The British arm of asset management group Aviva Investors is betting that investor interest in hedge fund-style products will survive the credit crisis and rebound once market turmoil abates.
Paul Abberley, UK CEO, told Reuters Aviva Investors would boost its high alpha and absolute return business in the coming months and expand its investment team across the board.
Hedge funds and similar products have come under scrutiny as investors question how modest performance in a market turmoil chimes with the high fees charged by the industry. Hedge funds claim to be able to generate returns in bad times and good.
Abberley, CEO of Aviva's London office since the beginning of August, said: "We believe clients will look for more higher alpha (excess returns) products than in the past and we need to be able to offer excellence in those areas."
In the UK, Morley Fund Management has been rebranded as Aviva Investors UK as part of the insurance group's plan to bring together its various fund management businesses into one entity. Aviva Investors was formally launched on September 30.
Abberley said that in the past Morley had focused predominantly on traditional relative return mandates while its activity in the absolute return space had been more limited.
Unlike traditional relative return funds, performance at absolute return funds is not measured against or tied to any benchmark index. The model in theory affords hedge funds and similar investors a bigger playing field in which to pursue returns.
Abberley plans to refocus the newly consolidated business on this route and is confident institutional investors will continue to make a clear distinction between 'alpha' returns generated by manager skill, and benchmark 'beta' returns.
"Absolute return products drawn from a range of alpha sources blending different sources together make a lot of sense," he said. "Something in absolute return multi-asset might be the next product." Abberley said the firm was currently focusing a lot of product research and development on absolute return with new or revised offerings likely to appear over the next six months.
The company would not be drawn on the fees structure the new products would employ, but management fees on the existing absolute return funds range between 0.55 percent and 0.85 percent.
Performance fees currently range between 10 percent and 20 percent. The hedge fund industry standard fee structure is 2 percent and 20 percent. Abberley acknowledged there were challenges ahead.
"Absolute return fixed income has delivered very mixed results over the last year, it's had a tough time. But the logic of looking for absolute return is still powerful," he said. The firm will not be starting with a blank sheet. It already runs fixed income hedge funds and has developed the infrastructure to trade derivatives.
"The momentum is already there. My role is to build on it and make sure it's driven forward at a good pace," Abberley said. He would also identify talent gaps at the firm.
"Aviva is looking to invest in human talent and in this sort of environment there are lots of good people being dislodged for reasons beyond their influence," Abberley said. "Part of my process here in the early days is to look to see if there are gaps... where we can grow our offerings," he said.
Abberley said there were no specific searches for narrow job roles at present, but there were likely to be hires in the area of high alpha and absolute return to supplement existing talent. Aviva Investors manages about $4 billion in alternatives investments. It is part of insurance group Aviva Plc.
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