InvestmentsMay 31 2013

BlackRock steps up UK Absolute Alpha fund overhaul

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ByMatthew Jeynes

BlackRock has added ramped-up investment powers to its controversial UK Absolute Alpha fund, as it looks to rebuild the ‘absolute return’ strategy.

In a letter sent to clients of the fund, seen by Investment Adviser, the group said the fund’s managers will begin adding leverage to the fund to boost its potential exposure to markets.

The leverage will be added in the form of derivative purchases by the fund’s managers Nick Osborne and Nigel Ridge, who took over as co-manager from ex-BlackRock manager Mark Lyttleton in March.

The managers will be able to boost the fund’s gross exposure to the market from 100 per cent to 150 per cent using leverage.

The fund, which was one of the first retail absolute return funds launched in 2005, has long suffered from poor performance after attracting significant assets for delivering a positive return during the 2008 market crash.

It has often failed to deliver an absolute return - positive performance - over rolling three and five year periods in spite of investor expectations of one-year growth.

The letter said the investment style change did not require a formal change in the fund’s policy, meaning there would be no shareholder vote.

Leveraging the fund means that potential returns will be greater but losses will also be amplified.

The firm said the changes would not affect the risk of the fund on a synthetic risk and reward indicator (SRRI) basis.

Former manager Mr Lyttleton left BlackRock at the end of March this year. The manager was arrested by the City of London Police on April 30 in connection with an insider dealing investigation by the Financial Conduct Authority (FCA), it is understood.

BlackRock said the allegations related to actions carried out “off our premises” and that neither BlackRock nor any other employee “is under investigation”.

“There is no suggestion that there has been any impact to any of BlackRock’s clients,” the company added.