Albourne CEO to Step Aside | Chief Investment Officer

Ruddick_Simon Simon Ruddick, AlbourneSimon Ruddick, one of the founders of investment consultant Albourne Partners, is to step back from his role as CEO in August, the company has announced.

Ruddick, who launched the company in 1994, is to pass the baton to John Claisse on August 11, but remain on the three-person executive committee alongside him and Guy Ingram for a further five years. He will also continue to serve as the chairman of Albourne’s board of directors, the company confirmed.

Calling Claisse an “extraordinary colleague and very dear friend,” Ruddick said: “John is completing the journey of the intern who had to build his flat-packed desk on his first day of work to managing a firm with a global footprint and very big dreams of how it can help its clients and try to improve the efficacy and efficiency of those markets that it is involved with.”

Albourne was placed third by last year’s Forty Under Forty cohort in a ranking of their top consulting firms. The firm works with clients exclusively on alternative assets: hedge funds, private equity, real assets, and real estate.

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The outgoing CEO created Albourne after trying various areas of the financial sector. In 2012, as part of CIO’s 25 Knowledge Brokers series, Ruddick said he had a dream to “make money alongside—rather than from—clients”.

He first tried investment banking, then launched a hedge fund. But neither was the right fit. “The hedge fund was a good first step,” he told CIO in 2012. “But you have to stick with what you are doing. You are a ‘diversifee’ rather than a ‘diversifier,’ so you get stuck in a box.”

The final attempt was to create Albourne, a pure-play investment advisory that charges a flat fee regardless of client size and does not negotiate supplier discounts. Large clients get “outrageous value,” according to Ruddick, while the smaller ones can access the top-quality funds and research usually reserved for the biggest and richest investors.

The company has grown to serve 262 clients, which hold more than $350 billion in alternative assets, from 12 office locations. The company has also been nominated for several CIO Industry and European Innovation Awards.

US and European regulators are beginning to scrutinize smart beta products, as the sector continues to gain popularity.

The European Securities and Markets Authority (ESMA) has voiced concerns of unintended biases or problems being created within such products, according to Reuters.

“It remains an open question how [smart beta] will behave in different market environments going forward.” —FINRAPatrick Armstrong, senior officer, financial innovation at ESMA, said the regulator had “concerns around the level of transparency and risk disclosures” in products focusing on alternative sources of beta.

“Alternative index strategies may introduce potential factor biases or concentration risk in a portfolio that an investor may not be fully aware of,” he told Reuters.

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In the US, the Financial Industry Regulatory Authority (FINRA) said it intended to review “alternatively-weighted strategies” in its 2015 Regulatory and Examination Priorities Letter, published in January.

“Exchange-traded products tracking these indices may be thinly traded and have wide bid-ask spreads, making these funds more costly to trade, in addition to their generally higher expenses,” FINRA said.

The authority warned that some alternative indices “may have significantly higher turnover” than cap-weighted indices, which could lead to higher transaction costs. These are generally not included in product expense ratios.

“While back-tested results and some academic research have highlighted the potential efficacy and attractiveness of alternatively weighted indices,” FINRA added, “it remains an open question how the indices and products tracking them will behave in different market environments going forward.”

Industry estimates of assets currently held in smart beta strategies vary from $400 billion in exchange-traded funds (Morningstar) to $1 trillion when segregated mandates and other structures are taken into account (Lyxor).

Laurence Wormald, head of buy-side risk research at financial software provider Sungard, told Reuters that “crowding and herding” into some smart beta strategies could erode their main characteristics.

“The illusion of being able to permanently depress the risk on equities through smart-beta or minimum-variance strategies has been very, very appealing, and a lot of money has piled in, but that delusion cannot be kept up because it’s based on a strategy that doesn’t work when the crowd arrives,” he said.