Stay-rich-plus portfolios
There is no standard Capital Generation Partners model portfolio, with particular client preferences considered such as ESG screening, currency denomination, preferring active over passive or vice versa. The firm offers both a discretionary and advisory service.
“All of this we can cope with because we have a finite number of large clients who we know well,” says Barnard.
“Although our overall goal is a stay-rich-plus philosophy, the portfolios will contain a range of risk assets. You don’t achieve a stay-rich-plus portfolio by putting everyone in fixed income, cash or cash-like products.
“We build multi-asset portfolios with a variety of risk and return characteristics. Some will contain exposures that are individually risky but we will construct them in a way that in aggregate we manage to a volatility of 10% or less.”
The team is particularly careful about structures. In trackers, for example, fundamentally illiquid assets are avoided, as are swap-based index products because of additional counterparty risk.
Still, Barnard says it is important to be “innovative, entrepreneurial and open-minded” in research work, and, as such, the team is happy to invest in sophisticated strategies.
At present Barnard is considering insurance products, for example, while with asset prices looking elevated in most markets, there is a preference for the long volatility/long gamma exposure of global macro funds and CTAs.
“These funds are trying to get exposures we can’t get elsewhere, while we can do equity and fixed-income risk very cheaply though index products,” he explains.
“That is not to say a very active high-conviction long/short equity stockpicker can’t add value, but there is a fundamental beta risk in that portfolio you can’t run away from. We are thinking about the exposures we can’t get through these very cheap, easy-to-understand products.”
