Targeting Risk Is Key To Multi-Manager Investing, Says Baring Asset Management

Baring Asset Management (BAM) recommends that pension funds seriously consider a multi manager approach that combines top down asset allocation with a targeted risk multi manager solution to enhance investment returns while minimising risk. In an environment where liability matching

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Baring Asset Management (BAM) recommends that pension funds seriously consider a multi-manager approach that combines top-down asset allocation with a targeted risk multi-manager solution to enhance investment returns while minimising risk.

In an environment where liability matching solutions are becoming increasingly important for pension funds, BAM’s multi-manager team believes that a Targeted Risk investment strategy, which targets a specific level of risk (volatility), is key to achieving consistently above average returns.

David Coombs, director of multi-manager investments at BAM, said, “Targeted risk solutions not only offer schemes potentially higher returns for a lower level of volatility, but can also help to match the objectives of trustees and their funding requirements.”

In addition to this targeted risk strategy, BAM recommends top-down asset allocation as a method of enhancing returns. The Baring Multi-Manager funds use pooled vehicles to deliver asset allocation efficiently – this means they can sell entire asset classes quickly and easily. David believes that asset allocation is the most important contributor to performance.

The BAM multi-manager funds consist of three targeted risk solutions; the Extended Risk Portfolio fund, targeted at clients with a long-term investment horizon and a tolerance for equity-type risk; the Intermediate Risk Portfolio fund, targeted at investors with a medium to long-term investment horizon who prefer to minimise equity-type volatility; and the Reduced Risk Portfolio fund, aimed at investors with shorter-term investment horizons whose main aim is to avoid losses.

The funds, launched on 4th November 2004, have returned 19.1% (Extended Risk), 14.7% (Intermediate Risk) and 8.4% (Reduced Risk) since inception (04/11/04 to 02/12/05). These returns are higher than those achieved by comparable benchmarks over the same period, but have been achieved with a lower level of risk/volatility*. For example the Baring Multi-Manager Extended Risk portfolio, currently has an annual volatility of just 5.7% and has returned 2% more than the FTSE All Share index* – Annualised volatility for the Index over this time period is 4.65 %. (Source : Standard & Poors Micropal). The BAM Multi-Manager funds are absolute return funds, which are not benchmark-constrained.

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