Benefits of a 10-year learning curve

RWC has built a successful business over a decade in which it has learnt lessons such as the risks of over-exposure to hedge funds and the need for a retail client base, writes Tomas Hirst.

“We’ve always been completely agnostic about the particular backgrounds of our managers before they join,” says Harrison.

“That said, the best managers seem to be coming from the institutional side, and where we’ve struggled with ­culture clashes are with ­people who have come from prop desks who have a short-term mentality.”

Fundamentally, the relationship between a fund manager and the end inves-tor will inevitably have a degree of abstraction. Only by setting out a clear message about how a fund is going to be run, explaining a manager’s time horizons and showing an awareness of their fiduciary duties can a fund manager hope to ensure that their interests are aligned more closely with those of their clients.

In the case of absolute return funds – an umbrella term that can cover a plethora of different strategies – it is all the more important.

In fact, Harrison says, the increasing trend towards transparency in the industry is one of the main reasons why he says these funds will continue to gain in ­popularity.

“If you’re looking at whether absolute return funds are going to take market share, you have to look at them over a three-year-plus time horizon,” he says. “Seven or eight years ago American pension funds had less than a 10% allocation to alternatives and it’s now up around 30%.

“Transparency is going up as investors demand clarity in return for their capital.”

Certainly, inflows into absolute return products have failed to drop away, as many doomsayers had predicted during the worst of the crisis.

”When the crisis hit, hedge funds started pulling back capital and by the end of the year Ajay had lost about three quarters of his fund”

A more challenging period, however, could come when (or, say the doomsayers, “if”) uncertainty over the ­economic recovery is reduced and equity markets start strongly trending upwards.

There are already signs that interest in absolute return products has proved more resilient than some feared. Inflows into the Investment Management Association Absolute Return sector have remained impressive, with net retail inflows of £125.6m in June, making it the best-selling sector over the month.

Mungall, who is investing in both the RWC Global ­Convertibles and RWC US Absolute Alpha funds, says he has a strong conviction about these products.

“The most important thing is how managers react to both good and challenging market conditions,” he says. “Peter Harrison has done an excellent job of identifying individuals who have the necessary skill sets.

“What RWC have done well in is timing their entry into the sophisticated Ucits market just as fund of funds managers and discretionary IFAs were getting interested in it.”

How well RWC takes advantage of this surge of interest will rely on the performance of the teams it has put in place. Gambhir’s Samsara fund is certainly going some way to answer any critics. Since its launch in September 2007 the fund is up 9.40% in local currency terms, according to Financial Express, comfortably outperforming most developed market equity indices over that period.

Of central importance to many investors will be the fact that this performance was achieved with less than half the volatility of the index.

Gambhir also manages the RWC Europe Absolute Alpha fund, which was launched in July.

Despite the funds’ successes to date, not all of the investment community have yet been convinced. Dampier says that, unlike three years ago, competition in the absolute return market is intense, with many groups attempting to ­outmuscle each other in the sector.

“I knew them when they first started and back then they weren’t really into retail,” he says. “They haven’t tapped on our door yet since they’ve started ­trying to move into that space, so I’m happy just to wait and see.”

Harrison remains convinced that he has a strong proposition to bring to the retail marketplace, and flows into the funds have already driven total assets under management to $3.2 billion (£2 billion). This is indicative of the recovery that the group has made after hedge fund outflows.

“Now we feel that there’s a much better range of clients and we’re doing a lot more at the top end of the retail market, so this should continue,” he says.

“What you shouldn’t expect to see is a swathe of new launches over the next 12 months. We spent a lot of time sorting out our dealing systems and bringing in the right staff and now we’re ready to put our heads down and concentrate on performance.”

Over the next few years, as the funds build up their track records, the market will be able to judge just how ­successful RWC Partners has been in achieving its ­ambitions.