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Downing Ventures: We've put the UK's regions firmly on our investment map
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Downing
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 isseeing 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
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.
London home to 51% of all the equity investments made into private businesses in the UK
When it comes to finding the most entrepreneurial communities, the stats tell us that London is still the place to be. No surprises there then. But a look beyond the headline data tells us that there’s more to life outside the capital.
London is home to 51% of all the equity investments made into private businesses in the UK, according to data from 2017. When it comes to cash investment, London-based tech companies also received 72% of the £2.49 billion invested across the UK tech sector in 2018. Beyond London, the data looks less promising, with some regions - notably the North East and East Midlands - seeing over a 30% decline in deal volumes.
Despite London taking the lion’s share of equity deals across private equity and venture capital in the UK, regional cities are actively cultivating startups into highly successful, large-scale businesses, particularly in technology.
Talent starts at home
The UK currently has five tech hubs outside of London in which two or more unicorn businesses have been created. Cambridge and Oxford, for example, are home to a number of life science and technology companies that have grown into global businesses. Manchester has also helped harness an eclectic mix of familiar startups such as Autotrader, while online retailer Boohoo—which now has a market cap of £2 billion—was established in the city and still has its headquarters there.
Leeds and Edinburgh are home to household names Sky Bet and Skyscanner respectively, the latter of which was sold for £1.4 billion in 2016. Meanwhile the £1.3 billion machine learning company, Graphcore, was founded in Bristol and continues to be based out of the city.
Although it’s still true that regional founders will sometimes leave their original base to be closer to other talent pools and customers, these examples clearly show that investors should not overlook the potential value of supporting entrepreneurial businesses in their embroyonic stages and homes.
Turning heads towards the regions
We all know how expensive it is to live in London, and the same goes for the office rentals in the capital, which are set to rise by 11.4% over the next three years. On the other hand, cities like Manchester are launching attractive initiatives that can lower the startup costs of a company, such as subsidised space with zero business rates. And then there are incentives such as the £1 million subsidy from the Welsh Government to support the creation of over 300 jobs in Cardiff by digital bank, Monzo. All of this means that companies launching in regional cities will often have a lower cost base, which, for investors, could ultimately translate into higher returns.
Recent research from the University of Oxford’s Saïd Business School suggests that it isn’t always enough to rely on government programmes as a way of encouraging more entrepreneurship in other cities. Instead what’s needed is a combination of private investment activity from smart money, in tandem with government initiatives. This combination should cultivate successful entrepreneurship ecosystems that can help the nation thrive as a whole.
All too often, there is a lot of talk about the many exciting opportunities in the regions by our industry but, as those original headline figures at the start of this article show us, there is a lot less actual investing going on. Bristol-based Open Bionics, an advanced prosthetics startup, is just one example of how our own team at Downing Ventures is putting its views into action by growing its portfolio beyond London, having participated in a recent £4.6 million funding round. We also have investments in Wales, Edinburgh, Brighton, and continue to develop our pipeline across other cities.
Much like other London-based VC firms, we have some way to go in our efforts investing in regional talent. But given the untapped potential across the country, a regional strategy is clearly something that should be on the map of any ambitious venture capital fund.
This article is for information purposes, should not be regarded as investment or taxation advice and no reliance should be placed upon it. Any personal opinions expressed are subject to change and should not be interpreted as advice or a recommendation.
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