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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.
Every construction project is unique; to some extent a prototype, with its own subtleties, uncertainties and risks. In order to articulate these project-specific risks and demonstrate that appropriate measures and controls are in place, experienced funders will expect to see a professional feasibility report and a coherent project governance regime from developers.
The inclusion of both these in a funding application will be viewed as a key predictor of construction project success or failure. The more robust and clearly explained they are, the smoother the related due diligence is likely to be. But just how should developers go about producing this standard of feasibility report and governance regime in practice? Let’s look in more detail:
The development appraisal and feasibility assessment
A typical development project funding request includes a business case development appraisal featuring, amongst other things, forecast delivery costs, timescales, and risk allowances.
A developer’s successful track record may be a plus when seeking funding but it won’t remove the need for a professional project-specific feasibility study. Admittedly, even a development appraisal based on the most thorough project-specific feasibility investigations won’t be completely risk-free, although it’s likely to be much more secure than one based on generic assumptions, gut feel or experience from previous projects where similarities may be limited.
Now for some specifics. An appraisal that includes a fixed-price, tender-based, budget is most suitable, but funding applications are often made long before a project reaches tender stage. What’s vital is that the basis of the budget is transparent: if not based on tenders, has it been produced by an independent professional quantity surveyor and to what stage have the design and feasibility study been progressed? And, a budget based on a Design & Build main contract is likely to be more readily and positively risk-assessed than one that is centred on a multiple contract cost-plus approach.
That’s why, when presenting a feasibility study, it’s important to clarify the basis and status of the budget and, crucially, to differentiate between elements that are fixed price and those that aren’t. This will help the funder to model appropriate risk-adjusted contingencies, which can be reviewed as the project matures, prior to financial close.
Project governance strategy and structure
‘The rot starts at the top’ is a phrase that isn’t heard enough in project management. Often, funding applicants overlook project governance. But this can cause due diligence to drag on unnecessarily and may lead to more onerous funding terms or even a refusal to offer terms altogether.
To be properly effective, a project governance strategy and structure should clearly explain the top-down organisational, contractual and procedural approach to project decision-making, control and accountability to enable funders to assess governance risk.
Approaches to project governance range from what might be described as ‘full institutional’ to ‘extreme entrepreneurial’. The former, more formal risk-averse and ‘perfect world’ approach is naturally preferred by funders, but comes at a premium that may be prohibitive for many developers. Deciding not to adopt an institutional approach needn’t necessarily be a barrier to funding. What matters most is how comprehensive and clear the structure is, so that funders can easily assess how far removed from the ‘perfect world’ is the developer’s approach to governance.
A simple way to do this is to present the project governance structure at the outset, in a diagram tailored to reflect the specific funding and corporate structures and procurement route, identifying contractual, collateral warranty and instructing-reporting links between key stakeholders.
Summing up
Of course, funders may consider many other factors when assessing the risks associated with backing a project. However, what is crucial for all projects is the thought and effort applied to the feasibility assessment and project governance. Failure to produce either of these to a high standard is gambling against Murphy’s law - that whatever can go wrong will go wrong - and that’s not in the interest of funders or developers.
This article is for information purposes and no reliance should be placed upon it. Any personal opinions expressed are subject to change and should not be interpreted as investment advice or a recommendation.
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