NWQ making volatility work

SPECIAL REPORT: A new, more aggressive fund and the international expansion of its existing conservative strategy will be key to the growth of boutique investment manager NWQ.

Lessons learned from the wreckage of the GFC will underpin a new fund launched by local boutique manager NWQ, which will target higher returns when markets are stressed.

NWQ founder Jonathan Horton told Business News the global macro fund, which opened in September, was the company’s second management strategy, with its more conservative fiduciary fund running since May 2013.

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Mr Horton said the global macro fund (called the NWQ Global Markets Fund) would fit a higher volatility, higher return profile, with a target return of 12 to 15 per cent.

By comparison, the fiduciary fund aims for about half that.

West Perth-based NWQ allocates into hedge funds, and Mr Horton said the latest offering would be focused on hedge managers in the commodities, currencies, managed futures and macro spaces.

“There’s a dearth of offering in the non-institutional market (in Australia),” he said.

“The idea is that this strategy does really well when the markets are most stressed.

“When markets are stressed, asset classes tend to disperse.

“So if the Aussie market sells off, where’s that money going?

“It might be expressed through currency, the Aussie dollar might fall so that money can go back to America or Europe.

“Interest rates may rise or fall depending on where the market is. It might be a reflection that the economy is slowing so you might get an expression through industrial and precious metals.”

The experience of the GFC showed that managers in these markets tended to achieve returns uncorrelated with more traditional investments such as stocks and bonds, Mr Horton said.

“In the GFC what we learned was, you think you might be diversified but you’re not,” he said.

Managed futures, in particular, had received a surge of cash globally in the past decade, Mr Horton said.

Jonathan Horton says financial market uncertainty highlighted the need for funds that seek to profit from volatility. 

Even Australia’s Future Fund was putting more focus on the space, he said, with about a third of the fund’s 15 per cent allocated to hedging specifically using similar strategies.

Mr Horton said NWQ’s fund would use swaps to replicate strategies from the most suitable managers out of a pool of more than 100.

That would enable access to entities with between $500,000 and $10 million to allocate – for example smaller family offices that otherwise might not have capital to meet minimum entry requirements for funds.

“We’re a team for rent for family offices,” Mr Horton told Business News.

Mr Horton said two of the members of the NWQ investment committee had extensive experience in this space.

“Stephen Kennedy used to run proprietary trading at Deutsche Bank globally,” he said.

“He used to run a (proprietary) account in this strategy.

“Mr Kennedy has got, I would say legendary status is not an overstatement.”

Mr Horton said his own previous experience included working on similar strategies for family offices.

NWQ’s other big move was to open an international version of its fiduciary fund, a Cayman master fund called the NorthWest Quadrant Fiduciary Fund, in June.

Mr Horton hopes that will be part of a big expansion into international markets, which would eventually bring funds under management to about $700 million, more than triple their current level.

That desire to access overseas markets led to the May 2017 appointment of Bank of Tokyo-Mitsubishi UFJ director of US convertible security sales, Robert Kallish, to head up a New York branch as managing director international.

A further big addition last year was when former Reserve Bank of Australia governor Glenn Stevens joined the investment committee in September.

Mr Stevens worked for 23 years at the Reserve Bank, including 10 as governor, concluding in 2016.

With about $200 million under management, NWQ is one of three major funds in its niche of the market in Perth.

The other two large fund managers include Packer & Co and Viburnum Funds, which have both lifted assets under management in the pas three years.

Packer & Co hit $2 billion recently, lifting from $1.3 billion in 2015.

Viburnum, based in Nedlands, has grown money under management by around $300 million to be about $700 million in a similar period.