GMO: Tailoring liquid alts to southern Europe
Introducing a particular focus to its plans for Spain and Italy, GMO recently brought two alternative strategies to these markets.
Co-founded in Boston by Jeremy Grantham over four decades ago, Grantham Mayo Van Otterloo (GMO) recently registered two of its flagship liquid alternatives funds for sale in Spain and Italy.
The US headquartered, privately owned global investment manager counts offices in San Francisco, Singapore, Sydney, Amsterdam and London, although its expansion into southern Europe has relied on a distribution agreement with the Allfunds platform.
The deal means that institutional investors from the two countries have now access to the pair of Ucits strategies from the $66bn AUM manager.
GMO has chosen the GMO Global Real Return Ucits Fund and the GMO SGM Major Markets Investment Fund to be distributed in the two countries based on a combination of factors ranging from their proven strength in the long-term, valuation-based asset allocation, an local investor demand.
GMO Benchmark-Free Allocation Strategy, which is available via the GMO Global Real Return Ucits fund, is a multi-asset unconstrained strategy that was launched in 2001, based on a dynamic, valuation-driven asset allocation approach to generate long-term annual returns of 5% over inflation (net of fees).
GMO Systematic Global Macro Major Markets Strategy, available via the GMO SGM Major Markets Investment Fund, is the liquid alternative version of a hedge fund the firm has been running since 2002.
The strategy combines long-term valuation signals with shorter-term sentiment indicators, with the goal to deliver absolute returns of 5% over cash by taking long and short positions on equities, bonds, currencies and commodity indices.
"Over time this strategy has demonstrated a low correlation to traditional asset classes making it an appealing diversifier for investors," GMO underlines.
GMO says it is looking to further develop its business in the Southern European markets as well as catering their regional preferences in terms of vehicle´s type and platform´s availability.
"In Southern European markets, we are proactively engaging with a range of potential clients and platforms, such as Allfunds, able to provide us with the opportunity to grow our business in these countries. However, there are some inherent differences between different markets in Europe, likely to be benefitted from a tailored approach.
"For example, we are conscious that both Italy and Spain have a large amount of retail savings, which are accessible through open-architecture distribution channels of local banks.
"This has both implications for the suitability of vehicle type, and for the accessibility through local platforms such as Allfunds, both important factors to consider when assessing how to gain traction in these markets."
CLIENT BASE
Institutions, family offices, advisers, intermediaries & wealth managers are among the firm´s clients.
The institutions range in type from corporate and public defined benefit and defined contribution retirement plans to foundations, endowments, and sovereign wealth funds.
The manager has worked with families since its foundation. It also collaborates globally with a broad range of investment advisers, providing the capabilities, resources, and insights they need to service their mutual clients.
But the manager also positions itself as a resource in a broader sense, aiming not only to provide funds, but also solutions and insights being sought out by advisers, private banks, wealth managers and other intermediaries.
"We are keen to ensure that we identify the right strategy for each potential client by considering various factors including risk appetite, desired exposure, structural requirements, and how we can complement any existing managers that they invest with, especially given that our valuation approach can often be a good diversifier."
EMD STRATEGY TO BE LAUNCHED
In addition to the two Ucits alternatives funds, GMO is set to launch a new vehicle for its EMD strategy in the Southern European markets.
It has managed a hard currency EMD strategy since 1994, rooted in looking to valuations and with a strong focus on bottom-up selection among sovereign and quasi-sovereign issuers.
"We believe that our approach provides our clients with the best chance for long-term success in this asset class while differentiates us from other emerging debt managers who focus on top-down country, currency, or corporate investments. For better suitability to investors in Southern Europe, we are setting up a Ucits vehicle in addition to the existing funds."
INVESTMENT PROCESS
GMO believes that a valuation-based approach best serves clients over the long term. However, to successfully apply this philosophy across the different asset classes requires a deep understanding of the unique opportunities and challenges of each market.
The firm invests in multi-assets, equity, fixed income, and alternative markets. Each investment team implements an active investment process that is tailored to a specific area. While some of GMO investment teams rely on innovative quantitative tools, others use rigorous fundamental research, and many others blend the two approaches.
GMO actively promotes collaboration and exchange of ideas across the different investment teams. "Forums that encourage this include both formal investment ideas´meetings and investor retreats, as well as frequent informal cross-team meetings and discussions," the company outlines.
The firm seeks to provide positive absolute returns by focusing on the most attractively priced asset classes while aims to avoid the most over-priced asset classes. "We maintain an objective and disciplined view of asset prices around the world. Using the framework of our proprietary 7-Year Asset Class Forecasts as a basis for valuation, we identify those assets that are priced to deliver attractive long-term returns versus those assets which are trading at a premium relative to their intrinsic fair value."
ASSET ALLOCATION
For GMO, emerging value equities is currently the most attractively valued single asset class. The firm also favours liquid alternatives, which have shorter duration compared to other asset classes, while offer an alternative to get paid for taking risk converserly to traditional asset classes, which are now generally expensive, and lack directional exposure.
GMO believes the US equity market is mostly overvalued, especially excluding the small caps universe. As long as the firm has the ability to be unconstrained, it does not invest in this asset class. However, given the case in which clients need to be exposed to US equity, GMO would prefer to invest in high quality stocks.
With regards to responsible investing, GMO believes ESG factors can have a meaningful impact in the long-term success of companies and countries. The firm incorporates where it believes they will have a positive impact in the long term, risk-adjusted investment returns and further develop clients´goals.
In 1987, GMO started implementing ESG-related factors into client portfolios, including social and environmental screens. Today, the manager continues to focus on understanding how the integration of ESG factors can improve its clients' investment results while help itself to evolve its investment practices.
BUSINESS PLANS
When asked by its business plans, GMO says its main goal is to deliver higher investment performances and advice to its clients.
"We recognize that to a large degree, our ability to achieve our performance objectives will dictate our future growth potential. Accordingly, we would like to grow at a pace that is consistent with our goal to perform in a superior way as an investment organisation.
"We have established growth limitations for all products especially where market liquidity restricts size and flexibility. We believe that controlled growth has a very positive impact on existing client relationships as it ensures that they receive the performance we strive to deliver above all else."
