(SDRC) Schroders Non Vtg

At a series of presentations by senior Schroders executives recently one of the differences between long-only and hedge fund management came through forcibly. Gary Clarke, Head of European Equities, gave a good pitch about how well they had done in the last couple of years. And indeed the Schroders ISF European Equity Alpha Fund is first quartile amongst the European equity funds domiciled in Luxembourg universe, according to Micropal.

The Fund is ahead of the index by about 10% in the last year or so. So Schroders have done a very good job on the European equity side versus the competition by weighting the sectors appropriately in the last couple of years.Gary Clarke said such good differential performance was achieved whilst “of course, we were fully invested.”

That was the shock statement to me. I’ve been in the hedge fund world for so long that that casual conditionality thrown out by a long-only manager that he is structurally fully-invested came as an icy blast of wind in my face. The fund balance sheets are Long 100 Short 0.

At this point it seemed a very artificial, not to say limiting structure. Of course, there are advantages in staying long-only. My old boss at Clerical Medical, Robert Walther, whom I admired enormously, used to say that portfolio managers couldn’t time markets. In his mind they were better off concentrating on picking sector and stocks and letting him allocate between asset classes and geographies. Given his talents he was probably right in that case. Schroders are following a pattern set in the 1980’s and which I had thought, in my naivety, had disappeared ten years ago.

For quite a few years into their hedge fund management expansion Gartmore used to run hedge funds which followed the template of Alphagen Capella. So the funds had a limited net exposure to markets – this makes the return stream driven off alpha much more than market beta. With this structure the hedge fund managers don't have to have a distinctive talent to time markets. Amongst Gartmore’s hedge funds that have been successful recently are hedge funds that utilised a wider band of net exposures, including running net short last year. Gartmore has moved on.

It struck me listening to Schroders presentations that they have some good equity selection alpha. They could at least run limited net hedge funds to start with. Schroders have a fine fund of hedge funds operation in NewFinance. They have a credit hedge fund that is in its ninth year and manages $106m. Schroders recently announced that they are launching a regulated, transparently operated platform for UCITS III funds designed to give investors easier access to hedge fund expertise. The first Fund available on the platform is exposure to European hedge fund pioneer John Armitage’s Egerton. Egerton Capital has a good performance record, however Schroders as a business would be much better off developing its own single manager hedge fund products.

Vard

I am impressed by your knowledge- I only found out a few weeks back from a person who works there.

I reckon the reason the outsourcing didn't work was because Schroders wanted a bespoke system rather than tag on to something already provided.That said, I don't know why it broke down but I think you are close to the truth about ageing sytems because they haven't bothered with that for the simple reason that they were intending to outsource!

Costs have gone up regardless anyhow and I would say that they have got out of jail a bit by the market's rise in the first half.It is hard to see where they are going as they seem reluctant to use the £800m sitting around from the sale of the investment bank, and there is no tax-efficient way of handing any of it back to shareholders. They are still losing UK institutional mandates despite saying a couple of years back that the tide was being stemmed. Quite what happened to the Beaumont hedge funds I can't fathom- not sure it was worth buying as there has been no news about that side of the business at all, which is likely to be bad news.

Essentially they are a geared play on the market overall and worth the effort if you think the markets will keep moving up. The good news is that the dividend resumed its upward path at the last full year and on the basis that profits do keep rising we can hope for more of the same.

There is word on the street that the long-running project for Schroders to outsource its Fund Administration and Back Office to JP Morgan has finally been abandoned. So now Schroders is going to have to do something else - either find another outsource partner or replace their aging in-house systems and carry on doing it themseves.
Either way, I have a feeling this will hurt their future profitability, as they are not big enough to get any benefits of scale from doing such non-value-added activities in house.....

The turnover on the non voters is so minuscule you wonder how FTSE agreed to put the stock in the index as they are largely untradeable.I realise there are rules but in that case the rules should be changed to stop illiquid stocks getting in.Looking at the 250 too the turnover is at the bottom end of that list, never mind the 100.

In any case isn't it about time the non-voters were enfranchised?