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CFM capitalises on growing alternative beta appetite
CFM, the Paris-based global quant manager which has established a beachhead in Australia with its liquid alternatives beta strategies, opened a shiny new office in Sydney last week, with lots of room for growth. Liquid alts, as they are known, representing CFM’s core offering, are gaining traction.
Philippe Jordan, who joined the firm in 2006 and is president of quantitative and systematic trading, admits that the recent conditions for risk-premia-style investing has been challenging in in the past year or so, due to the strong influence of momentum in the markets. He worked in the securities industry in the US for about 20 years,
But he says that sophisticated investors, such as big Australian super funds, are not over-reacting to the momentum trend. They understand the portfolio aspects of the value of alternative beta. “You don’t use alternative beta to provide short-term performance,” he says. “You buy it because it offers a different set of returns, on average, over the long term.”
He said on a regular visit to Australia last week that alternative beta strategies had a low correlation with stocks and bonds over time. And ‘time’ starts at about six months and extends to one year, two years, three years and beyond.
“Australian investors have crossed the knowledge threshold with this,” he said. “Certainly that’s the case at the institutional level and increasingly at the ‘retail’ [financial planner or more-often called ‘wholesale’ level]. Interacting with financial advisors is our new challenge.”
CFM recently recruited Mark Yetman, an experienced funds manager, to the Sydney office and moved Steve Shepherd down from Tokyo to head up the new growth spurt. Jordan said that the new office, at 333 George Street, Sydney, had plenty of room for expansion.
While the firm will continue to liaise with big super funds for mandates in the risk-premia space, for Philippe Jordan the immediate future is about bringing his specialist capabilities to the wholesale (advisor) market. CFM retains Winston Capital Partners, run by Stephen Robertson, as a third-party marketer, especially in the wholesale space,
Australian investors tend to have a soft spot for Philippe, given he has been a big supporter of the AIMA Australia annual forum and other local initiatives over the years. He is on the global council for AIMA, alongside Australia’s former AIMA Australia chair, Paul Chadwick. CFM has Australian mandates on offer as well as two wholesale funds targeting financial advisors. One is a trend-following hedge fund and the other is a combination of the firm’s capabilities across various risk premia.
Jordan says that his challenge in Australia and elasewhere is to give advisors the tools so they can see how their portfolios are correlated with those of CFM, over time. “We want to help them visualise their own portfolios and see how our strategies can complement the,
He says: “I want to change the way we communicate with advisors. I don’t want to be in the product-pushing business. We have never done that in the institutional business and I so no reason to do that in retail [wholesale]… It’s about portfolio construction and then performance. Not the other way around.”
He says: “Diversification is important at all times, because you don’t know what time you’re in… The only market which is clearly crowded at the moment is equities. What’s changed is that we appear to be reverting to the mean and in something of a market bubble. I’m not calling the top of the market but we could be at the beginning, the very beginning of a much larger correction.”
He says that these types of corrections tend to happen every decade or so. Whether or not it happens in 2018, 2019 or 2020, nobody knows.
A big question has to do with the relationship between stocks and bonds. Traditionally an inverse one, what happens if they both go down for an extended period, such s 12-18 months? “How do we deal with that?” Jordan asks.
For CFM, he is looking to change the way the firm interacts with advisors, such that it better understands their needs and those of their clients. He wants the firm to provide tools that can add value to their businesses.
– G.B.
