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Philippe Aurain: "The choice of flexibility is not trivial"

According to Philippe Aurain, CEO of Fédéris MANAGEMENT, given the diversity of processes called Flexible Management; we should probably define a typology helping investors to find themselves in a multi-faceted offer...

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Next Finance: What do you think of the current appetite for flexible funds?

Philippe Aurain: The use of flexible funds is primarily motivated by the market environment. Just like the stock market crisis had highlighted the benefits of funds "managing risk" (fund with target volatility, dynamic hedging, etc...), the current market environment of low interest rates make appear quite naturally the idea of a "hunt for yield" over a wide area of asset classes.

Indeed, flexible funds span a broad family of processes, from the classic "diversified" to the absolute retur n funds. It seems that these processes share the conviction that the carry trades returns are insufficient and risky in terms of a potential rise in interest rates and with uncertain market trends, it is better to be flexible to capture performance.

Is it better for institutional to manage flexibility inside (that is to say, work on indicators enabling them to increase their allocation in certain funds and reduce them in others) or outsourcing the flexible management, simply defining a basket of assets that will be invested in flexible funds and proceed with the selection of funds?

Firstly the choice of flexibility is not trivial. The relative performance of flexible funds under their benchmark can be quite volatile. Then, the percentage of effective and reasonable flexibility for a particular investor depends on its ability to carry risks and the definition of its asset allocation as a whole.

Finally, the choice between insourcing and outsourcing for many is a matter of internal resources; knowledge of a wide range of asset classes is necessary and methodologies for effective risk management are recommended.

What should evolve to improve the current offer?

In view of the diversity of processes, we should probably define a typology helping investors to find themselves in a multi-faceted offer.

RF , November 2012

Article also available in : English EN | français FR

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