ABSOLUTE RETURN FUNDS

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Definition

Absolute return funds management, a relative newcomer on the asset management scene, enables investors to achieve positive, regular performance whatever the market environment is.

Absolute return funds belong to an entirely different category than traditional, directional or benchmark funds, which remain significantly exposed to their underlying markets during bad as well as good periods.

Investment universe and strategies

Absolute return management can invest in the entire universe of traditional (equity markets, bond markets or money markets) and non-traditional (volatility, correlation, etc.) investments.

It can mix different types of strategies depending on the opportunities offered by the market:

  • Systematic Quantitative strategies (using complex mathematical models),
  • and Discretionary strategies (based on fundamental analyses carried out by the fund manager).

In order to achieve their dual objectives of regularity and decorrelation, absolute performance investment funds frequently use arbitrage and hedging strategies (sell positions) based on sophisticated instruments and techniques such as futures, options and swaps.

Absolute performance management encompasses a wide range of mono and multi-strategy funds. These funds comprise different risk/return profiles fine-tuned by management companies in line with their specific expertise,
and as a result "the" absolute return universe is very diverse.

Innovative and sophisticated management

The range of absolute return funds taking advantages from volatility and correlation inefficiencies is currently relatively limited since the econometric formulas used for this type of management are extremely complex and require several years of research. The requisite financial expertise in this area thus remains scarce.

Since 2006 Lyxor Asset Management has been developing a dynamic portfolio management offering called Quantic funds which has met with a great deal of success among institutional investors due to its creativity and innovation. More than EUR 1,5 billion has been collected on these funds.