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Downing launches new actively managed liquid alternatives fund aiming to deliver 7% to 10%+ per annum and positive returns in most markets. The new MGTS Downing Active Defined Return Assets Fund (‘Active Defined Returns’, the ‘Fund’), is the first fund from its new Liquid Alternatives team.
The Fund is aimed at institutional investors, Discretionary Fund Managers, IFAs and advised sophisticated individual investors, and will primarily consist of UK Government bonds and large-cap equity index options, which provide significant scalability and strong liquidity. It aims to deliver 7% to 10%+ per annum and positive returns in all markets except for a sustained equity market fall (generally more than 35%), over a period of at least six years.
The Fund is the first to be launched by the new Liquid Alternatives Team established by Downing. Collectively, the team has over 125 years of experience and sector knowledge, and includes Tony Stenning, who held senior roles at BlackRock and most recently was CEO of Atlantic House Group; Russell Catley, founder and also a former CEO of Atlantic House Group; Huw Price, a former Executive Director at Santander Asset Management, and Paul Adams, former Head of Cash Equities and Derivatives Sales, Royal Bank of Canada.
The Fund offers investors a compelling building block for multi-asset portfolios, aiming to add consistent and predictable returns, typically secured with a portfolio of UK Government bonds. The unique proposition includes a hybrid approach of using systematic derivative strategies and active management, combining liquid investments with predictable returns, and an equity like risk profile.
Investment strategy: Maximising the probability of delivering predictable defined returns across the economic cycle.
Systematic Liquid Derivatives: Systematic, derivative strategies optimise the equity risk-return profile. The Fund uses rules-based derivative strategies linked to the most liquid, large-cap global equity indices (i.e. FTSE100, S&P500) with the aim of harvesting well-proven consistent returns across a wide corridor of market conditions.
Strong security: The Fund will hold a high-quality portfolio of assets as secure collateral – typically UK Government bonds.
Active benefits: At times, rules-based, passive derivative strategies can underperform when markets move strongly – this is when specialist active management can add incremental gains by monitoring and monetising positions and applying active risk management.
Key benefits
Increased consistency and predictability of returns: Positive returns in all markets except for a sustained equity market fall of more than 35% over at least six years.
Diversification of risk: The Fund’s risk components are diversified across large, liquid equity indices, observation levels and counterparties. Secured with high-quality assets – typically UK Government bonds.
Active management: Our experienced team will actively manage the Fund and its investments to optimise risk and reward for investors.
Russell Catley, Head of Retail, Liquid Alternatives at Downing, said: “Put simply, we focus your investment risk on the probability of receiving the returns you need, not those you don’t. We target the highest probability of delivering 7% to 10%+ per annum with active management adding material incremental gains. We believe that we are building the next evolution of the proven success of Defined Returns funds
The Downing team isseeing strong demand from clients looking for alternatives to large-cap equity funds which are becoming concentrated in technology stocks, or alternatives to UK equity income funds and illiquid alternatives.”
Tony Stenning, Head of Liquid Alternatives at Downing, said: “The launch of our Active Defined Return Assets Fund is a significant milestone in the ambitious build-out of our new Liquid Alternatives strategies. It is a solution-focused fund that should deliver stable high single or low double-digit returns across a wide spectrum of equity market conditions, except for a persistent multi-year bear market. The Fund is designed to enhance balanced portfolios by providing consistent, predictable returns and is suitable for accumulation or drawdown.
“We aim to deliver a unique combination of proven systematic derivative strategies and specialist active management, and we are doing so at a very compelling fee level, below our closest competitors and in line with active ETFs.”
How the Fund is expected to perform in different markets
In bullish markets: UK Government bonds secure the capital, and the equity index options deliver a predictable 7-10%+ return per annum – giving up some less likely upside.
In neutral markets and normal market corrections: UK Government bonds secure the capital, and the index options deliver a predictable 7-10%+ return per annum.
In a sustained sell-off: if markets fall more than the cover to capital loss and do not recover for six years. Then capital is eroded 1:1 in line with the worst performing index.
The average Cover to Capital Loss is targeted at 35%: the average cover to capital loss represents the average level the Global indices within the Fund could fall before capital is at risk.
Fund key risks
Performance: Capital is at risk. Investors may not get back the full amount invested.
Liquidity: Access to capital is always subject to liquidity.
Counterparty risk: Other parties could default on the contractual obligations.
Fund Structure
UK regulated OEIC fund structure, fully UCITS compliant
Daily dealing, at published NAV
Minimum investment: £100,000
SRRI: 6 out of 7
Depositary: Bank of New York
Authorised corporate Director (‘ACD’): Margetts Fund Management Ltd.
I share-class: SEDOL: BM8J604 / ISIN: GB00BM8J6044
F share-class: SEDOL: BM8J615 / ISIN: GB00BM8J6150
Risk warning: Opinions expressed represent the views of the fund manager at the time of publication, are subject to change, and should not be interpreted as investment advice. Please refer to the latest full Prospectus and KIID before investing; your attention is drawn to the risk, fees and taxation factors contained therein. Please note that past performance is not a reliable indicator of future results. Capital is at risk. Investments and the income derived from them can fall as well as rise and investors may not get back the full amount invested. Investments in this fund should be held for the long term.
Important notice: This document is intended for professional investors and has been approved as a financial promotion in line with Section 21 of the FSMA by Downing LLP (“Downing”). This document is for information only and does not form part of a direct offer or invitation to purchase, subscribe for or dispose of securities and no reliance should be placed on it. Downing does not offer investment or tax advice or make recommendations regarding investments. Downing is a trading name of Downing LLP. Downing LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference No. 545025). Registered in England and Wales (No. OC341575). Registered Office: 10 Lower Thames Street, London EC3R 6AF.
Bridges Care and Education (BCE), a provider of specialist education and care, has opened two new schools after backing from responsible investment manager Downing LLP.
BCE, which trades under the name Spaghetti Bridge, currently operates seven schools in the UK and has partnered with Downing since BCE’s inception in 2020. The two new independent day and specialist education schools in Plymouth and Yelverton have a combined capacity for up to 160 children.
In October 2022, Downing invested £12.5m to fund the acquisition of the sites, as well as the refurbishment of the sites into schools for children with a range of learning needs, including social, emotional and mental health difficulties, autistic spectrum conditions including Asperger’s syndrome and associated challenging needs.
All students attending the schools will have an Educational Health Care Plan and will be provided additional support applicable to the needs of the individual student.
Chapel Bridge School, which is in Plymouth city centre and on a site that once formed part of the Royal Naval Hospital, has a capacity for up to 100 students while Heather Bridge School has a capacity for up to 60 students.
BCE is working closely with local placing officers and commissioners.
Downing has now opened seven operational sites with BCE with an eighth due to be completed soon, as it continues to build a market-leading specialist education business in the UK. BCE also operates schools in Paignton, Taunton, Yeovil and Cricklade.
Torsten Mack, Investment Director, Downing LLP, said: “The completion of the new schools in Plymouth and Yelverton marks the latest stage in the growth of BCE and strengthens its position as one of the leading providers of specialist education in southern England. It also signals a further development in our relationship together. The management teams' focus on high-quality outcomes and their track record of opening and filling schools underlines the success of their approach.
“As a responsible investor, Downing is proud to be supporting BCE and making a difference in helping them to meet the growing need for SEND schools.”
Dan Alipaz, CEO, Bridges Care and Education, said: “Opening two new SEND schools in the Plymouth and Devon area is a significant milestone for our organisation and a crucial development for the education sector in this region. These schools will not only provide much-needed specialised education and support to children with diverse needs but also contribute to the overall growth and well-being of the Plymouth community.
For BCE, it demonstrates our unwavering commitment to inclusivity and quality education. We are proud to play a pivotal role in not only expanding educational opportunities for children with special needs, but also to provide new and innovative educational models that give children the opportunity to develop the necessary skills for a rapidly changing 21st century.”
Downing’s Development Capital team partners with exceptional management teams to help realise their growth ambitions and maximise the potential of their business by providing flexible funding solutions, strategic support, and access to its networks.
Typically, it looks for initial investments of between £5 million and £50 million and focuses on sectors including healthcare, education, leisure and hospitality, housing, and other specialist sectors.
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