Aviva's £3bn Multi-Strategy team confronts confusion

Previously Standard Life’s £27bn Gars fund was unrivalled in terms of its multi-strategy approach, but a string of similar vehicles have been entering the market, including the £3bn Aviva Investors’ Multi-Strategy (Aims) fund, which launched in 2014. 

Such funds have been criticised for their complexity, with Fundhouse chief executive Rory Maguire saying investors should avoid investments they don’t understand, even if the performance is excellent.

“Complexity is an increased challenge when looking at the future; if funds are complex and the markets are complex too, then results can be all the more unpredictable," he said. 

I could roughly explain how a car works, but if someone asked me to strip down an engine with lots of electrical wires then I couldn’t put it back again.Jeremy Leadsom

Mark Dampier, head of research at FTSE 100 firm Hargreaves Lansdown, said he doesn’t invest in funds like Aims and Gars because they are too difficult to analyse.

He said: “I’m sure most advisers using these funds don’t understand them, in which case they probably shouldn’t use them.”

This view was echoed by Peter Lowman, chief investment officer at Investment Quorum, who pointed to the risks advisers might be taking on behalf of their clients.

But Ian Pizer, head of investment strategy for Aims, said investors have to question why the complexity is there and whether it is necessary.

He also questioned whether investors completely understand the complexities of the companies they have exposure to within a simple single-strategy fund.

“The complexity we put in is to give the client a better outcome,” he said, admitting however there will be customers who want to have a full understanding of what they are invested in, while others will want to hand over responsibility.

Jeremy Leadsom, head of wholesale UK at Aviva Investors, admitted advisers’ lack of understanding around these products is a “continuous problem”, and admitted it isn’t easy to break down how it works under the bonnet. 

“I could roughly explain how a car works, but if someone asked me to strip down an engine with lots of electrical wires then I couldn’t put it back again.”

He also said it was a “good premise” for advisers not to invest in something they don’t understand, adding: “Unless they are confident and competent then they shouldn’t advise on the product full stop.” 

But in response to this lack of understanding, Mr Leadsom said the firm is set to roll out a training course for advisers which aims to “take the lid off” multi-strategy funds and give IFAs the confidence to talk to clients about the Aims fund.

He said it was important that advisers are trained up on complex products like Aims to ensure they recommend products which are appropriate to clients.

Andrew MacFarlane, investment director at Fundhouse, said these funds are “structurally challenged”, with his concern fixed on whether these complex risk-targeted approaches can achieve their “ambitious” target. 

 We don’t need Standard Life to do badly in order to be successful Ian Pizer

According to FE, Aviva’s Aims fund has lost 1.7 per cent over the year, lagging behind the IA Targeted Absolute Return sector return of 0.8 per cent.

Mr Pizer, who was the investment director of Standard Life’s multi-asset team before joining Aviva, said the year has not been straightforward, adding however he is not that concerned about what the sector is doing.

“From my point of view, it’s been a frustrating year on performance, and we put our hands up and say that our views on the US and China were very challenged around the first quarter.

“We are certainly not owners of a crystal ball; when we do things wrong we are looking to provide a portfolio that doesn’t suffer significant drawdown.

“That risk process has been effective this year, but the performance side has been a challenge,” he said, adding he is looking to make significant gains so that the fund can achieve its target over a rolling three-year period.

“We have to recognise there is risk inherent in this process and it’s not always going to be a completely smooth ride.”

Despite returning to positive territory between July and September, over the past 12 months the Gars fund made a loss of nearly 5 per cent, against the IA Targeted Absolute Return sector, which has delivered 0.5 per cent.

In September, £121m was offloaded from the Gars’ fund and shuffled into Aviva’s Aims fund, which Mr Pizer said could be linked to Gars’ recent poor performance. 

He also pointed out Gars was the only fund of its type when it first launched, and clients might choose to diversify among these different strategies now there are more options on the table.

But Mr Pizer said Aviva’s fund doesn’t have to compete with the likes of Gars: “We don’t need Standard Life to do badly in order to be successful,” he said, adding there is “more than enough room” for funds like Gars.