Forward Management LLC has just introduced an alternative-strategy mutual fund, and the company's head predicts demand for such funds will help fuel a huge leap in the firm's assets.
"The market is looking for a leader in the alternative space, and I think we've at least earned consideration on that front," said J. Alan Reid, Forward's CEO. "I think in five years, we'll see us beyond $20 billion in size."
The company now has $6.3 billion of assets under management — less than one-third of its target — in mutual funds and separately managed accounts.
But Denise Valentine, a senior analyst at Aite Group LLC, said she does not doubt that Forward can pull if off, provided that its alternative funds perform well. In fact, she said, many observers believe investments in alternative vehicles will grow fast enough for Forward to reach its goal in three years.
"People are looking for what to do, and the results in the traditional markets are not conducive to retirement," said Valentine. "It's almost like you're compelled to try something different for some portion of your portfolio."
On Feb. 9, Forward rolled out its Commodity Long/Short Strategy Fund, which seeks to profit from both up and down movements in commodity prices. Commodities are appealing to many investors because of their low correlation with other major asset classes and because of the rising global demand for commodities like oil, copper and steel.
The company now offers 10 mutual funds employing alternative strategies. The portfolios span the broad market, fixed-income, real estate and frontier markets.
Forward has sought to position itself as a provider of creative approaches suited to an environment of unpredictable returns, higher volatility and greater asset-class correlations.
The company faces a challenge, however, in the unremarkable performance of its overall fund lineup. Through mid-February, its fund family was collectively returning 6.43%. But its three-year performance is negative 6.57%, and its five-year performance is about flat, at negative 0.18%, according to Morningstar Inc.
Reid argued that the performance of the fund family partially reflected adverse factors assumed two years ago when Forward bought several portfolios from Kensington Investment Group Inc. Performance of the legacy Kensington funds has improved, he said, as their managers have worked with Forward's team.
For example, he said, the Forward Strategic Realty fund has improved from a negative 4.82% return over three years to a 33.99% gain in the past 12 months. This long-short fund had no clear process for choosing its short positions before the acquisition, said Reid, but Forward's chief investment officer, Jim O'Donnell, "helped them put in place a process-driven, consistent short position."
Forward owes much of its growth thus far to acquisitions. In addition to Kensington, recent deals include the purchases of Accessor Capital Management LP and the assets of Berkeley Capital Management LLC.
But Reid said that the company is now content to grow organically. "We don't have a real thirst to necessarily acquire firms," he said. "We have a number of products that certainly can grow considerably more."
At the same time, Forward wants to keep diversifying its alternative offerings, according to Reid. It is interested in adding emerging market income and equity dividend strategies, he said.
Forward is also looking to build up its institutional business, which is focused around banks. It has a niche in running dividend-strategy separate accounts for bank trust departments, and it also distributes its products through bank-owned brokerages.
About $1.5 billion of Forward's assets under management derive from banks, according to Clay Smudsky, a managing director at the company. Forward added six bank relationships last year and has more than 80 in all, he added.
Forward is touting its Commodity Long/Short Strategy Fund as just the third pure commodity fund using an unbiased long/short strategy. It aims for profit on price momentum in commodities.
The portfolio uses the Credit Suisse Momentum and Volatility Enhanced Return Strategy Index, which seeks to capitalize on price momentum in major commodity futures. The fund's introduction came a month after Forward started its Tactical Enhanced Fund, a long/short equity fund designed for investors with higher-than-average return targets and risk tolerance.
