Beyond the Barbarians: Fidelity’s Multifaceted Real Assets Push
The lines between private and public investment have slowly blurred in recent years. Traditional asset managers have sought to diversify their offering and increasingly meet client demand for yield and return during moderate market phases.
As discussions about the ‘democratization’ of the private space have grown stronger, Andrew McCaffery (photo), global investment director for asset management at Fidelity International, says a prudent approach remains paramount as the appetite increases.
“How do you get the fair reward for the risks you take?” McCaffery said Citywire selector by video call at the end of December.
“If you’re looking for a return, a lot of the risk, and potentially the reward, will be realized through private credit and what we do is make it accessible and manageable.
‘If you watch a traditional DC [defined contribution] pension plan, they can have a 20, 30 or 40 year window to achieve whatever they want, but we work with different time horizons and we have to be aware of that.
Fidelity International has sought to broaden its own appeal through a series of acquisitions, expansions and developments, primarily over the past year.
She hired an entire credit team from MeDirect Bank in early 2021 to launch a range of lending and private lending strategies, while signing an exclusive deal with digital investment platform Moonfare in March 2021.
So, what accelerated these movements? “What we’ve seen is that clients operate with different time horizons but, to a large extent, most work in the same environment – payback mode, low growth, low rates.
“The extreme global debt burden and sustained negative real rates pose increased risk and uncertainty for long-term asset allocators. The traditional 60/40 model was challenged and as a result, private assets, such as private equity and debt, began to play an important role in investors’ portfolios as they sought to diversify and improve long-term returns.
“A growing and broader profile of investors joins the structural trend to add and increase allocations of private assets within their portfolios, and we expect this to develop further over time. Our additional ambition is to provide comprehensive solutions to clients by offering a more holistic approach to their strategic asset allocation that integrates public and private market exposures across their portfolios. ‘
This does not mean that Fidelity International is starting from scratch. It traditionally offered access to real estate assets through its multi-asset and solutions arm, which could invest in real estate, for example. He continued to develop this through his multi-manager capabilities to support private asset research, McCaffery said.
However, the need for a wider range of investment opportunities attracted them to private credit. The addition of the MeDirect Bank team, which oversees 400 million euros of European Guaranteed Loan Bonds (CLOs), was followed by the launch of the first strategy dedicated to this team in November of the same year, Fidelity Grand Harbor 2021.
Importantly, according to McCaffery, it met the criteria of section 8 of the Sustainable Financial Disclosure Regulation. “We think it was a first for the industry. Our clients of all kinds are faced with the question of how to generate a higher level of income and be rewarded for the risk they take. In many areas of private credit you have access to very good quality exposures and you benefit from improved returns. ‘
Although she has developed internal capacities, the minority stake in Berlin-based Moonfare stands out as a statement of intent. Under the terms of the agreement, Moonfare allows institutional and wholesale clients of Fidelity International to access private market strategies.
“Through Moonfare, we are able to provide access to private market funds globally with a focus on private equity buyouts, US tech funds and real asset classes like infrastructure , and we also combine this with our own offers, such as private credit.
“For example, we have the ability to look at public stocks, pre-IPO stocks and other parts of the private market. We are aware of the need to guide clients through this step at a time.
“Traditionally, this asset class has been reserved for large institutional investors, but with a technology-powered integration process and asset management platform, Moonfare allows clients to enroll and invest. in funds on its platform in as little as 15 minutes and with a low minimum investment as small as € 50,000.
So what next for the company’s ambitions in terms of private assets. A mention of the seminal business book Barbarians at the door – The epic tale of the struggle for control of tobacco and food giant RJR Nabisco over American companies in the 1980s – is indicative of how far the market has come, McCaffery said.
“When you come back to things like Barbarians at the Gate – the war to take over RJR Nabisco – it was a very marginal business back then, in the 1980s, and was also very opaque. Most investors today need, or want, cash flow and that is why a lot of the job now is educating people on what they are getting into.
“I think for the asset management community different companies have approached this differently and this is appreciated because each clientele will be different. Some asset managers have been in this business for a while and as a result their clients know what they are getting.
“The question now for many companies is how much of what we do is going to be expressed and done by public vehicles and how much by private vehicles? And what mix will it be? “