Best Active Fund Manager - Ireland & Best Global Macro Fund (1 Year): Merrion High Alpha Fund (RIAIF)
Company: Merrion Investment Managers
Name: David Conlon
Web Address: www.merrion-investment.ie
Address: 2nd Floor Guild House, Guild Street, IFSC, Dublin 1
Operating since 1986, Merrion Investment Managers is an Irish based investment management firm with a global outlook. We spoke to David Conlon, CEO of Merrion, to find out about how they have become Ireland’s best performing independent pension and investment fund manager and to learn more about their flagship absolute return fund, the Merrion High Alpha Fund.
Merrion manages a diverse range of funds spanning across multi asset, equities, fixed income, absolute return and cash. We have a proven and robust investment process built around a clearly defined three pillar investment process based on macro, valuation and technical analysis. Our list of clients includes life companies, semi-state companies, private sector companies, high net worth and charities.
As for our Merrion High Alpha Fund (RIAIF), this is a process driven global macro absolute return fund whose target is to deliver returns of at least 7% per annum. Our process based performance adds value in active asset allocation and security selection, and the fund offers the potential to deliver significant investment returns while aiming to preserve capital. The fund’s strategy is to aim to preserve capital by actively managing asset allocation between asset classes (including cash) to help preserve against capital loss. For example, in 2008 the fund returned 6.6% while the MSCI World Index fell by 38.1%.
Since its inception in August 2007 up until the end of quarter 3 2015, The Merrion High Alpha Fund (RIAIF) has delivered a return of 235.2%. The compound annualised return of 16.0% since inception compares favourably versus the MSCI World Index compound annualised return of 5.2% over the same period . In terms of managing risk, there are three strategies which we employ to protect capital. These involve using a tactical asset allocation approach, the use of stop losses and put options for portfolio insurance.
Furthermore, the 5-year standard deviation of returns of the High Alpha Fund was 9.6% as at September 30th 2015 compared to 10.2%for the MSCI World Index . The fund focusses on its dual mandate of aiming to deliver returns of at least 7% p.a combined with a focus on preserving investors capital, the fund does not target a specific level of volatility. As a result the high alpha fund’s historical returns have exhibited a very low correlation with equities and other asset classes since its inception.
As a company that’s been running for almost 30 years, we have come across myriad changes in our industry. Firstly, there has been an increase in globalisation, and economic cycles are becoming increasingly global. Lower trend growth is also a reality, which has meant that lower risk free rates have created pressure to deliver returns from other sources. This has resulted in the growth in absolute return funds like the High Alpha fund. Given the concerns around key man risk, we do not operate a star fund manager culture but instead are always focused on our long established and proven three pillar investment process as mentioned earlier.
Looking ahead, we anticipate further growth in the Merrion High Alpha Fund in line with industry trends. There has been a steady growth in assets invested in alternatives amongst pension funds (institutional and retail alike) in Ireland over the last number of years. The Irish Association of Pension Funds Pension Investment Survey in 2014 showed that the allocation to alternatives in DC schemes has increased from 1.3% to 5.9% in the last 5 years from 2010 to the end of 2014. The same survey also highlighted that DB schemes have been gradually increasing their allocation to alternatives from 3.2% to 8% in the last 5 years.
The strategy of the Merrion High Alpha Fund adapts to different market conditions and has a proven track record at protecting capital in volatile markets. In terms of managing risk there are 3 strategies employed to protect capital:
• Tactical asset allocation approach
• Use of stop losses
• Put Options – portfolio insurance
Alongside our three pillar process, we believe that there are a number of factors behind the success of our company. Firstly, active investment management is key especially given where we are in the current investment cycle. Secondly, an investment manager needs to have a proven and repeatable investment process. Our three pillar investment process has delivered exceptionally strong returns for our clients over different market environments since the fund’s inception in 2007. Thirdly, an investment manager’s values need to be aligned with those of their clients, and in our case this is in delivering the maximum return available within the market for our clients within a risk controlled framework. Last, but certainly not least, we believe that providing the highest standards of client service is fundamental, and is perhaps equally as important to providing competitive investment performance.
With 2016 on the horizon, we have ambitious plans to grow the business in terms of AUM and a diversified domestic and international client base. In line with investor demand, the frequency of the fund dealing will also change from the current position of monthly dealing to daily dealing. We are planning for daily dealing of units in the fund to be available from the 5th January 2016.
WARNING: Past performance is not a reliable guide to future performance.
Merrion Capital Investment Managers Limited (trading as Merrion Investment Managers) is regulated by the Central Bank of Ireland.