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INSTITUTIONAL PROFILE 14
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fund profile
Permal
develops its
customisation
theme
G
Isaac Souede
iant fund of funds manager Permal the JP Morgan Permal AIS Fund, a daily liquidity
Group has barely paused for breath this product where Permal allocates among 25 synthetic
year. So far, the $20 billion company has trading indices developed by JP Morgan. The aim is
launched five new funds, developed a to capture the return generation of hedge fund strat-
state-of-the-art risk system, and made egies such as momentum and carry. Far from seeing
several high profile hires. such products as a threat, Permal embraces them as
A common theme runs through these new ways to use its skills, according to Omar Kodm-
developments. It is the need to offer in- ani, senior executive officer at Permal, who sits on
creasingly specialised services to clients. the risk committee.
“The fund of funds industry is no longer Meanwhile, Permal’s new risk system, CubeRisk, is
monolithic. It is very much custom-tai- designed to ‘explain’ performance more accurately
lored,” says Isaac Souede, Permal’s New than most risk tools, and so can not only isolate
York-based chairman and chief execu- manager skill more precisely, but allows the team to
tive, who has been a driving force behind the com- construct portfolios (such as the AIS Fund) within
pany for 23 years. very tight parameters.
By Claire Four of the five new Permal funds have innovative And Permal’s high profile hires are also part of the
Makin structures or strategies. The most radical concept is trend towards increasing specialisation. One exam-
Disclaimer: This publication is for information purposes only. It is not investment advice and any mention of a fund is in no way an offer to sell or a solicitation to buy the fund. Any information in this
publication should not be the basis for an investment decision. InvestHedge does not guarantee and takes no responsibility for the accuracy of the information or the statistics contained in this document.
ple is Andrew Rozanov, who joined from State management is run from London, Permal’s pulling their money out, according to Souede.
Street in July to head up Permal’s Sovereign other main centre, by Julian Shaw, who So far this year, Permal says it has seen net
Advisory Business. It was Rozanov that coined joined in 2004 from BarCap, where he was inflows, particularly into its absolute return
the term Sovereign Wealth Fund in a 2005 pa- head of market risk. funds.
per. There are now 15 funds of funds in the Per- As the company evolves, it is determined to
Souede says that it is critical for Permal to mal family. The two biggest, Permal Fixed In- retain what Souede calls ‘the genetic finger-
keep pace with what clients want, and to de- come Holdings and Permal Macro Holdings print’ of a Permal fund. All the company’s
liver it by delving into the company’s toolkit. (formerly Permal FX, Financials & Futures), products follow the same philosophy, apply
“We are using our skill set in a greater variety have returned 8.5% and 8.1% a year over 10 the same beliefs, and are backed by the same
of situations,” he says. years, and both have more than $5 billion in disciplined risk management process, he says.
One reason for the pace of new develop- assets. The third largest is $2.1 billion Permal The Permal ‘fingerprint’ includes investing
ment at Permal is its growing US institutional Investment Holdings, a 78-manager global in deep and liquid markets, a relatively high
client base – long a coveted market for the multi-strategy fund with a directional bias. It reliance on high-conviction managers and ex-
company. This has nothing to do with the has returned 3.4% annualised over 10 years, pression of top-down macro views in portfoli-
purchase of a majority stake in Permal by New os. Permal avoids strategies that are hard to
York-based asset manager Legg Mason in Post-crisis, investors’ understand, especially those that are illiquid.
2005, according to Kodmani. The institutional “In spite of the talk about illiquidity bringing
push has been entirely Permal’s own initia- willingness to listen to new higher returns, in general it has not, particu-
tive, he says. Legg Mason has a history of leav-
ing its subsidiaries to get on with their busi-
asset management ideas larly over the last decade,” Souede says.
Manager skill is critical to Permal’s invest-
nesses although Kodmani acknowledges that created a major opportunity ment philosophy. In its biggest funds, the top
having a prestigious parent has helped raise
Permal’s profile in the US market.
for Permal. Since 2008, the five managers run one third of the money.
They are typically well-known names (for
While many of Permal’s competitors reacted company has ‘deconstructed’ compliance purposes Permal prefers not to
to the financial crisis by behaving like rabbits
caught in the headlights, Permal seems to
its approach with increasingly name any). “No matter how clever you are on
the operational side, the key is still utilising
have been energised by it. “I truly believe specialised and customised talented managers,” Souede says.
there’s never a good crisis unless you take ad-
vantage of it,” Souede says.
offerings Most of Permal’s portfolios include a long
‘tail’ of positions in newer, smaller managers
Souede divides Permal’s approach into pre- that Permal hopes will become the stars of the
and post-crisis. Before 2008, he says that the while the MSCI World was down 1.5%. In future, but who are also subject to relatively
company delivered value-added to its clients 2009, the average performance of Permal high turnover.
via long/short, ‘all-weather’ macro, or direc- funds was 16% plus, compared with a return The search for skill has been enhanced by
tional strategies. of 9.2% for the InvestHedge Composite. Permal’s new risk systems. These can be used
Post-crisis, investors’ willingness to listen to So far this year, markets have severely tested to isolate manager skill from luck, or from the
new asset management ideas created a major the funds’ ability to meet their objectives, various forms of beta that can easily be con-
opportunity for Permal, Souede points out. with a May/June slump followed by a July ral- fused with skill, according to Pierre-Antoine
Since 2008, the company has ‘deconstructed’ ly and a rough August. “That kind of rapid Duvallon, senior quantitative analyst.
its approach with increasingly specialised and one-two test tells you pretty quickly whether Another Permal ‘fingerprint’ is the compa-
customised offerings. your funds are behaving as they should,” ny’s expression of top-down views in all its
To some extent, this has involved a new an- Souede notes. Permal Fixed Income is up 4.1% portfolios. This capability has been hugely en-
gle on manager relationship as Permal ‘cherry net of fees through August. hanced by Permal’s growing managed ac-
picks’ what its managers offer, and creates A drop in assets from peak levels of $36 bil- count platform, which includes engineered
new structures to suit clients’ needs. The com- lion in 2008 to $20 billion (where they were accounts as well as pari passu accounts that
pany has also hired more specialists, particu- in 2005) had more to do with banks withdraw- replicate hedge funds.
larly in operational due diligence, in risk, and ing leverage from the market than clients There are now some 68 managers on the
in legal and compliance to deal with the new platform, nearly one third of Permal’s 193 un-
regulatory environment. derlying managers. What makes the Permal
Overall, Permal has nearly doubled employ- Permal Group: at a glance platform particularly interesting is that, like a
ee numbers since 2005 to 192. It has also few funds of funds like Lighthouse Partners, it
opened its doors in Hong Kong, Tokyo and Du- Headquarters: New York is pure buy-side, compared with the sell-side
bai – adding to existing offices in New York, Other offices in: Boston, London, Paris, managed account platforms set up by the
Boston, London, Paris, Nassau and Singapore. banks.
Nassau, Singapore, Hong Kong, Tokyo and
Souede believes that one of the firm’s key As well as running managed accounts that
strengths is its flexibility. Despite an increas- Dubai mirror hedge funds, Permal increasingly engi-
ingly institutional focus, Permal has its roots AUM: $20 billion neers ‘pure play’ mandates that cherry-pick
in the European high-net-worth market, and from a manager’s skill set. For instance, one
Number of funds of funds: 15
first invested with US-based hedge fund man- credit manager was invited to create a special-
agers in the early 1970s. Number of underlying managers: 193 ised leveraged loan portfolio for Permal’s plat-
This explains Permal’s New York headquar- Managers on managed account plat- form. “As we customise our services to clients
ters and longstanding ties with US managers. form: 68 ($4.6 billion) we are also getting managers to customise
Most of the company’s employees are based in their services to Permal,” Kodmani says.
mid-town Manhattan, including the 41-strong Employees: 192 Long/short managers have been asked for
investment team led by Jim Hodge who joined Number in investment team: 41 more concentrated portfolios and systematic
Permal in 1987 and became CIO in 1997. Risk traders may be asked not to use certain mod-
fund profile
Important Information: Past performance is not a guide to future results. Performance is for Class A shares, reflects the reinvestment of dividends and is net of Fund level fees/expenses but not sales charges which will reduce returns. Performance for each strategy does
not include fees at the Permal Fund level. Performance may be volatile and the NAV will fluctuate. Investors may not receive the full amount invested upon redemption. Indexes listed do not represent benchmarks for the Funds, but allow for comparison of a Fund’s performance
to an index. An investor cannot invest directly in an index. Index performance does not reflect fees and expenses. Hedge funds are speculative and involve Risk. Fund of fund risks include dependence on the performance of underlying managers, Permal’s ability to allocate assets
and expenses at Permal and underlying fund. Risks of underlying hedge funds include, among others, leverage, options, derivatives, distressed securities, futures, and short sales, and investments in illiquid, emerging and developed market securities or specific sectors. Exchange
rate fluctuations may affect returns. Allocations and holdings are subject to change. There is no assurance that the Fund’s objective will be attained. This material is not an offer or a solicitation to subscribe for any Fund, and is not investment advice. Sales of shares are made on the
basis of the offering circular only and cannot be offered in any jurisdiction in which such offer is not authorized. The Fund is not for public sale in the US or to US persons and its sale is restricted in certain other jurisdictions. There are restrictions on transferring shares. Investment in
the Fund may not be suitable for all investors; investors should consider risks and other information in the offering circular and consult their professional advisers regarding suitability, legal, tax and economic consequences of an investment. To UK investors: This was prepared by
Permal Group Inc. (“PGI”) and (i) if issued in the UK by Permal Investment Management Services Limited (“PIMS”), (authorized and regulated by the FSA), it may be transmitted only to persons reasonably believed by PIMS that it is permitted to communicate financial promotions
related to the Fund or otherwise promote the Fund under the Financial Services and Markets Act 2000 (“FSMA 2000”) (Promotions of Collective Investment Schemes)(Exemptions) Order 2001, or (ii) if communicated by PGI into the UK may only be transmitted to persons reason-
ably believed by PGI, that it is permitted to communicate financial promotions pursuant to the FSMA 2000 (Financial Promotion) Order 2005. The Fund is not regulated under the FSMA 2000, and is not available to retail investors. No protection is provided by the UK regulatory
system and the benefits available under the UK Financial Services Compensation Scheme do not apply. To Singapore investors: This material is distributed in Singapore by Permal (Singapore) Pte. Limited, which is regulated by the MAS. To Dubai investors: This material has
been distributed by PIMS’ DIFC Branch which is regulated by the DFSA. This information is only intended for Professional Clients as defined in the DFSA Rulebook; if you do not meet this definition you must not act upon this information. To Hong Kong investors: Permal (Hong
Kong) Limited is licensed by the SFC for dealing in, and advising on, securities.