London, 17 May 2023:
Fulcrum Asset Management (Fulcrum) is marking the five-year milestone of its Diversified Liquid Alternatives (DLA) Fund, an unconstrained portfolio investing across real assets, alternative credit and diversifying strategies. Launched in 2018, the Fund was designed to provide investors with access to a wide range of liquid alternative strategies whilst offering daily liquidity with no performance fees.
The Fund has a target return of cash +4% per annum over rolling 5-year periods with lower volatility than equity markets. Since its launch, ESG integration has been an important pillar and a key driver of investment decisions and performance.
Fulcrum’s Head of Alternative Solutions, Matt Roberts said:
“The DLA strategy launched prior to the major market turbulence at the end of 2018, and then weathered Covid followed by the cost-of-living crisis of 2022. So, it’s fair to say that in the five years since launch, it has been tested. The Fund has delivered a healthy positive return with equity sensitivity and volatility entirely within our expectations.”
Matt Roberts and colleague Mark Horne, Executive Director, Fulcrum Alternative Solutions reflect on some of the key drivers of returns for the strategy in the three key asset classes during its first five years:
Listed Real Assets
We continue to have a positive long-term outlook on clean energy, driven by the focus on sustainability and mass transition to alternative energy sources. We decided to add to the directly-held basket of stocks, complementing our internal theme and have invested with a value-orientated external manager, which is something that is less common in a growth-biased sector. We also decided to seed a newly launched UCITS fund on very attractive terms; a good example of our philosophy of “first mover advantage”.
Whilst ESG integration can be challenging in alternative credit, given that disclosure levels are relatively poor (although improving) and there is not an ownership stake; where sustainability linked bonds or loans are issued, demand can make for unappealing valuations relative to non-labelled bonds, and monitoring ‘use of proceeds’ can be difficult.
The Short Maturity Responsible High Yield Fund Fulcrum helped to seed at fees lower than passive equivalent funds is run by a female-led boutique. The firm strives to have a voice across multiple industry bodies, works hard on engagement and has transitioned all their funds to have sustainable characteristics. Despite launching during a rampant time for the market, the fund has performed in line with the market after fees with considerably lower volatility.2
We invested with a hedge fund that follows a value strategy, something we had little exposure to across our hedge fund portfolio, making a strong rationale for inclusion as the team had expected a resurgence in the value factor, which had underperformed for a number of years.
This is a great example of DLA’s ‘sweet spot’- there is an experienced team and a track record we could scrutinise via their existing 40Act and Cayman funds. Furthermore, through Fulcrum’s work with the manager during the design of the UCITS fund as an early partner, we were able to negotiate excellent early-bird fee terms.3
Mark Horne, Executive Director, Fulcrum Alternative Solutions reflects: “As we mark the five years since inception, we are proud that DLA has done what it set out to. We now have over 30 clients invested, from a range of pension funds – DB & DC – charities, endowments and foundations. Our long-term asset allocation approach provides exposure to under-represented assets with an impartial implementation framework.”
Matt Roberts added: “Our plan as a team was to develop a small range of highly relevant solutions for clients in the Alternatives space. We started with liquid alternatives, launching DLA in 2018, and always planned on launching less-liquid solutions over time. We now run a range of funds with differing liquidity profiles and return objectives. We expect to add to this soon through the launch of an open-ended UK fund that invests across a wide range of private market asset classes.”
1TM Fulcrum Diversified Liquid Alternatives Fund F GBP Share Class (GB00BFYN9D54) as at 30 April 2023
2Since 31 December 2018 to 31 March 2023, relative to ICE BofA US (to November 2020) and Global High Yield 100% GBP hedged indices
3Since our investment in September 2021 at the launch of Invenomic’s UCITS fund, it is up over 80% (to 31 March 2023 representing the Invenomic GBP Founder A Class Shares.)
4As at 30 April 2023
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