Absolute return providers have been forced to respond to capacity questions by changing fund remits or even soft-closing vehicles as flows into the sector leap this year.
As investors continue to pile money into absolute return strategies, some groups have seen their vehicles more than double in size since the start of 2013, raising issues about capacity constraints.
For larger funds, such as the popular £18.6bn Standard Life Investments GARS strategy, these inflows are not such a concern due to their global multi-asset capability, but smaller funds with a narrower focus may risk reaching capacity if these strong flows continue.
Ben Willis (pictured), head of research at Whitechurch Securities, said: “Where absolute return funds focus on just one specific area or market, then there is the risk these funds reach capacity.
This has been highlighted recently by the fortunes of two successful funds – Odey UK Absolute Return and Absolute Insight UK Equity Market Neutral.”
Odey Asset Management recently soft-closed James Hanbury’s top-performing UK Absolute Return fund to protect performance, as assets grew from £390m in January to £629m in July.
Meanwhile, Insight made its Absolute UK Equity Market Neutral fund’s mandate more flexible by widening the remit to a global focus. The name has also changed to the Absolute Equity Market Neutral fund.
Investment Week understands this change has allowed the fund to avoid capacity constraints, having grown from £675m in January to over £1bn. Inflows helped push combined assets with the BNY Mellon Absolute Return Equity fund, which is managed by the same team, to around £1.3bn.
However, the group said there are no capacity constraints on the funds.
Scott Goodsir, BNY Mellon’s head of UK wholesale, said the seven absolute return funds in the Newton and Insight ranges have seen inflows of almost £3bn since the start of 2013.
“The Newton Real Return fund alone has seen inflows of well over £1.5bn since the beginning of the year, and the Newton Global Dynamic Bond fund has attracted flows of £420m,” he said.
“Our Insight range is also coming to the fore. Collectively, the Insight Absolute Insight, UK Equity Market Neutral, Credit, Currency and BNY Mellon Absolute Return Equity funds have already seen flows of just over £850m since the beginning of January.”
Another recipient of investors’ money has been the Ignis Absolute Return Government Bond fund, which has more than doubled in size since the beginning of the year, from £608m to £1.4bn.
Austin McBride, head of UK wholesale at Ignis, said: “Investors have become increasingly concerned over the direction of bond markets and are seeking uncorrelated investment strategies. The Ignis rates strategy has been very appealing and we expect to be a recipient of further inflows into the sector.”
Carmignac Capital Plus has also doubled in size since the start of the year, from around £650m in January to more than £1.3bn in August.
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