Next year, Lyxor Asset Management, one of Europe’s leading managed account platform providers, celebrates its 20th anniversary. Over that time, it has seen, and responded to, changing market dynamics. More recently, this has meant focusing on building out a larger range of liquid, regulated alternative UCITS funds on the Lyxor Alternative UCITS platform.
Offshore commingled and dedicated funds still dominate the Lyxor MAP, in terms of AUM (EUR13 billion), but the compass bearing has changed with respect to future evolution.
As Daniele Spada (pictured), Head of Lyxor MAP, explains: “Four years ago, the bulk of our managed accounts were a range of offshore commingled funds mainly selected for institutional investors. Over the past two years, however, the Lyxor platform has definitely changed in terms of its priorities as related to the products and services we offer clients. The level of assets on the offshore fund platform remains strong and we still have big names but interest among our investors has focused mainly on regulated UCITS funds.”
In addition, Lyxor’s investor base has shifted to a more balanced mix between institutional and distribution. More than just a managed account-based offering, Lyxor’s MAP has, says Spada, become a centre point of expertise, “providing clients with research, selection, products and infrastructure services in order to help them with fund investments across different asset classes”.
Lyxor has enjoyed great success since it started launching UCITS funds on the platform at the end of 2013. Over that period, the platform has grown to USD2.6 billion (compared to USD1.6 billion last year) and currently boasts 12 funds, nine of which are external managers including the likes of Winton Capital, Chenavari, TIG Advisors and Sandler.
“We have been pioneers in launching strategies that were not really mainstream, such as Chenavari, which is not your typical credit long/short strategy. We focus on launching funds that really are genuine diversifiers for our investors. We want to make a difference to existing offerings in the UCITS space, where long/short equity funds dominate the European space and try to find managers who are doing something a bit different who can complement our platform offering,” comments Spada.
As well as evolving the Lyxor MAP to bring on board single-manager UCITS, 18 months ago Lyxor launched an innovative multi-manager UCITS fund. The portfolio consists of a number of daily liquidity strategies and offers a novel upgrade to the pre-existing fund-of-fund model.
By virtue of using a single managed account framework to access a slew of funds, Lyxor has been able to reduce the investor expense ratio because investors pay only one layer of fees. “You can close or reduce exposure to a strategy altogether, which is much easier than closing a fund and adding a new one,” says Spada.
This makes it easier to reduce or increase exposure to a specific strategy without bearing all the administrative costs and the timeframe of creating a new fund mandate every time. In the coming years, Spada confirms that Lyxor will probably develop its range of alternative multi-manager funds even further, in new asset classes.
All told, Lyxor has positioned its MAP such that investors can choose to invest in commingled offshore hedge funds, commingled regulated hedge funds (UCITS but also AIFMD-compliant funds to a lesser extent), a multi-manager UCITS fund, as well as leaning on Lyxor for segregated managed account solutions.
“We’ve spent a lot of time this year investing in the services around the platform,” explains Spada. “Our role is not only to give investors access to a good menu of funds, it is also to actively engage in advising our clients and understanding their global asset allocations. Our advisory capabilities apply to investing in funds that we have on the platform but also in funds that we may select from the external fund universe using our fund research capabilities.
“Indeed, we have reinforced the fund transaction and research team so that today, we have the ability to select long-only fund strategies as well as regulated and unregulated hedge fund strategies.”
This is a critical point with respect to alternative UCITS funds. Some of Lyxor’s investors use this as a specific asset class that is kept separate from their traditional asset class investment considerations. However, around one third of clients use alternative UCITS within their traditional asset class portfolio allocation.
“They come to us perhaps due to the need to select a few equity long/short strategies to reduce the directionality of their long-only bucket. We may advise them to invest in one of the funds on our platform, or in an external fund that may meet their specific needs. With respect to UCITS funds, they don’t typically ask for dedicated vehicles. Most of the time they are fine investing in the commingled managed account,” adds Spada.
Over the next two years, the plan is to select another 10 single-manager UCITS for the platform to meet investor demand.
“We still see a lot of interest in alternative UCITS. It looks like the amount of assets will have grown by at least 10 per cent by the end of 2017 so it’s still growing fast.
“There are many managers who were a bit reluctant to provide their strategy in a UCITS format – especially US managers – who are now increasingly getting in touch with us so that is a positive sign,” says Spada, confirming that quantitative strategies and alternative risk premia strategies are very much on the agenda. He expects the next fund launch to come from one of those strategies.
“In the alternative risk premia space the models are working a little bit better and the results have been quite satisfactory. We are ready to offer something in that space to investors. There is still more need for long/short equity funds using a market neutral approach, either discretionary and/or systematic. That’s another area where we will try to do more.
“Also, if you believe investors are getting nervous about `toppish’ markets, and central banks could pull back, then global macro strategies, which have suffered a bit in recent years, are probably the right strategy to take advantage of imbalances created by a light reversal in monetary policy. The fourth strategy area we are looking at for 2018 is event-driven,” outlines Spada.
