None of the information provided is investment or tax advice. You should always read the associated risks before deciding whether to invest. These can be found on the product pages as well as in our risks overview. Please confirm you have read the information above.
Why did we invest: Downing was attracted to The Pub People Group (Pub People) as it had built a robust and scalable business with the potential to scale further with the backing of additional investment. Also, given Downing’s expertise, Pub People represented a compelling opportunity to create a new consolidator in a fragmented industry of over 20,000 independent pubs across the UK. This was complimented by Pub People’s innovative operating model designed to improve the retail proposition in each of its pubs while simultaneously minimising operating costs.
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.
About Pub People:
The Pub People Group is a leading Midlands-based pub operator. It owns and operates around 40 pubs, the majority of which are freehold properties.
Over the last decade, Pub People has carefully built a strong portfolio through a selective acquisition process. It has a notable presence across suburban areas and offers flexible and varied offerings to cater to diverse customers, including drink and food-focused pubs with kitchens, outdoor spaces and entertainment such as live music and sports viewing areas.
Pub People’s innovative business model enables entrepreneurial pub operators to enter the industry without major upfront costs or ongoing capital commitments. The company retains sales, cost of goods sold, and other pub operating costs. In return, publicans receive a percentage of sales revenue to cover their own staffing expenses.
This unique arrangement allows for tailored management responsibility based on each pub’s needs. Publicans handle day-to-day operations and staffing while Pub People controls product mix, pricing, and the overall retail proposition. This central oversight enables optimal purchasing and supplier relationships to maintain profitability.
Downing's relationship with Pub People:
Downing has a long track record of successful investments in the pub sector and was keen to partner with a business positioned for scalable growth. Pub People offered an established portfolio of assets along with a platform primed for expansion through additional investment.
Beyond an attractive existing estate, the company benefits from limited maintenance capital expenditure needs and a high cash conversion ratio.
Larger competitors are saddled with considerable leverage, so rising debt costs have made acquisitions more challenging for them. With versatile financing options, Downing is uniquely positioned to back businesses like Pub People seeking to undertake roll-up acquisition strategies.
Additionally, Downing had an established relationship with the driven and ambitious existing management team. We saw potential to supplement the team with financial and operational expertise and knew the business would benefit from our prior experience in the sector. Our partnership offered the chance to unlock Pub People’s full potential with an injection of growth capital and support.
Downing's value add:
M&A and capital structure optimisation
We have provided the business with both debt and equity investment to make bolt-on acquisitions, invest and upgrade the platform and refinance third-party bank debt, without the need for additional capital from the management.
In the first twelve months, Pub People has increased the size of its freehold estate by c.70%.
Enhancing management
The incumbent CFO was seeking to retire, and the finance function required enhancement to take full advantage of the platform. We appointed a CFO with significant experience within the sector and a seasoned chair to provide guidance and support to senior management.
Increased strategic focus and clarity
Our view was that with fresh access to capital and a more ambitious approach, we could help accelerate Pub People’s growth through bolt-on acquisitions and refurbishment of assets in the existing portfolio.
We have helped to improve focus with a clear strategy to segment the existing estate and offering and identify non-core assets that management is disposing of.
Operational Improvements
We saw opportunities to implement new technological solutions – i) upgrading the ERP system (enterprise resource planning) from Sage to Oracle’s NetSuite and ii) installing a new EPOS solution (electronic point of sale) in each pub to improve the integration of financial information.
Looking ahead:
Pub People MD Andy Crawford said: “The recent acquisitions and investment underlines our commitment to expanding our high-quality estate of pubs. I am very excited to progress our discussions for further acquisitions in the coming months, which will support Pub People’s bid to become a market leader in its chosen regions. I value the support from Downing, which will allow me and my team to take Pub People into the next phase of its evolution.”
With Downing’s continued support, Pub People is well on its way to building one of the largest community pub operators in its core geographies. The company offers a promising platform for growth in a fragmented sector ripe for consolidation.
.jpeg)
