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Baptiste Buisson : « We consider increasing the size of this type of investment (Absolute Performance UCITS) in the coming quarters »

According to Baptiste Buisson, Deputy Director at Aviva France, Investing in this type of support like Alternative Risk Premia allows players like Aviva France to diversify our investments.

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Next-Finance: Do you have assets invested in Risk Premia funds or more generally absolute performance funds? In what proportion? Will you increase this proportion?

Baptiste Buisson: Yes, for many years, we have invested in absolute return funds, in particular through the AIMS fund managed by Aviva Investors.

In addition, we also have an alternative management pocket in our balance sheet that we have delegated to another asset management company.

However, these investments have a marginal part (<1%) of our balance sheet, however, we consider increasing the size of this type of investment (Absolute Performance UCITS) in the coming quarters.

What are the benefits or constraints for investors (SCR) ? What returns are you targeting? Which volatility target?

Typically these funds seek to preserve investor capital and to provide an absolute return higher than 3 months European interest rates. They are invested in a broad range of asset classes, such as equities, bonds and money market instruments. The use of derivatives is also very common for them as it allows to take advantage of the increase but also the decline of certain asset prices.

Investing in this type of support allows players like Aviva France to diversify our investments. Indeed, these products have a certain level of decorrelation compared to traditional funds with a lower risk/return ratio. As there is no benchmark, the fund manager is free to choose and select any stocks or tactical trades.

Aviva is using now the Solvency II internal model. We are calibrated financial shocks associated with absolute return funds. We believe that the cost in SCR should be reduced by half (but this has yet to be validated) compared to a conventional equity investment as these funds exhibit generally a lower volatility (2 times less).

For example, the AIMS fund has a performance objective of 500 bps above the ECB rate (over a period of 3 years) for a 2 times lower volatility than equities.

We believe that the cost in SCR should be reduced by half (but this has yet to be validated) compared to a conventional equity investment as these funds exhibit generally a lower volatility (2 times less).
Baptiste Buisson, Deputy Director at Aviva France

What are the most interesting strategies for you (Long / Short, Event Driven, M&A, Statistical arbitrage, Implicit asset arbitrage, Carry/Liquidity premium, etc...)?

By definition, we are open to all types of strategies regarding economic cycles and market risks, some trades are better than others. Therefore, it is up to the fund manager to allocate his risk budget on the most relevant investment strategies given their expected return.

What changes need to be done to this management style (transparency, education, understanding the evolution of the model with the changing marketenvironment, costs, hidden costs, other)?

Significant progress have been made taking into account absolute return fund regulation. With the UCITS Directive, investors benefit from a strict regulatory framework governing the management of these funds. Unlike hedge funds, UCITS funds are much more transparent and disclose more frequently their underlying positions. UCITS funds offer daily valuation, and hold a high level of cash allowing investors to liquidate quickly their positions.

However, some strategies used could be explained better (lack of education) because it is difficult for some non-specialists to understand trades done by the fund managers (technical terms/complex trades/financial instruments, etc...........)

This type of management is also more expensive than traditional funds, and some fund managers still apply performance fees above a target return. Given the lower and lower, interest rate environment, some asset management companies may need to review this point to preserve the investor performance.

Some strategies used could be explained better because it is difficult for some non-specialists to understand trades done by the fund managers (technical terms/complex trades/financial instruments, etc...)
Baptiste Buisson, Deputy Director at Aviva France

What criteria do you use criteria to select Risk Premia or Alternative UCITS funds ?

The most important criteria in our selection are :

  • The track record (previous performance and ability to handle complex derivative products)
  • The investment team experience
  • Risk management (stop loss/maximum leverage/independence, etc...),
  • Portfolio construction,
  • Operational process
  • IT & reporting tool (strategy transparency)
  • Fees

RF , September 28

Article also available in : English EN | français FR

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