The joint manager of the £6bn Merlin range of multi-manager funds at Jupiter has defended his decision to own 80 per cent of the assets of a recently launched technology fund, despite the liquidity risk.
The UK version of the Blue Box Global Global Technology fund has assets of less than £100m, with the Merlin team understood to have contributed about 80 per cent of the total.
Any one fund buyer owning such a large portion of any one fund is relatively unusual, according to Ben Yearsley, director at Shore Financial Planning.
He said typically fund buyers would not want to own more than 10 per cent of any one mandate.
With Jupiter Merlin owning about 80 per cent of the assets, there are concerns the Blue Box Global Technology fund might not be able to attract enough new money from clients to meet a substantial redemption request from Jupiter Merlin, in which case assets would have to be sold.
But David Lewis, co-head of the Merlin fund range, said the nature of the Blue Box Global Technology fund’s investments meant liquidity was not a concern.
He said: “In terms of the liquidity considerations, we always look to assess liquidity from the perspective of the underlying assets which the fund is buying; in the case of the Bluebox Global Technology fund, it is generally large cap franchises and we are confident that we can redeem our position in short order should we need to do so despite being a large proportion of the fund’s assets.
"Contrast this with a large fund investing in small cap stocks where you may be a modest component of the fund, but if the underlying is illiquid, you may not be able to redeem your position.
"This is a significant reason why we have very limited exposure to small cap strategies across the Jupiter Merlin Portfolios."
Typically, liquidity is managed in open-ended funds through meeting redemptions by selling the units to new investors entering the fund.
If the level of new investors seeking to enter the fund is lower than the number seeking to exit, then the fund manager must begin to sell some of the underlying assets on the open market in order to raise the cash.
If the underlying assets are not liquid enough to be sold, then the fund has the sort of liquidity mis-match which caused the Woodford Equity Income fund to be suspended.
On the broader reasons for owning the fund Lewis said: “We are excited about the prospects for growth from the Bluebox Global Technology fund and see the technology space as having secular tailwinds, as all companies globally strive to embrace technology in order to remain relevant in the new digitally enabled competitive landscape.
"William de Gale, the manager of the Bluebox Global Technology fund, has a long pedigree of running technology-orientated equity portfolios; he re-examined his approach before launching this strategy and the result is a fund that aims to invest in the enablers of the corporate technology transition while avoiding the blue sky or disruptive areas of the technology space which are often unprofitable, with unproven business models.
"This margin-of-safety-orientated approach chimes with how we look to manage the Jupiter Merlin Portfolio strategies. We have backed William’s strategy with conviction, resulting in us holding a significant proportion of his fund."
david.thorpe@ft.com
