Success in a mixed strategy

RBS Asset Management (RBSAM) is a multi-manager investment company. As part of the Royal Bank of Scotland Group, the company has access to resources and expertise to supplement its own in areas such as risk management and information technology.

RBSAM focuses specifically on generating strong and sustainable performance for institutional investors and takes a fundamental manager-selection approach. The company prides itself on a rigorous method of manager due diligence and portfolio construction, as well as innovation in product structuring and design.

The company is responsible for over $59 billion of assets and is one of the largest funds of hedge fund managers in Europe, with more than $14 billion in alternative investments. Clients include financial institutions, government bodies, pension funds, asset management firms, private banks, family offices and charities.

Michiel Timmerman, chief investment officer at RBSAM, co-founded the alternative investment business with Bob Dawkins in 1998 when the team was located within the RBS-owned private bank, Coutts. After a brief stint at Bradshaw Asset Management, he re-joined the RBS Group in June 2004 when the alternative investment business was transferred from Coutts to RBS global banking and markets division.

"We started the business while we were at Coutts. The group was within the investment business. Orbita Capital Return was the first non-directional product. This was launched as an introduction to hedge funds with relatively low volatility for a client base that wasn't used to buying funds of hedge funds as 10 years ago they were very new," says Timmerman.

"Then in 2000 the global fund was launched, aimed more at performance, higher volatility and a fund able to do anything in any markets," he says. Timmerman calls it a "natural revolution" from a low-volatility product to a higher-return, more adventurous product, as his clients were getting more used to owning hedge funds. Maximum flexibility was also an important factor in the Orbita Global Opportunities Fund.

The Orbita Global Opportunities Strategy is one of RBSAM's flagship funds. The fund posted annualised returns of 8.11% since inception (at end September 2008). Out of the 96 months the fund has been in existence, 70 of these have produced positive returns. The fund invests in a range of different investment strategies, including equity hedged, global macro, high-yield debt, event and certain market-neutral strategies. The allocations to strategies and funds vary over time.

Although the main focus of the fund is on investments in developed countries, up to 25% of the gross assets of the fund are invested in funds focusing on emerging economies. The fund is currently diversified across 39 managers.

RBSAM found a number of strategies that individually delivered a risk/return aim and would deliver that aim. So the fund was split into main baskets: equity long/short and global macro. The third component was to be less market directional, with a low correlation to global macro and to equity strategies. The aim was a set of strategies with low correlation to equity markets.

"The fund was set up for more directional risk. The original 1998 fund was more relative value, convertible arbitrage and merger arbitrage," says Timmerman. "Since the end of last year we have been reducing our long/short equity exposure on the fund. That has been a good decision and in hindsight we should have reduced it more. However, the global macro strategy has worked well as a diversifier, especially the CTA and systematic managers, some of whom are up double digits for the year," he adds.

The aim of the fund is to deliver a 10%-12% annualised return.