator of future results. Capital is at risk. Investments and the income derived from them can fall as well as rise and investors may not get back the full amount invested. Investments in this fund should be held for the long term. 

Important notice: This document is intended for professional investors and has been approved as a financial promotion in line with Section 21 of the FSMA by Downing LLP (“Downing”). This document is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. Downing does not offer investment or tax advice or make recommendations regarding investments. Downing is a trading name of Downing LLP. Downing LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 545025). Registered in England and Wales (No. OC341575). Registered Office: 10 Lower Thames Street, London EC3R 6AF.

Boosting the effectiveness of non-executive directors (NEDs) in growth companies is the aim of a new report based on the findings of research by Henley Business School.

Commissioned by the Quoted Companies Alliance (QCA) and Downing LLP, the report provides a general model of four types of growth company, each requiring a different approach to the role of NED.

It emphasises the importance of ensuring the correct person is in the job in order to achieve effective corporate governance.

For each company type the model lists the key focus and skills required of the NED, including ‘fundamental’ soft skills such as emotional intelligence, political savviness and resilience.

It also poses a series of questions for NEDs and chairs to help them build better boards.

The research examined the very different and vital roles that NEDs play in some of the smallest and largest companies on the stock market. The findings illustrate stark differences between organisations based on size and highlight how NED skills vary greatly across growth companies.

The authors emphasise that complexity, ownership type and stage of development all influence the type of NED and chair that best add value.

Key findings of the research show that NEDs:

  • Need to challenge themselves regularly to ensure they are the right person for the role and understand how they can deliver for their company
  • Should be confident they have the skills and experience to actively support the company as it transitions to a new stage
  • Must have a deep knowledge of the business in order to develop and mentor executive teams effectively, by being proactive, doing their own analysis and forming an evidence-based view
      

The findings show that chairs should:

  • Regularly assess whether they have the right people on their board for their company’s size and stage of development
  • Be looking to the future to ensure the current mix of talents is relevant for the next stage of their company’s growth
  • Be mindful of whether they themselves remain relevant to the company’s growth path
         

The guide suggests the model can be used by NEDs for due diligence and to ensure they are joining a board which they can bring value to, and by chairs for recruitment and reflection on current practice.

It is designed as a wake-up call for growth companies on the London Stock Exchange, AIM, NEX Exchange, and businesses considering an initial public offering (IPO).

Dr Filipe Morais, Post-Doctoral Fellow in Governance, Leadership and Directorship at Henley Business School, said:

“We wanted to examine the very different and vital roles that NEDs play in some of the smallest and largest companies on the stock market. Our findings illustrate the stark differences between organisations based on size and highlight how NED skills vary greatly across growth companies. In growth companies it’s not about the process or policing, it’s about active participation and enabling.”

Tim Ward, Chief Executive of the QCA, said:

“What this report shows is that the role of a NED in a growth company can be extremely varied, largely depending on a company’s size and prospects. Boards, investors, and NEDs themselves need to scope NED roles correctly to ensure they are facing in the right direction for the individual company.”

Judith MacKenzie, Partner at Downing LLP, said:

“As small company investors, we are experienced in dealing with NEDs, and their quality varies greatly. This report should provide both chairs and boards with a clear framework and direction when selecting and appointing NEDs that can add value and drive their company’s long-term growth. Importantly, I think the real ‘bite’ is that it underlines the serious consequences of failure to act within the law and the regulations.”

The guide was produced based on insights from 32 in-depth, one-to-one interviews and three focus group discussions with investors, chairs, NEDs, CEOs, CFOs, company secretaries and nominated advisors. Sectors represented include pharmaceuticals, food and drink and asset management.

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