The PruFund Growth Life Fund has served investors well since it was launched fifteen years ago this month. We talk to Charles Griffith, Head of Multi Asset Portfolio Management, at M&G Treasury & Investment Office, about the investment strategy behind the PruFund funds and why he feels they are ideally suited to today’s uncertain market conditions.
IFAM: With the 15th anniversary of the PruFund Growth Life Fund in November, can you remind readers about PruFunds, the choice which is available and what the aims and objectives are?
CG: TThere are seven PruFund funds in total which are Growth, Cautious and five Risk Managed PruFunds. All the PruFunds’ approach to multi-asset investing is to take a long-term view on markets, as well as looking at the valuation of different asset classes over time.
A mainstay of the strategy is to achieve high levels of portfolio diversification, both in terms of asset class and also geographical diversification. These are some of the key aspects which make the fund stand out from other funds that are available.
Another important point to note is the size of the fund, now approaching £50bn assets under management as at 30 June 2019. There’s also the breadth of expertise within the team and broader group, which allows us to achieve these goals. Having a well-resourced team and a large fund allows us to more easily harvest illiquidity and complexity premiums across asset classes such as equities, property, alternatives and private credit. Obviously we strive to do this in a risk-controlled way. These ‘hard to access’ return streams are therefore available to us and it’s important to take note of this differentiator.
M&G continues to develop new expertise in new markets and geographies, examples within fixed income including bridge loans and real estate finance, while in equities we have recently invested in both African and Chinese markets.
IFAM: How has the PruFund Growth Fund changed since 2004? How has its performance fared throughout the various bull and bear market phases which have happened since that time?
CG: Our approach of looking towards long-term performance drivers rather than short-term market events has allowed us to ‘ride through’ pockets of volatility over the years. I also believe that our continued and evolving diversification opportunities have been an important part of our success historically. I expect these factors to carry on being a focus of our team and for the opportunities for end-investors to continue to benefit from this approach.
IFAM: When it comes to the investment strategy / process, how you do you and the team manage the PruFund funds and why is this different from other multi asset funds?
CG: The investment team that is responsible for the successful management of PruFunds sits within the M&G Treasury & Investment Office. I very much see the investment team as a team of three parts and these are:
Firstly, our Long-Term Investment Strategy (or “LTIS”) team is charged with formulating top down views of global asset returns, both by asset class and by region. This is based on long-term equilibrium returns, volatilities and correlations which are inputs into our portfolio optimisation work. The team uses “Genesis”, an in-house stochastic asset model that generates many thousands of future economic scenarios and following on from this, asset class returns across the universe of asset classes and geographies. The output from the team is the Strategic Asset Allocation or ‘SAA’, which once formulated is fed into the next steps of the investment process.
The second team is ‘Manager Oversight’, which take the lead to find the optimal way to gain a particular asset class exposure. They perform due diligence on managers who operate within specific asset classes or regions, set mandate parameters, ensure appropriate costings, and once we have taken on a manager, they monitor their performance and adherence to objectives over time to ensure we are best placed to achieve our objectives.
The third part is the Portfolio Management team which I lead. It’s all very well having a great asset allocation, and targeting strong managers, but it’s also vital that the portfolio is invested in line with intentions and accurately to achieve the desired outcomes. My team oversees the implementation and optimisation of the strategy, both in terms of the asset allocation and achieving the target manager exposures, as well as implementing the desired FX hedging exposures. The team also has a keen eye on the performance of the portfolio as well as its sub components. This part performs an important feedback loop function to the other two areas of the team.
Overall, our team is extremely well-resourced with different skillsets and backgrounds ranging from economists, experts in mandate design and due diligence, as well as implementation and hedging expertise. I believe that the size of the funds under management allows us to be well-resourced in all these areas. In my view, this is very important.
IFAM: How you manage risk within the funds?
CG: Management and monitoring of risk are very much part of our DNA. Our Risk and Compliance function operates within a ‘3 lines of defence’ risk management model. Its role and purpose are to challenge risks effectively and proactively and to add value by providing enhanced business insights to support the delivery of customers’ long-term needs.
Within this model, we think about risk from many different perspectives. For example, investment risk is about the impact that market movements can have on your portfolio but it’s also about the risk of failing to meet your performance objectives. We closely monitor credit risk, where your counterparties could potentially default, or fixed income portfolios become overexposed to a single issuer.
Liquidity risk has obviously been in the press a lot recently. Prudential have been monitoring liquidity risk within PruFund portfolios for many years. We must stress test portfolios and report a liquidity coverage ratio (LCR), which is the amount of highly liquid assets held by financial institutions to meet short-term obligations.
Finally, we have a team responsible for monitoring operational risk, which is the risk of failure in your investment processes, in your people or anything from systems malfunction to fraud or fat-finger errors.
These all qualify as operational risk.
IFAM: Looking ahead, what does the future hold for PruFund? How relevant do you see it for advisers and their clients in today’s uncertain market conditions?
CG: We believe that the performance of PruFunds in very challenging markets – particularly those towards the end of 2018 – served as reminder of their relevance to clients who are nervous of uncertain markets.
The PruFunds journey will go on far into the future and the investment strategy employed will continue be true to its core beliefs. We’ll look to expand into new areas, in a risk-managed way and to take advantage of the opportunities that arise in volatile markets to benefit the risk-adjusted returns of the funds. It’s really exciting to be part of this journey along with members of the wider team here.
We can’t predict the future. Past performance isn’t a guide to future performance. The value of any investment can go down as well as up so your client might get back less than they put in.
For more information about PruFund funds visit:
About Charles Griffith, ACII CFA, Head of Multi Asset Portfolio Management
Charles joined M&G T&IO in April 2018 as Senior Portfolio Manager and was promoted to head of the team in July 2019. Prior to joining he spent 2 years at Insight Investment as a Portfolio Manager in the Multi Asset Strategies Group,11 years at Blackrock, where he held various Multi-Asset and Fixed Income Portfolio Management roles and also spent time heading up a credit research team covering both corporate and structured credit. Before Blackrock, Charles was a Credit Analyst at Fitch Ratings and a reinsurance underwriter with Lloyd’s. Charles attended the University of Newcastle-Upon-Type earning a class 2.1 BA Hons degree in Business Management. He is an Associate of the Chartered Insurance Institute and a CFA Charterholder.