Outflows from Aberdeen Standard Investments’ Global Absolute Return Strategies (Gars) have continued through 2017, with another pension fund taking money out of the now £21.2 billion fund.
The Kingston Council pension fund committee has decided to reduce its Standard Life Gars holding by £35 million, opting to invest in the Baillie Gifford and Ruffer diversified growth funds through the London Collective Investment Vehicle (CIV) instead.
The disinvestment by Kingston follows Bromley Council taking out £28.5 million and Surrey pension scheme divesting £170.6 million in previous years, and the move raises questions over the direction of flows.
A December broker note from UBS highlights the extent of outflows the strategy has seen. Over the first nine months of 2017, Gars’ outflows were £8.1 billion, with £5.6 billion of that in the first half. This is higher than the £6 billion predicted at the beginning of last year by the bank.
A spokesperson for Aberdeen Standard Investments said: ‘There have been outflows from the UK Gars fund during 2017. While there will always be redemptions in any fund, particularly as a fund matures and meets clients investment objectives, we continue to see significant investor interest in our multi-asset investing offering and have a strong pipeline of new global business.’
Although UBS said that retail outflows have shown signs of stability, it highlighted a higher risk of institutional outflows due to deteriorating performance.
An earlier broker note stated: ‘Our work indicates Gars outflows are structural, driven by low bond yields and fund size constraining scope for returns outperformance.’
Over one year, the fund has returned 4.1% against a sector average of 4.3%. It is worth pointing out that it targets a level of return over rolling three-year period equivalent to cash plus 5% per annum.
Citywire head of investment research Frank Talbot commented: ‘Gars has been an easy target to mock. Its fall from grace from the middle of 2015 to the middle of 2016 was unexpected and resulted in the fund falling by 6.7% over a 13 month period. However, since then the ship has been righted and it has returned to the steady performance profile that brought it so much success. It is even ahead of its primary competitors at Invesco Perpetual and Aviva, who are both in the middle of a difficult patch.
‘However, with equity markets having back to back double-digit years of growth, and with the fear of missing out, plus the scars of 2015 fresh in the memory, it is easy to see why the outflows have continued.’
An Aberdeen Standard Investments spokesperson added: ‘The performance of Gars has been materially improved since the middle of 2016. For the calendar year 2017 the UK Gars pension fund delivered a gross return of 3.9% together with very low levels of volatility/risk.
‘Gars is very widely used by pension funds of all kinds throughout the UK but is not at this time part of the London CIV. That said, the overall allocation to funds like Gars from LGPS tends to be relatively low compared to other pension funds, so in a global context we do not expect the impact to be material.’