Objective-based investment gains popularity

Institutions are increasingly devoting a portion of their portfolio to objective-based investment strategies, according to Petr Kocourek, senior portfolio manager for Colonial First State Global Asset Management (CFSGAM).

Two months ago CFSGAM launched the CPI Plus fund, which aims to return CPI plus 4.5 per cent. It targets the retiree market, foundations and endowments which have perpetuity-like spending patterns, Kocourek said.

He said more and more institutions were looking at objective-based strategies.

"In general this approach to investing where you have a very specific objective — in this case CPI plus 4.5 per cent — is gaining traction.

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"While there is definitely a role for more traditional benchmark-relative management, more and more institutions are also looking more at having parts of their portfolio perform to a specific objective," he said.

Kocourek said objective-based strategies allowed the portfolio manager to pursue a clear objective not related to capital market indices, and match a portfolio's risk spectrum through building-in protection.

He said the CPI Plus fund was a good fit for a set of retirees that sought to maintain their standard of living by being able to spend a certain amount while still preserving capital. He said because it worked similar to a perpetuity, it also targeted longevity risks.

Kocourek said that although funds were increasingly looking for strategies that provided transparent objectives, the problem of herding and peer-relative performance still persisted.

"Conceptually a lot of the people I've spoken to have said yes — this is what we should be doing. But when the numbers are finally published and your competitor has a higher return, even if they have a higher risk, you will still be held accountable for that poorer return, even though you've stayed within your risk brackets," he said.