A Good Time to Get Special Powers Henderson Global Investors adopted a NURS structure for their unfettered Multi-Manager Independent Portfolios in June.
It also brought immediate benefits which were a boon during the recent return of volatility to the markets. The portfolios are no longer restricted to cash holdings of up to 10% of the funds to manage redemptions. Instead, the normal range for cash is now 0%-20%, which effectively makes cash an additional asset class in the investment toolkit.
These newly expanded cash holding limits were put into immediate service in the more cautious funds to help weather choppy market conditions and mitigate the effect of market falls on clients’ capital. Rather than being required to invest the bulk of new fund inflows, the managers have been able to hold inflows in reserve and await more favourable investment opportunities.
The Universe is Expanding
Of greater importance to long-term investors is the ability under NURS to hold a wider range of investments, including investment trusts, unregulated schemes and other structures designed for sophisticated investors, such as qualified investor schemes.
Expanding the potential investment universe to include investment trusts brings two key advantages:
- Access to a wider range of fund managers, and therefore more opportunities to select the best available managers to fulfil specific roles in our portfolios.
- Access to a broader range of asset classes and specialist approaches. Two prime examples are funds of hedge funds and property, the latter being an area where investment trusts have historically provided purer exposure than unitised vehicles.
Harvesting the Illiquidity Premium
The ability to tap wider return sources through NURS is important for Henderson’s Multi-Manager approach, which is essentially about establishing a large number of relatively independent active positions with the twin aims of reducing volatility and generating above-average performance.
One of the sources of outperformance the managers find attractive is the “illiquidity premium” available from various asset classes. Long-term investors have the potential to enhance returns by investing part of their portfolios assets which pay a premium to compensate for short-term liquidity risk. Having access through NURS to instruments such as investment trusts and qualified investor schemes means that the portfolio’s can invest in a number of illiquid asset classes, but through relatively liquid vehicles. Property is one illiquid area where, despite re-rating due to strong demand, pockets of long-term value and illiquidity premia remain.
A less well known area is secured loans. These are senior ranking loans which enjoy a priority claim over the assets of a business if the issuer fails to meet its obligations. They also have stronger protection clauses than most traditional fixed income instruments, are reasonably insulated against changes in interest rates because they pay floating rates, and offer attractive yields relative to traditional bonds. For longer-term investors, the asset class therefore offers a good combination of relatively low volatility and attractive returns.
Same Approach, Bigger Choice
For Bill McQuaker and Katy Gladstone, the freedom offered by NURS is a logical step forward for their diversified, multi-theme investment approach. It also provides other benefits in terms of derivatives usage, which is likely to become a stronger feature of their approach going forward, and the ability to employ long-term borrowing to gear portfolios. NURS does not alter the underlying philosophy – what is changing is the ability to apply their investment approach and express their investment views more fully than under the previous structure.
4.25% Enhanced Commission
As a special promotion Henderson Global Investors are offering enhanced initial commission of up to 4.25%, normally 3.0%, on all Multi-Manager Funds of Funds until 31st December 2006. Offer applies to lump sum business into A-shares with a minimum investment £1,000.
For further information on our range of Multi-Manager funds please visit our dedicated website www.henderson.com/multi-manager
