Brunel launches new multi-manager fund offering downside protection amid market turbulence

Brunel Pension Partnership Limited (Brunel), one of eight pooled Local Government Pension Scheme funds in the UK, has launched its GBP1.2 billion Diversifying Returns sub-fund (DRF). 

Brinel says clients asked for a portfolio offering meaningfully different exposures to others in their Strategic Asset Allocations. The blend of four leading investment managers is designed to deliver that solution.

The most important feature of the new fund is to offer downside protection, especially in times of market stress. The DRF is designed to act as a stabiliser when returns in other client portfolios come under pressure.

“The DRF is proof that client needs can drive product innovation,” says David Cox, Head of Listed Markets at Brunel. “Although protection was the priority, the fund also needed to provide returns strong enough to meet future liabilities, whilst offering liquidity. By targeting client outcomes in this way, we have ended up developing a more tailored product outcome.”

Brunel offered a broad brief during the manager search phase, in order to find the optimal blend of strategies and managers for the fund. In all, Brunel received 102 submissions, chose 16 for a formalised tender process, and ultimately invited eight to final-stage interviews.

“During the search phase, we welcomed strategic research, thought pieces, strategy presentations and more, to ensure we were in a position to consider all possible angles on this complex puzzle,” says Emily Booth, Senior Investment Officer. “The strategies we have selected offer exposure to a wide range of traditional and alternative risk premia. Managers have scope to tactically allocate amongst these based on their relative attractiveness. The sub-fund has been designed to withstand phases of positive equity-bond correlation as well as damping drawdown when equities fall.”

Liz Woodyard, Investment Manager, Avon Pension fund, a Brunel client, says: "It's gratifying to see the DRF being launched, as it reflects our desire for a fund that offers protective diversification within our investment strategy. However, we also wanted a fund that has the potential to provide equity-like returns and is relatively liquid. The Diversifying Returns fund has been forged to meet these various needs. As a result, it significantly enhances our capacity to provide for our members' long-term retirement needs."

The fund targets reasonable levels of absolute volatility, at below 10 per cent, and uses the Sterling Overnight Index Average as its benchmark. It aims to beat this risk- free rate by 3-5 per cent per annum. At a portfolio level, its diversified approach ensures exposure to a wide range of risk premia via holdings in equity, credit, commodities, interest rates, currency, value, carry, momentum and quality risk premia.