Founded two years ago to focus on the needs of private clients, cru Investment Management continues to reap the rewards of its investment philosophy, citing private equity as a safer and superior way to invest
Jon Maguire, chief executive officer of cru Investment Management, insists the company's focus on generating absolute returns from private markets is the key to delivering a consistent performance - regardless of the global economic backdrop.
"This is truly a revolution in multi-asset investing and we are proving this to our investors month after month," he says. "If you have always believed that unit prices have to move with the markets then it's time to think again."
The fact that private markets have little correlation to public markets means they are less affected by swings in sentiment, points out Maguire, a former investment director at Legal & General Investment Management.
"Private equity beats equity income hands down and private finance destroys the returns of corporate bonds - yet they are both providing capital for companies," he explains. "It's a much better, less volatile way to invest in companies."
He cites the performance of the company's funds during the market volatility earlier this year - which he dubs the 14 days of market mayhem - as a prime example of how its guiding philosophy provides a safer haven for investors.
"Our peer group was struggling for returns and some were making losses of more than 2.5%," he recalls. "However, our absolute return strategy and private market exposure kept our funds' returns in positive territory."
Can you tell us more about cru Investment Management?
We were founded two years ago to offer a more relevant approach to the investment needs of private clients by focusing on absolute returns.
This investment philosophy is based on an analysis of likely future returns from any asset, and the skill of the specialist manager of that asset, to add further returns.
Our overall aim is to deliver returns ahead of cash over periods of at least five years, while not leaving our clients at the mercy of the vagaries of stock markets.
This means we look to combine a variety of assets and investment approaches to deliver long-term, consistent and positive returns.
Who are ARCH and where do they fit into the picture?
ARCH is a London-based investment management firm that provides products and structures that deliver superior risk-adjusted performance and longevity.
One of the hallmarks of ARCH is the extensive and diverse experience of the principals with each one having been in the business for more than 20 years. In addition they have contacts across the banking, investment management and private equity worlds.
Our CF ARCH cru Portfolio funds are managed by ARCH Financial Products, while we provide input on both asset allocation and the funds' underlying holdings.
What is the importance of absolute returns?
We define absolute returns as making positive returns by investing without making a loss. While some managers try to achieve this goal by the use of complex strategies, we seek investments that are easy to understand and where real management skill removes the risk and enhances the overall level of returns.
Our primary focus is in private market investments where we back company investments in both debt and equity. We believe these offer exceptional returns without the volatility associated with public stock and bond markets.
I'd love to see how other companies define absolute returns, particularly those firms that end up losing money in almost 40% of all months. The whole idea is to generate positive returns in all market conditions, otherwise what is the point?
How would you describe your investment philosophy?
At the root of our investment approach is a desire to protect our clients' money by investing in a variety of different assets because this produces stable returns.
We firmly believe that preservation of wealth is as important as increasing its value so correctly assessing and dealing with risk is obviously a crucial part of our process.
To this end we major on investments that complement each other and spend a lot of time examining their performance histories and underlying rates of return.
The idea is to unpick an investment to see how much money you're going to make out of it. Unless something is going to make us at least 10%, then we ignore it.
What products are currently available?
There are two funds in our multi-asset managed range: The CF ARCH cru Portfolio Fund and the CF ARCH cru Specialist Portfolio Fund. In addition, we have three single strategy funds - ARCH cru Private Equity, ARCH cru Private Finance and ARCH cru Sustainable Opportunities - which are all listed in Guernsey.
CF ARCH cru Portfolio Fund: this is our flagship portfolio whose objective is to generate consistent returns that exceed cash deposit returns by 3%-4% per annum over the medium to long term, after all fees. As well as majoring in private equity and private finance, this fund also invests in sustainability assets where it focuses on companies that will profit from solutions to the global issues of climate change, population growth and urbanisation. At present, the five equally weighted funds that are held within the equity income part of the portfolio are: Artemis Income; Invesco Perpetual High Income; Jupiter Income; PSigma Income and Rensburg UK Equity Income.
CF ARCH cru Specialist Portfolio Fund: This product is aimed at investors with a higher risk/reward investment approach. The benchmark asset allocation of this fund will mirror that of the CF ARCH cru Portfolio Fund, and then we'll introduce gearing which will typically be limited to 25% of the fund's assets. The aim of the borrowing is to increase returns. The target return of this fund is to outperform the CF ARCH cru Portfolio Fund by 2% per annum, which works out as cash plus 5% to 6%.
What are your benchmark target holdings?
Private equity is currently 25%, while 20% is invested in sustainable opportunities and 18% in private finance. In addition, 15% will be held in equity income, with 12% in structured finance and 10% in cash.
Can you explain how you define these major components of your funds?
Private equity: This refers to the medium- to long-term finance provided by private investors in return for an equity stake in an unquoted company. Within this framework we focus on mid-sized pan-European companies and avoid much of the high profile expensive bidding that takes place at the publicised end of the industry. The annual target return from this area is in excess of 20%.
Private finance: This area of business offers companies needing to borrow money an alternative to more traditional fund-raising methods such as bank loans or share issues. We invest in around 1,000 private finance deals at any one time with a view to achieving a target return of 11%-15% per annum, with minimum volatility.
Sustainable opportunities: As the case for sustainable solutions to longer-term issues such as climate change grows, it makes increasingly good business sense to invest in companies which are already involved in this area. Therefore, we invest in companies to capture the considerable value and profitability that is underpinned by major long-term environmental, social and economic trends. Our annual target return from this area is in excess of 20%.
What are the key elements of your investment process?
There is no black box or secret to what we do. At the end of the day it all comes down to investing in companies. That's all that anybody does, but it's just that we've found a better, cleverer way of doing it.
Wherever possible our investments are held with specialist investment managers who are capable of delivering highly-focused returns in an equally highly-controlled risk environment. Selecting the right managers is vitally important to our funds' success.
Therefore, thousands of managers are considered with the aim of screening out the poor performers; identifying those likely to do well - while taking into account any possible changes in the investment climate - and combining them into an absolute return focussed strategy where performance and risk are constantly monitored.
An important part of the process is the ARCH cru Investment Committee which comprises of senior executives from both businesses. This group meets regularly to discuss world economic and market conditions, and how these factors may influence the performance of the funds. It also considers new investments to enhance returns.
How have the funds performed?
The Oeics became fully invested last December and since then our performance has improved markedly with positive returns posted every month while our peer group rankings have soared.
Our investment philosophy and approach served us particularly well during the market volatility of late February and early March this year where our exposure to private markets protected us from what was happening.
It also led to the funds being ranked 1st and 2nd over this period within the Cautious Managed Fund sector. As they were the only ones to show positive returns, this underlines our assertion that the investments have a structural performance advantage.
Overall, our long-term track record remains excellent and we believe this will be further enhanced by the structural outperformance we are expecting from asset allocation to the higher returns and lower volatility available in private markets.
What is your final message?
These are very exciting times for the company and we have ambitious plans for its growth over the next five years as profits are going through the roof and funds under management are growing rapidly.
We truly believe that this is the finest investment engine we have ever come across and we're convinced that investors will find it virtually impossible to go and buy a traditional unit trust after hearing what we have to offer.
It truly is a revolution in multi-asset investing and it's just a case of getting that message across to people.
