Fitch Ratings has downgraded Convictions Premium's Fund Quality Rating to 'Satisfactory' from 'Strong'. Convictions Premium is a French-domiciled fund managed by Convictions AM.
The rating downgrade is driven by the fund's underperformance and the changes brought to the investment process which will have to demonstrate their success in the medium term, without the presence of the departing Chief Investment Officer (CIO).
Over three years to 25th September 2013, the fund delivered a fourth quartile, negative 1.2% annualised performance, lagging behind its peers in the Lipper category by 2.3%. Volatility has been consistent with its target. It resulted in the three and five-year Lipper scores dropping to 1 and 2 respectively as at September 2013. The underperformance reflects, in Fitch's view, the difficulties the fund experienced in executing its primarily fundamental, top-down-driven investment strategy in markets mostly driven by technical movements.
On the 23rd of September, Convictions announced the departure of Alexandre Hezez, its CIO and lead Portfolio Manager. Philippe Delienne, founder and CEO, took over the management of the fund, bringing changes to the investment process. These changes consist in re-focusing the investment approach on asset allocation, executing the strategy through funds and ETF, moving away from direct bottom-up stock/bond selection. The proprietary hedging strategy is also being refined to limit drawdowns in a more efficient manner.
As stated in previous reports, Fitch considers that the organisation has sufficient depth of investment staff to mitigate reliance on the CIO, who nevertheless had a pivotal role in the implementation of the strategy. Fitch views positively the changes brought to the process, whose effect on asset allocation and downside management will be assessed in the longer term. Convictions' segregated mandates implementing the same strategy mainly through funds have outperformed Convictions Premium by over 5% over three years.
The 'Satisfactory' rating is based on the fund's solid investment resources which support a disciplined, research-driven investment process. Convictions Premium is a flexible absolute-return global macro fund with EUR405m of assets as of 20 September 2013. Founded in 2008 and majority owned by its CEO, Convictions AM is a French boutique fund with EUR432m assets under management as at 20 September 2013.