Asset Management

Challenging Asset Management Conventions At UK's Fulcrum

Tom Burroughes Group Editor London 24 May 2023


This news service talks to a UK-headquartered asset management firm about its approaches to investment, and the way that rising rates and inflation have led to questioning certain lomgstanding ideas about diversification.

Big market moves and the nerve-jangling impact of bank failures and rising interest rates mean that smart asset management needs more tactical flexibility and willingness to break with old ways of thinking, according to UK-based Fulcrum Asset Management.

During 2022 equity and bond markets fell more or less in tandem, dealing a blow to the idea that the old “60/40” equity/bond split made much sense. 

“The key here is to realise that diversification is not a constant.” Nabeel Abdoula, deputy chief investment officer at Fulcrum, told this news service in an interview. With the increased correlation of equities and bonds, diversification has become even more important when it comes to traditional asset allocation techniques.  

Diversification cannot be perceived as a constant but is something which evolves with the changing economic and macro environments, with macro shocks currently dominating markets and having the biggest impact, he said. 

“You tend to see central banks reacting domestically to inflation concerns. That’s what threw people off course in 2022,” Abdoula continued. “We think the same processes are underway now and we are not through with the central banks’ fight against inflation. The economic outcomes that will be necessary are likely to be worse than people are expecting. We think interest rates will rise more than is priced in by the financial market [in the UK].”

Abdoula spoke shortly before the firm announced that Patrick Forde, Gerin Tertilt and Filippo Cartiglia were joining the partnership, bringing the total number of partners to 18.

The business has also marked the five-year milestone of its Diversified Liquid Alternatives (DLA) Fund, an unconstrained portfolio investing across real assets, alternative credit and diversifiers offering daily liquidity with no performance fees. It has clocked up annualised net of fees return since its inception in May 2018 of 3.2 per cent. The strategy aims to deliver returns that are complementary to equities and bonds, and to deliver returns independent from the investment environment.

The firm oversaw £5.2 billion (about $6.4 billion) in assets under management as at 31 March 2023.

Diversity is our strength
Much of what the firm aims to do is creating that nimble mindset to protect clients’ wealth.

“In an inflation-fighting world, an environment where equities and bonds go down, and the dollar is going up, is a reasonable [situation] to expect,” Abdoula said. 

While demand-side issues in the past have been important in affecting prices and inflation, the supply side is becoming more important, such as the impact of Net Zero energy policy, supply chain changes, row-backs on globalisation, lower labour force participation rates, and other factors, he said. 

“You start to have a breakdown of the properties of a diversified portfolio; sources of valuation are being driven more by the supply side rather than demand,” he said. 

Strategic asset allocation, while important, is no longer a sufficient approach – other, tactical approaches also matter in this environment, Abdoula said.

The banking problems of SVB and Credit Suisse, while different in several key respects, have rattled nerves. 

The US [SVB] story was more significant in macroeconomic terms, because it related to how deposits have leaked from the bank system to go to money market funds, Abdoula said.

“When it comes to bank runs and depositor flight, they are not things we can predict….it is important to reassert confidence in the banking system. We don’t see an asset quality issue in the banking system,” he added.

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