Churchlow and Launder to head up Ucits III products with high conviction approach to active equity management
Legal & General Investment Management launched two new absolute return products last week, the UK Absolute and European Absolute funds.
The UK Absolute vehicle will be run by the group’s Growth trust manager Robert Churchlow, while Gavin Launder will head up the European Absolute offering.
Both Ucits III funds will be run in line with LGIM’s high conviction approach to active equity management, comprising the managers’ best 25 long or short ideas.
Mark Burgess, the group’s head of active equities, says the new funds will benefit from the size and scale of LGIM equity operations – with the company’s tracker funds owning 4.5% of the UK stock market and 0.75% of the European market.
“While we had the index business, which forms a core part of people’s portfolios, we realised about five years ago that for active management we needed to go down the high conviction approach,” he says.
“This has been an enormously successful enterprise. It seemed very clear to us a natural extension of this approach was to launch absolute return funds.
“Robert and I actually started talking about absolute return three years ago, but at the time we felt we should concentrate on developing the long-only franchise.”
Both Churchlow and Launder ran model absolute return strategies for six months ahead of the launches. LGIM has seeded both vehicles with £12.5m.
“We have made our name in focused investing, and this fund will very much be our best ideas,” Churchlow says.
“We will be replicating a lot of the positions in the Growth trust in the UK Absolute fund, but the advantage here is we can hedge out the market risk.
“Against the long positions, we can match it with a pair, or just hedge it against the index.”
Churchlow expects to keep the fund’s gross exposure between 75% and 125%, while net exposure is not likely to exceed -20% or 20%.
On the European offering, Launder plans to have gross exposure of between 75% and 150%, with net exposure likely to be limited to -20% or 50%.
The managers have set a performance target on the European vehicle, aiming to deliver 10% per annum over a three-year period.
“Because there are 15 different markets in Europe, we will have to spend more time looking at macro themes,” Launder says.
“For example, if the fund was running a month ago, it would have been beneficial to be short Greece and long Germany.”
The LGIM UK Absolute and European Absolute funds have a 5% initial charge, 1.5% AMC and a 20% performance fee over a high watermark.
