At launch in October 2012, BACIT, as the fund portfolio was then named, had an investment mandate to deliver attractive risk-adjusted returns by investing with fund managers on a gross return basis. Over time this investment target evolved into an ambition to capture at least 70% of the upswing in the FTSE All Share Index, and limit downdraughts to 40% of any market fall, over the cycle.
Our fund portfolio today consists of funds investing in various asset classes including, but not limited to, listed and private equity and debt, and listed commodities and fixed income. Asset class diversification mitigates risk little in a real-time world, so we seek to protect returns by identifying a group of managers with track records of doing so.
We approach risk as a matrix, and select managers on a combination of factors including their ability to capture value, to capture sentiment, to side-step elephant traps, and to develop and build listed and unlisted businesses. If there is any single trait we look for in a manager, it is the ability to build a book of idiosyncratic trades, which are uncorrelated to each other, and to wider market sentiment.
We assess the risk the portfolio is taking on an aggregate net and gross basis, and adjust it through manager allocations. We do not like too much leverage. The majority of the fund investments are hedged (59% at December 2016) meaning that the manager may invest short as well as long, and may invest in non-linear instruments: when rewarded, these have an asymmetric pay-out.
Following the marger with Syncona LLP in December 2016, the fund portfolio is available to meet the capital needs of the Life Sciences business when the right investment opportunities arise and we now invest in funds on both a net and gross basis. Over time, the fund portfolio will absorb both capital outflows and inflows, and is structured to accommodate this evolved role.