Swiss manager moves into Australia

Swiss-based asset manager Julius Baer Investments is taking its first steps into the Australian market with the launch of a absolute return bond fund for local investors.

Set for launch in September, the Julius Baer Absolute Return Bond Fund aims to deliver absolute returns of 8 per cent per annum to Australian investors.

The global fund will initially cater for institutional investors with a minimum investment of 100,000 Euros, followed later by a retail component.

It will invest across a range of sectors in the global bond asset class, including high-yield corporate bonds, government bonds in established and emerging markets and convertibles.

Both short and long-range strategies would be used to “actively manage duration, currency, sectors and credit risk,” according to Ronny Beck, vice president, fixed income.

In Sydney last week, Beck was keen to emphasize that the fund, a version of which has also been launched in Europe, was not a hedge fund.

“Unlike a hedge fund the absolute bond fund does not use leverage, and it is also much more constrained than a hedge funds in its operations.”

These constraints have partly to do with the Luxembourg regulatory environment in which the fund has been established, according to Beck.

He added that retail investors, for which the European fund was primarily set up, are “not necessarily comfortable with leveraged high risk high return products”.

The fund offers investors “something between a long-only benchmark-oriented approach and an absolute return approach, but without having the leverage”.

The first-year Australian funds under management target is 100 million euros.

Beck said a fact-finding visit to Australia in March revealed that both institutional and retail investors were interested in finding new ways of maximizing returns.

“Our research tells us investors realize that Australian equities have had a fantastic run but that this bull run cannot go on forever,” he said.

“On the other hand, the interest rate outlook does not seem conducive to attractive returns from a potential shift by investors away from equities into conventional fixed investment.

“We see interest rates and bond yields moving up and down in a relatively narrow band over the next 18 months, which will benefit an absolute return vehicle in fixed interest.

“Managing fixed investment assets in a long-only style, with the ability to short market, would maximize investor returns over the long term.”

Returns, currently running at between 4.5 and 5 per cent in Europe, will be hedged back into Australian dollars, also helping to maximize returns, Beck said.

The fund would also strive to “achieve consistent return patterns over time, without too high a variation from year to year”.