You want esoteric? These guys can build it. One strand of Copia Capital Management’s growth strategy is to work with financial advisers to construct the funds they need for their clients’ specific requirements, no matter how niche they may be.
‘The beauty of what we do is that we make clear that we are not just a discretionary fund manager (DFM), we are an investment solutions firm,’ says Copia head Henry Cobbe. ‘If a client wants a VAR-targeted portfolio that excludes commodities, we can do that for them or we can hedge a portfolio for them. We want to enable the adviser’s vision for their clients.’
The bespoke service sits alongside a comprehensive wider proposition that aims to be competitively priced, with quantitative-driven active asset allocation, but predominantly using exchange-traded funds (ETFs) to reduce costs. The offering currently includes a range of core growth portfolios, as well as volatility managed cash-like funds, decumulation portfolios for those in drawdown and a risk management consultancy service.
Both Cobbe and his colleague Hoshang Daroga, a quantitative manager at the firm, earned their stripes in active fund management. But they have since been convinced by the development of the asset management industry across the Atlantic that long-term asset allocation is key, with the massive growth of the ETF market meaning virtually any strategy can be built for a low cost.
The day of the star stock-picking manager is more or less gone, the pair believe, with a more scientific, rules-based quantitative thesis the optimal strategy.
It was not always so, but both markets and individuals morph and develop over time.
The road to passive
Cobbe joined Schroders at the height of the dotcom boom in 1999, long before ETFs were on most investors’ radars.
He then moved on to be an analyst at Thames River Capital’s highly respected Nevsky fund team.
‘I spent 1999 to 2012 being a stockpicker, analysing company accounts, meeting management, covering telecoms and utilities.
‘It was a fascinating time in the markets, and I learnt a lot in terms of how you look at companies and make recommendations. But it was interesting that during the financial crisis the most important thing was whether you were ‘risk on’ or ‘risk off’.’
He adds: ‘So, I believe in active management when it comes to asset allocation, and I believe in active managers who can deliver stellar track records like Nevsky did, but they are few and far between. When it comes to long-only funds, it’s much harder for a manager to consistently add value and the Spiva [S&P’s research arm] studies show this.’
Cobbe left Nevsky in 2012 to set up his own research firm, which designed mass-market products for asset managers. No doubt, the kernels for a number of Copia’s own portfolio ranges were sewn here, as his clients included Alliance Bernstein, with whom he worked on its Target Date fund range in 2014, and FTSE Russell. He helped devise the index provider’s UK defined contribution (DC) benchmarks, which were designed as an alternative approach to portfolio construction.
‘This experience gave me a substantial insight into DC investment strategies and the development not only of multi-asset investment strategies, but also of different product builds, be it an insured fund, an Oeic or an index,’ he says.
A chance meeting with Bill Vasilieff, the chief executive of Copia parent Novia Financial, at an ETF conference in 2016 led to the pair discussing the possibility of creating more customised portfolios for advisers. This quickly led to Cobbe moving over to the firm.
Daroga was already in situ when he joined, having taken a slightly different career path. Initially a graduate of electronic engineering, he started out working as a computer programmer for a couple of years before realising his real interest was in investment. He took a role at hedge fund firm TransMarket Group in 2008, just ahead of the financial crisis, trading volatility.
He later moved to New York, working at investment bank MLV as a research analyst. While in the Big Apple, Horang says he saw first-hand the increasing move towards quantitative investment management and the greater use of ETFs and it made a huge impression on him.
He decided to return to academia, completing an MBA at Fordham University, which combined finance, maths and computer programming – ‘that’s the key skillset that’s in demand’.
Then, a brief spell at LSV, a large asset manager in Chicago, reinforced his views on where the industry is heading.
‘It had a very lean investment team – everything was done by computer. I could see that you didn’t need a big team of analysts – you could use computer modelling,’ he recalls.
After then gaining a master’s in financial engineering at UCLA, he returned to London, where he joined Copia.
‘I was fully convinced after seeing this revolution in the US that this is where you want to be,’ he says.
Expanding the range
When the pair joined, Copia’s first portfolio range, the capital preservation-focused products, designed to manage volatility, was already in place, having been launched in October 2013. They have now just passed their fifth anniversary.
But Daroga and Cobbe wanted to broaden the company’s proposition to meet the needs of more client types.
The more traditional Select model portfolio range, designed for accumulation, was launched in 2016, with the retirement products introduced in February 2017.
Cobbe and Daroga believe both the breadth of the range, which covers a client’s entire life cycle, and the methodology underpinning the portfolios sets them apart from the more traditionally managed products offered by their peers.
‘Most discretionary fund managers have model portfolios which are typically designed for accumulation, similar to our Select range. Our volatility-managed and retirement income funds are run differently to the way everyone else runs money, with the exception of institutional pension funds, and they are classified not only by their risk profile, but by time horizon as well. In that way, we are different in our philosophy and approach,’ Cobbe says.
He believes this is a big differentiator, saying if the key question in retirement is how to make a portfolio last longer, then factoring in the time horizon is critical, as asset allocation assumptions need to differ over time.
‘The other area of strategic focus is on customised portfolios, where we are helping adviser firms with the risk management of portfolios that they have developed for the needs and characteristics of their clients groups,’ Cobb says.
‘That makes us different, because we work with advisers to help design and implement portfolios for them. That is a rapidly growing part of the business, particularly under Mifid II and the need to focus on the specificities of their client groups because standard accumulation funds are way too similar.’
All of Copia’s portfolios are quant-based and run off what it calls ‘the risk barometer’. Daroga explains that this takes in a massive range of economic data from Bloomberg, including asset prices and macro information from all of the major geographic regions.
‘It was launched in 2013, and as we now have more data, it is evolving, learning and growing,’ Daroga says.
‘We don’t believe any multi-asset manager can read all of the data out there. By using the risk barometer and a quant beneath it, we are able to position our portfolios across the board.’
The process appears to be working. The firm’s Select Balanced fund has returned 13.6% from launch on 31 October 2016 to the end of September, compared to the CPI+2 benchmark’s 9.45% rise. The fund charges 0.3% plus VAT, with the underlying holdings having a TER of 0.23%.
Despite this, inflows have perhaps been slower than hoped, with the company having built up assets under management of £200 million since launch in 2013,
with these split pretty evenly between the accumulation, decumulation and volatility ranges.
Tracking the performance of the actual company is more tricky, as Copia’s revenue, profit and loss figures are not stripped out from those of its parent, Novia.
Cobbe is sanguine, though, accepting there are a number of hurdles for the business to overcome, not least distribution. The models are currently only available on the Novia and Hubwise platforms, as most in the market
do not yet have the technology to support holding ETFs or to enable fractional trading, which Copia needs.
The second is more inertia, with Cobbe saying: ‘As a relatively young investment manager, it’s harder for us to gain traction in the accumulation market, as there are so many DFMs out there. While we stand by our portfolios, it’s just hard to break into that market when so many well-known names are offering me-too products.’
But he believes this will change over time, particularly as charges and value for money come under ever more scrutiny and the firm’s track record continues to build. In the meantime, the firm has the support and backing of a patient and larger parent.
‘We see the asset management value chain is necessarily shifting – advisers are key to good client outcomes. Where we see most pressure is in the use of traditional active funds, which consume a high amount of the value chain, despite questionable performance.’
Copia believes it is firmly on the right side of that change.