(Pictured: Peter Tiffin)
Fulcrum Asset Management has confirmed its second Australian client for its global diversified absolute return strategy following the $80 million announced in 2012 in a separate product for an industry fund. The manager is heavily research oriented, including the use of “nowcasting” as a tool to better interpret various leading indicators and signals.
Nowcasting, as opposed to forecasting, has been increasingly used by central banks to try to overcome the time-lag problem with official statistics such as GDP, employment and inflation, and leading indicators such as inventories and business and consumer sentiment. Nowcasting tries to update all the data and bring it together for better contemporaneous or short-term estimates of what’s happening. It was given a boost in 2008 when academics (Giannone, Reichlin and Small) produced a quantitative model, without judgement, combining predictive signals for the direction of change in GDP.
According to Peter Tiffin, a director of Ambassador Funds Management Services, which represents Fulcrum in Australia, the use of nowcasting is one of two key differentiators between the managers and other global multi-asset firms. The other is that Fulcrum strategies are always downside protected through the use of derivatives.
“The strategy was originally designed for charities,” Tiffin said, “and has evolved since the GFC especially into one which is of a lot of interest to institutional investors.”
He said he was unable to name the new Australian client as yet but said that the mandate into Ambassador’s Australian-domiciled trust took its local assets to $200 million, with “two or three” in the pipeline.
Fulcrum was formed in London in 2004 by co-founders Gavyn Davies and Andrew Stevens, who had worked together at Goldman Sachs. Davies, the chair of the firm and its investment committee, is also a former chair of the BBC. Stevens is a member of the investment committee and chief executive of the company. Ambassador was appointed Australia and New Zealand representative in 2012.
“Although it has quantitative components, it’s not a black box,” Tiffin said of the Fulcrum process. “It’s very transparent. Fulcrum wants to enter partnerships with clients which allow a free flow of information and ideas. They produce a lot of research papers, many of which are available on their website (www.fulcrumasset.com).
The partnership approach is becoming increasingly popular, particularly with multi-asset managers in the US, where Fulcrum also has an office. As previously reported, the big Texas Teachers pension fund is the poster child for this approach, involving giving substantial mandates to several managers with wide discretion on allocation between asset classes. The managers, however, have to respond in kind with information explaining their views and decisions and regular roundtables and open debate ensuing.
Despite the short-term forecasts which are implied through nowcasting, Fulcrum is not a trading oriented manager. “In a given year they have about 30 ideas or themes,” Tiffin said. “The more confident they are, the larger is the exposure to those ideas.”
The strategy being offered in Australia offers expected returns of inflation plus 3-5 per cent. Since inception in September 2008, it has an annualized gross return of 9.3 per cent, which equates to a real return of 6.7 per cent, with each period of one, three and five years being above target.