It was the shock felt round the world. Ben Bernankes
suggestion earlier this year that the Federal Reserve Board
might begin to reduce its bond purchases roiled emerging
markets. Currencies and stock prices fell sharply from Brazil
to Indonesia as the prospect of tighter global liquidity
prompted panicky investors to withdraw massive amounts of funds
from those countries securities markets.
For Devan Kaloo the markets indiscriminate reaction to
a possible shift in U.S. monetary policy was a signal to buy,
not a reason to rush for the exits. Kaloo oversees more than
$60 billion in assets as head of global emerging-markets
Aberdeen Asset Management in London, and in recent months
he and his team have been adding to existing positions in
Brazil, India, Indonesia and Turkey, four of the countries
hardest hit by the recent turmoil. It was a gutsy contrarian
call considering the severity of the selling pressure, but the
manager puts more faith in Aberdeens bottom-up
stock-picking capabilities than in the sometimes
violent swings in sentiment toward emerging markets.
The most exciting times for us are periods of great
volatility, says Kaloo. It means good companies and
bad companies are getting dumped. Theres no distinction
being made about the quality of companies. And that should
ideally be an opportunity for us to capitalize on.
Kaloos sangfroid in the face of market turbulence is
emblematic of his firms fundamental approach to active
equity management. Its also the reason Aberdeen is the winner of Institutional
Investors first-ever European Investment Management
Award in the Emerging-Markets Equity category.
II screened hundreds of managers and picked the
leading ones based on short- and long-term performance and
Sharpe ratios, using data from fund information provider
eVestment. We then consulted with a select group of European
fund sponsors to identify the winners in 20 investment
alternatives and emerging markets.
For many of these companies, the secret of success is
sticking with tried-and-true formulas and resisting the
increasingly short-term focus of financial markets.
If you change your process, youre dead,
says Martin Gilbert, chief executive of Aberdeen, which is
based in its namesake Scottish city but runs most of its
£202 billion ($327 billion) in assets out of London.
We just have to weather the storm of fashion. We keep
fully invested and dont try to trade. Just buy good
companies and hold them.
The elevated volatility in equity markets since the
financial crisis has been a boon for Cevian
Capital, an 8.5 billion ($12 billion) activist hedge
fund based in Stockholm and the winner in the Hedge Funds
category. I see a lot of other people out there change
their strategy: They become much more short-term, says
Christer Gardell, the firms co-founder and managing
partner. We stayed long-term, and with the capital base
we have, weve been able to take advantage of the
short-term panic thats been out there in the
For other money managers the turmoil of recent years has
prompted some strategic rethinking. Robeco Group,
which wins top honors in Pan-Europe Fixed Income High Yield,
has cut noncore areas and refocused its business around five
strategic themes, including sustainability and quantitative
strategies. Pioneer Investments, the asset management
arm of Italys UniCredit, is seeking to buttress its
fixed-income business against a possible bear market in bonds
by developing absolute-return strategies. Its more
difficult to build a diversified portfolio, says Giordano
Lombardo, Milan-based CIO at Pioneer. We are going to be
forced to go into the territory of alternative
Pioneer, winner in the Pan-Europe Fixed Income Corporate
category, believes interest rates have bottomed out in most
developed markets, bringing to an end a 30-year bull market in
bonds. Its very unlikely we are going to see
further declines in interest rates, says Lombardo, a
former head of equity research at UniCredit who took over as
CIO of Pioneer in 2010. That is the major challenge we
have in front of us. At the same time, institutional
investors still have a strong appetite for fixed-income
instruments to match their long-term liabilities.
In a bid to reconcile those two trends, Pioneer has been
making a push into the absolute-return space. In December 2010
the firm launched the Absolute Return Bond strategy, which
invests cash in Treasury bills or equivalents to preserve
capital and then takes positions in derivatives markets,
including foreign exchange and credit default swaps, in a bid
to generate alpha. You have to have confidence in the
structure, says Tanguy Le Saout, Pioneers
Dublin-based head of European fixed income. You should
not be afraid of derivatives.
The fund, which aims to deliver a return of Eonia (the
European overnight interest rate) plus 3 percent before fees,
has attracted more than 300 million, most of it coming in
this year. The firm is preparing to launch sterling- and
dollar-denominated versions of the fund shortly.
Pioneer has also found strong demand for its short-term
corporate bond fund, which seeks to minimize the risk of higher
rates by investing in securities with durations of no more than
three years. The fund has brought in more than 1
Le Saout, a former equity options arbitrageur at Dresdner
Bank who came to Pioneer in 1999 and ran government bond
trading and investment grade bonds before taking charge of
European fixed income in 2010, says the firm needs to
approach todays market more like a macro hedge fund, such
as Brevan Howard Asset Management, than as a traditional
long-only bond buyer.
This sort of innovation is striking for a firm whose
ownership was in doubt less than three years ago. UniCredit had
put Pioneer up for sale in a bid to raise capital at a time
when many European banks were looking to exit asset management,
but the bank couldnt find a suitable buyer or price.
Although UniCredit halted the auction process and confirmed its
ownership in 2011, Pioneer still needs to offset weakness in
the Italian market, the source of nearly half of its assets.
The debt crisis in Europe, which continues to haunt Continental
bond markets and the overall economy even though the European
Central Bank has averted the threat of a euro breakup, weighs
heavily on the firms growth prospects in Italy and the
region as a whole.
Three years ago Pioneer opened a London office to combine
its emerging-markets equities and fixed-income teams, which it
has been expanding. The firm has also stepped up its efforts to
attract institutional clients in Latin America and Asia,
including opening an office in Mexico City last year. The
idea is to diversify the source of business, Lombardo
says. We really see ourselves as a global firm.
The Netherlands hasnt suffered anything like Italy in
the euro crisis fallout, but Robeco faces plenty of its own
challenges in trying to generate growth. The 189
billion-in-assets Dutch fund manager has sharpened its strategy
since recruiting Roderick Munsters as CEO in 2009 to turn the
firm around after years of subpar performance.
In 2010, brandishing the slogan select, cut,
grow, Munsters adopted a five-year plan of slashing
underperforming areas and focusing on strategies where he felt
the firm had a distinct advantage. Robeco is targeting five:
socially responsible investing, food and agribusiness,
quantitative strategies, inflation products and investment
solutions the last a broad-based advisory service with
multimanager investment capabilities.
The new emphasis gave us more focus and more clout in
those five strategic areas, says Hans Rademaker, who as
head of the investment division since 2010 serves as
Robecos effective CIO. The strategy also should help
Robeco achieve its goal of boosting its institutional business
to 60 percent of assets from 50 percent in 2010, he adds.
Winning clients, of course, ultimately depends on
performance. In its efforts to improve returns, Robeco is
stressing the importance of its in-house research. The
firms quants have identified a number of strategies
geared toward specific factors, such as low-volatility
equities, that are proving increasingly popular with investors.
That kind of fundamental research is critical to helping the
firm keep its eye on the long-term horizon and not be buffeted
by the short-term turbulence in markets. We think we can
add value only if we can look through the cycle and not follow
the herd, Rademaker says.
Robeco has responded to market turbulence by strengthening
the liquidity of its portfolios. The firm has increased the
cash position in its high-yield portfolios, which totaled
3.2 billion as of June, to 10 percent currently from
about 3 percent before the crisis. It has introduced so-called
swing pricing in its funds, under which redemption prices for
investors can fall if there is a surge in withdrawal requests.
Such a mechanism helps protect remaining investors in the fund
and reduces the risk that Robeco could be forced to dump assets
at fire-sale prices to meet redemption requests.
The liquidity element has become very important,
especially in the fixed-income market, Rademaker says.
These markets look liquid on normal days, but they can go
illiquid quite rapidly.
So far, the firm has had little need for such mechanisms,
but that could change if markets turn more volatile. Rademaker
believes the sell-off in global bond markets from May to July
of this year offered a taste of whats likely to happen
when the Federal Reserve actually begins to reduce its bond
purchases. We will face some periods of high volatility
going forward, he says. Its wise to have some
protection to preserve the wealth you have created over the
past 30 years.