Schroders commodity fund fights for survival
A Schroders commodity fund that was once the largest of its kind in Europe has suffered substantial outflows from US investors on the back of the poor performance, raising questions about the fund’s survival.
Large investors, including Ocers, the Californian pension scheme, have pulled money from the UK asset manager’s Schroder Alternative Solutions Commodity fund, which has suffered from the recent commodity market rout.
The outflows have caused its assets to fall from $4.6bn at its peak in 2010, to $803m. The expectation is that further outflows are likely.
The Vermont state retirement fund last month interviewed three investment companies with a view to potentially terminating its $117m investment with Schroders.
The $3.9bn pension scheme placed the fund “on watch” after Robert Howell, manager of the Schroders commodities fund since it was launched in 2005, left the company last year.
Stephen Rauh, chairman of the Vermont pension investment committee, said the scheme would decide whether “to terminate [Schroders] or hire a replacement manager” in January.
Michael Dobson, chief executive of Schroders, said in July: “The very weak performance in commodity markets [is] causing institutional clients, principally from the US, to withdraw from that asset class. I think that will continue for a while.”
The performance of the fund is down 20 per cent in the first 11 months of 2015, and has fallen 47 per cent over the past five years. It has underperformed its benchmark so far this year, as well as on a one-year and five-year basis.
The chief executive of a large hedge fund company, who asked to remain anonymous, said: “The Schroders [alternative solutions] fund was massive. Not having the ability to go short in commodities has caused issues and they have lost a lot of money. The [funds that] will survive will be the specialists.”
Last year Schroders was forced to close its Opus commodities fund, which contained $2.3bn at its peak, after assets fell to hundreds of millions of dollars. David Mooney and Cédric Bellanger, co-portfolio managers of the fund of commodities hedge fund, have since left the company.
A spokesperson for Schroders said it has “no plans to close the [alternative solutions] fund”.
She added: “As with everyone in this sector we have seen outflows due to the downturn in the sector. Pension funds have moved away from commodities. This started two years ago.”
Many industrial and agricultural commodity prices have fallen significantly this year, with sugar prices down 8 per cent, copper prices down more than 20 per cent, gold down 9 per cent and iron ore prices down 30 per cent. The oil price has fallen by half since mid-2014, to around $43 a barrel.
Despite these pressures, other mutual funds in the sector have grown. The Goldman Sachs commodity fund known as GSQ has increased from $740m in 2012 to $1bn today.
Credit Suisse’s commodity allocation fund has also grown from $723m in 2011 to $1.4bn, making it Europe’s largest commodity fund today, according to figures from Morningstar, the data provider.