Absolutely absolute

There is a case for offshore investing, according to Old Mutual International, and absolute funds is an option that works for people who don't chase the benchmark.

We attended the Old Mutual International investment road show, themed as building on success, and speakers included Dennis Burger- distribution and marketing director for Old Mutual International, Marcel Bradshaw- head of offshore distribution at Old Mutual International, and Keith Guthrie- GAM fund manager.

Bradshaw says that they like absolute return funds as they take the fund management and put it in the hands of the experts, allowing the intermediaries to get on with their business.

He maintains that clients will stay with intermediaries in difficult times, as they know what they are in for in terms of returns, and there is no stress in terms of timing.

He asserts that there is an alignment between the intermediary, manager and the client when there is an absolute return portfolio in place. It appears that clients don't understand the vagaries and volatility of the equities markets.

He then tapped into the power of compounding, saying that on average, the volatility of the equity markets results in returns that are lower than if the client had invested in an absolute return portfolio- if taken over a five year period.

In his example the fund he selected returned a steady 12%, compounded over the five years, while equity portfolio fluctuated from 30% to -15% alternatively. The absolute offering returned about 15% more than the equity fund investment.

So where do absolute return funds originate? Keith Guthrie - GAM fund manager- says that absolute return investing historically, which could be synonymous with hedge funds, first saw the light of day back to 1949, when the first hedge fund was launched. It operated under the radar for many years, and did extremely well.

Everything changed in 1965, when Fortune magazine published a report on the fund, stating that the fund had out-performed all US mutual funds for more than 15 years.

The fund manager charged a performance fee of 20%, and that business model seems to have survived until today. Guthrie says that a hedge fund is not an asset class, but an incentive scheme for fund managers.

The international asset class weather forecast
His (Guthrie) outlook for asset classes internationally is that bonds are partially cloudy, equities are also partially cloudy, the alternative strategies (hedge funds) are providing sunny skies, a change in the last 18 months, while property sees good prospects of rain.

Marketing speak: The offering for offshore and the life account with is a two year old offering- and Burger maintains that lots of research has gone into the option, which essentially provides offshore exposure, with a choice to tailor-made options, as either recurring or single premium contribution.

There is decentralized administration in a range of three currencies with some security features- fixed rate accounts and some of the funds are available via asset swap- with BoE for example.

According to Bradshaw 60% to 70% of their funds flow through the five-year old multi asset management approach.