"We must deploy $55 billion in 18 months"
Axial Investment Management, working on behalf of UK financial group Pearl, is looking only for investment managers that can demonstrate skill.
Pearl Group, a reconstituted business of the closed life insurance and pension books of Pearl, NPI and London Life, all in the United Kingdom, is beginning to invest its $55 billion of assets - all in alpha strategies.
The group was formed in 2005 when two private-equity concerns, Sun Capital Partners and TDR Capital, acquired the businesses, which had offered with-profit, annuities and unit-linked products but were ordered closed by UK regulators when the previous owners were unable to meet their obligations.
The restructured Pearl now has ambitions to become a major financial player in the UK, using its private capital to possibly acquire other plan sponsors (pension funds or insurance companies) at home or abroad, including Asia.
In the meantime however it needs to get those assets to work, and to that end established its proprietary management arm, Axial Investment Management, in February this year, says Pranay Gupta, deputy CIO.
Gupta is technically based in London but is a longtime Hong Kong resident and his family resides in the territory. He is on an extended trip to Asia in part to consider managers Axial can invest with. He and many of his team members joined the firm from the investment department of Dutch pension giant ABP.
Axial is not pursuing the traditional path of how institutional investors invest their assets, which usually involves a top-down asset allocation among autonomous asset classes (silos of equity, fixed income, etc), and then mandating long-only fund managers for each asset class.
"Decades ago institutions did this because it was the best way to diversify assets," Gupta explains. "But today equity and fixed income no longer exist in independent silos. Many instruments, such as credit derivatives or convertible bonds, bind them together. And to do it the old way assumes there is a certain risk premium to be had, but we now know there are periods when the returns just aren't there. What institutions really need are absolute-return targets. Which means we are only looking for managers with skill."
Another outmoded idea is that Asia allocations are part of a global or emerging-markets strategy. "If there is a local manager that can demonstrate skill, we want to invest with that manager," Gupta says. If, for example, a fund manager in India can routinely beat the local market index, Axial could invest with him and short the index, so it is only getting alpha - a return that could then be ported onto another benchmark if need be.
"Our background combines private equity, hedge funds and plan sponsors," he says, giving Axial and its parent a view that institutions should focus solely on alpha.
To that end it is looking to partner with fund managers of any stripe, at any stage - from simply handing out mandates to providing seed money to establishing a joint venture with a talented investor, or an academic with a clever model but little practical experience, or an established team.
But how to decide whether a manager really has skill? "We don't go through the usual RFPs and due diligence reports," Gupta says. "We want to know what's in his portfolio; can he replicate it; is his process repeatable and sustainable?" Beyond that, the firm is wading through dozens of managers in a given strategy to ascertain which ones truly have cutting edge ideas and technology.
Axial has broken its strategies into four components. Gupta runs the systematic strategies fund, which is multi-strategy with an absolute return target and no restriction on asset classes. He employs an internal overlay from the combined exposurse and 'dynamic beta' management; in other words, he is not looking for portable alpha strategies. He is looking for strategies that tend to be more mathematical, in areas such as macro, currency and statistical arbitrage.
Axial has other funds that cater more to 'judgmental' strategies such as fundamental stock long/short; a cash fund used primarily for generating leverage for other managers; and a private equity/venture capital fund.
The group was formed in 2005 when two private-equity concerns, Sun Capital Partners and TDR Capital, acquired the businesses, which had offered with-profit, annuities and unit-linked products but were ordered closed by UK regulators when the previous owners were unable to meet their obligations.
The restructured Pearl now has ambitions to become a major financial player in the UK, using its private capital to possibly acquire other plan sponsors (pension funds or insurance companies) at home or abroad, including Asia.
In the meantime however it needs to get those assets to work, and to that end established its proprietary management arm, Axial Investment Management, in February this year, says Pranay Gupta, deputy CIO.
Gupta is technically based in London but is a longtime Hong Kong resident and his family resides in the territory. He is on an extended trip to Asia in part to consider managers Axial can invest with. He and many of his team members joined the firm from the investment department of Dutch pension giant ABP.
Axial is not pursuing the traditional path of how institutional investors invest their assets, which usually involves a top-down asset allocation among autonomous asset classes (silos of equity, fixed income, etc), and then mandating long-only fund managers for each asset class.
"Decades ago institutions did this because it was the best way to diversify assets," Gupta explains. "But today equity and fixed income no longer exist in independent silos. Many instruments, such as credit derivatives or convertible bonds, bind them together. And to do it the old way assumes there is a certain risk premium to be had, but we now know there are periods when the returns just aren't there. What institutions really need are absolute-return targets. Which means we are only looking for managers with skill."
Another outmoded idea is that Asia allocations are part of a global or emerging-markets strategy. "If there is a local manager that can demonstrate skill, we want to invest with that manager," Gupta says. If, for example, a fund manager in India can routinely beat the local market index, Axial could invest with him and short the index, so it is only getting alpha - a return that could then be ported onto another benchmark if need be.
"Our background combines private equity, hedge funds and plan sponsors," he says, giving Axial and its parent a view that institutions should focus solely on alpha.
To that end it is looking to partner with fund managers of any stripe, at any stage - from simply handing out mandates to providing seed money to establishing a joint venture with a talented investor, or an academic with a clever model but little practical experience, or an established team.
But how to decide whether a manager really has skill? "We don't go through the usual RFPs and due diligence reports," Gupta says. "We want to know what's in his portfolio; can he replicate it; is his process repeatable and sustainable?" Beyond that, the firm is wading through dozens of managers in a given strategy to ascertain which ones truly have cutting edge ideas and technology.
Axial has broken its strategies into four components. Gupta runs the systematic strategies fund, which is multi-strategy with an absolute return target and no restriction on asset classes. He employs an internal overlay from the combined exposurse and 'dynamic beta' management; in other words, he is not looking for portable alpha strategies. He is looking for strategies that tend to be more mathematical, in areas such as macro, currency and statistical arbitrage.
Axial has other funds that cater more to 'judgmental' strategies such as fundamental stock long/short; a cash fund used primarily for generating leverage for other managers; and a private equity/venture capital fund.
¬ Haymarket Media Limited. All rights reserved.