ARIA Capital Management Review

This article will review ARIA Capital Management.  If you are looking to invest, or have any questions, you can contact me on this page.

Misconception:

Most people have a misconception about ARIA Capital Management, due to the term capital management. Commonly, they are confused as working capital management is often interchanged with capital management.

It can be described more as a Wealth Management and Discretionary Fund Management service provider rather than a capital management service provider. 

To avoid the misconception, let us have a brief look at working capital management as well as wealth management. 

Working Capital Management – The term ‘Capital Management’ or ‘Working Capital Management’ refers to the business strategy that concentrates on balancing the levels of a company’s working capital which is the difference between existing assets and the current liabilities. The primary objective of Capital Management is to maintain the required amount of cash flow while dealing with the occurring expenses simultaneously. Generally, Capital Management is related to short-term financial settlements. 

Working Capital is nothing but the company’s current assets minus its current liabilities. 

Current assets can be anything that can be converted into cash hassle-free. Current assets of a company are considered to be assets that are highly liquid. A few examples of current assets of a company are ‘Cash’, ‘Accounts Receivable’, ‘Inventory’ and ‘Short-term Investments’

On the other hand, Current Liabilities are the expenses of a company that is due and are to be paid within the upcoming 12 months. Basically, these include the operating expenses of a company and the long-term debt payment dues.

The strategy of capital management usually calls for tracking three different ratios. They are ‘the Working Capital Ratio’, ‘the Collection Ratio’ and ‘the Inventory Ratio’. Maintaining these three ratios at a favorable level helps in effective working capital management.

The monitoring of cash flow by maintaining the balance of current assets and current liabilities is done by Ratio Analysis of key aspects, which are operating expenses of a company including the working capital ratio, collection ratio and inventory turnover ratio.

Wealth Management – ‘Wealth Management’ is an investment advisory service that collaborates with other types of financial services in order to meet with the financial goals of the client. 

It is a process that involves professional advice as well as recommendations depending on the information obtained by the client’s advisors or themselves and designs a bespoke (particular) strategy or makes use of a model portfolio.

The main objectives of a wealth manager are providing guidance to the clients in managing the taxes, recommending profitable investment advice, managing the assets of the clients, etc. 

Generally, wealth management services are especially helpful for the people who have multiple businesses, people who don’t have enough time to manage all of their investments, people who have little experience in investments, etc. Wealth managers offer investment advice or manage the assets of such clients so that they can be able to meet up with their financial goals. 

ARIA Capital management:

ARIA – ARIA Capital Management is a business name for the ‘Absolute Return Investment Advisers (ARIA) Ltd’, which grants access to the wealth management manifesto and services related to investment management. It has been authorized and regulated by the ‘FCA (Financial Conduct Authority)’. The firm has the main offices in Guildford in the UK and the international offices in Dubai, Malta and the Cayman Islands.

ARIA Capital Management offers its expertise in the services related to investment management to private individuals, individuals, corporate and institutional clients. 

They are considered to be one of the best firms according to the services they provide as most other firms only offer intermediary services. Intermediary services mean that the firm acts as an agent or a broker and has nothing to do with the management of assets.

The philosophy based on which they operate is “The best way to make money is not to lose it in the first place”, depending on that, they strongly believe in capital preservation. This means they would not invest their client’s assets in any type of stock, sector, country, or asset if the risk factor involved is high.

The primary principles, based on which they operate are Impartiality, Independent Ownership and Progressivity. 

Corporate Governance – ARIA Capital Management operates in such a way, that all their efforts are mainly focused on acquiring profits to the client and the protection of the client despite the jurisdiction of the client.

They provide guidance by not providing their best practice but by also working only with the gold plates service providers, especially concerned about the client’s assets and their protection.

Their office located in Dubai holds the Financial Consultation & Financial Analysis’ license, which is regulated by the ‘Securities and Commodities Authority’ and ‘the de facto wealth management and financial services regulator’ in the UAE.

The European operations of ARIA Capital Management currently contain their asset and fund management platform, precisely the ARIA SICAV (Société d’investissement à Capital Variable), which is a publicly-traded open-end investment fund structure offered in Europe. This ARIA SICAV is authorized and regulated by the Maltese Financial Services Authority.

Their Cayman-based fund platform and manager, ARIA Capital Management (Cayman) Limited, is registered with the Cayman Investment Management Association. This is specially designed to meet with the needs of professional or institutional clients who often require their own investment vehicle.

ARIA Capital Management in their own words:

Absolute Return Strategies – ARIA Capital Management has genuine multi-asset class investing techniques and is known to design intelligent and effective portfolios. Some of the general strategies upon which ARIA Capital Management operates are given below.

  • When compared to an Industry benchmark, an unparalleled bull market (since 1982) has conveyed that received wisdom for a lot of investments was to measure the performance based on the relative terms. However, it is also obvious that the outperformance in the bear market could lead to capital loss.
  • Over the recent years, an increase of volatility in the financial markets has also indicated that a traditional approach to the asset management was not proved to be quite effective while meeting with the challenges of diverse market conditions.
  • ARIA Capital Management tries to find solutions that offer efficient protection of capital along with the possibility of growth by using an absolute benchmark of profits in order to measure success. This is a concept that is very much instinctive to many investors than the relative outperformance.
  • At ARIA Capital Management, the professionals try to recognize historical realities. This does not mean simply following traditional investments and asset allocations.

Buy and Hold strategy debunked – During the time period between 1998 – 2008, the returns from the UK-based equities was only 1.05%. By taking the inflation into the calculation, the real returns were negative. 

Based on the data given by Ibbotson, in the year 2009 on a total return motive, S&P 500 had substantially underperformed long-term Treasury bonds for the previous 5, 10 and 25 years. By taking all the above-mentioned statistics into consideration, how long is actually the long run determined to gain profits?

Most investors expect that stock markets grow at upper single digits each year in the long-term, therefore, most of the asset allocation models highly focus on equity exposure in the long-term portfolios. 

If we take a closer look at the constituents of these expectations, index figures are considered as total returns along with the dividends which averaged around 4.6% per annum during the period of 1871 – 2001.

Inflation has effects that are good for 2 percent over the previously discussed timeframe each year. For example, the returns of the companies of indices Dow, S&P, or FTSE 100 in the year 1950 would have been significantly lower. This indicates that the indices do not just reflect the performance of the existing constituents. The components of indices are changed every now and then by adding companies that have faster growth and removing the companies that underperform. 

Capital Preservation – The primary principle on which ARIA Capital Management describes capital preservation is that “The management of risk is more essential than the management of returns”. 

Cases for Alternative Investments – Increasing the diversity or replicating the US Endowment model from a traditional share or bond portfolio enhances the risk-adjusted returns. In other words, by investing in lowly correlated asset classes possibility of improvement in the quality of returns, this means higher profits for the same volatility. The pioneers for this type of investment approach are the super endowments of Yale and Harvard.

Investment Process – The investment process at ARIA Capital Management is as follows.

  • Portfolio Construction – The funds in which the investments are made are designed in such a way that the portfolio built has a low connection to the traditional stocks and bonds while having the capability of delivering long-term returns.
    The asset allocation process is done by analyzing the historical connections and similarities based on the risks of that particular investment along with the current market conditions.
    The aspects that are very essential and connected with each other while creating a perfect portfolio are Strategic Asset Allocation, Tactical Asset Allocation, Construction of Portfolio, Risk Management & Monitoring the Portfolio.
  • Risk Management – The main priority of the Fund is concentrated on managing the risk involved. In order to do so, the fund engages in a series of concentration, limits to guarantee enough diversification of risk across the existing funds and avoids more than the required amount of concentration in the asset class or strategy.
    The main factors in managing the risk are Expression of View by Instrument, Position Weighting, Setting Price Target, Setting Stop Loss Limits and Correlation of risk (both short-term and long-term).
  • Portfolio Management – In order to ensure the success of a fund to meet with its objectives, allocation of the underlying assets and market exposures within the EFA AR Diversity Strategy Portfolio is continuously reviewed on a regular basis. Experts at ARIA Capital Management strongly believe in the dynamic and active asset allocation.
    The major factors involved in Portfolio Management are Analysis of Scenario, Correlation of Risk, Continuous Active Management, Active Hedging, Currency Overlay, Price Target, Stop Losses and Stress Testing.

Key features for EFA AR Diversity Strategy Portfolio – The main features are as follows:

  • Alternative Investment Strategies are designed in such a way that they are the fundamental components of any diversified investment portfolio either in case of an institutional investor or a private individual.
  • Creating diversified portfolios for investors by investing in various types of assets including Forex, Property, Commodities, Absolute Return Funds, Private Equities and Volatility/Market Neutral Funds.
  • Academic studies and research state that asset allocation is the major determinant of a portfolio’s return. The asset allocation of a fund is dynamically managed in order to attain more profits and avoiding the risks and threats.
  • Not following a replicated approach towards traditional asset classes.
  • Multi-strategy and Multi-asset class equals in performance with the endowment funds of Harvard and Yale that are considered as leaders in diversified multi-asset class investing for more than 20 years.
  • ARIA Capital Management gives access to institutional quality products. Many individuals aren’t able to actively invest in a way that the super endowments do, especially in the asset classes such as Private Equity. With the help of the EFA AR Diversity Strategy Portfolio offered by ARIA Capital Management, exposure to such asset classes is allowed.
  • ARIA Capital Management has a proven and accepted track record in alternative investing.
  • At ARIA Capital Management, continual sourcing and analysis of new asset classes, as well as fund opportunities, is implemented.
  • Identification of suitable asset classes and accessing them in a cost-effective way is another advantageous thing that needs to be taken into consideration. Some examples include ETFs, Investment Trusts, Unit Trusts, or OEICs (Open-Ended Investment Companies) and Individual Securities.

Examples of Absolute Return Strategies – Let us have a look at the Absolute Return Strategies and how they acquire positive returns despite of the market conditions. 

  1. Commodities – Investments made in commodities issue exposure to tangible assets such as Oil, Metals, Agricultural Products that provide broader diversification of the portfolios.
  1. Global Macro Strategy – Investments made by implementing the Global Macro strategy look for profits, despite the direction in the market, changes in the currencies, prices of commodities and volatility of the market.
  1. Managed Futures – Investments made in Managed Futures tries to preserve the capital by attaining profits from the price changes and movements regardless of their direction in the financial markets as well as the commodities futures market.
  1. Real Estate – Investments are made in the Real Estate in order to attain capital appreciation by investing in companies that are involved in the Real Estate industry.
  1. Market Neutral Strategy – Investments made by making use of the Market Neutral Strategy seek positive returns disregarding the equity market conditions while maintaining a low similarity/correlation as well as reducing the risks in the equity markets.
  1. Global High Income – Yield Enhancement and covered call strategies are able to obtain high-income yields in order to provide an attractive overall return while providing protection from the disadvantages in addition to covering the advantageous returns.
  1. Government Bonds – During the times of market pressure, US Treasuries are considered as risk-free assets and they distinctively move forward as they are the most liquid asset class. However, there is a sovereign debt that should also be taken into consideration.
  1. GOLD –There might be significant potential disadvantages such as higher inflation, a drop in the price of the currency, rising risk premiums on the currency assets, etc. Despite all these factors, Gold remains a well-determined safeguarding asset. This can be considered as an Insurance policy for the portfolio of the client.

According to the data given on asset allocation by ARIA Capital Management in 2011, the asset allocation for a portfolio are as follows:

Global Macro Asset: AR Cautious Multi-Asset 27%
Alternative Income Strategies17%
Absolute Return: Market Neutral15%
Precious Metals: ETFs Gold & Gold Miners ETF9%
Alternative Assets: Asset Backend Lending7%
Private Equity5%
Alternative Assets: Macro5%
Japanese Equity5%
Cash5%
Relative Value Commodity3%
Commodities & Inverse ETF3%

The Term Sheet for Fund Specifics at ARIA Capital Management are as follows:

Investment Universe – Broad exposure along with diversification among the asset classes. Asset classes include both traditional and alternative assets, for example, fixed income, commodities, private equity, cash instruments, managed futures, equity, absolute return investments, etc.

Objective – The primary target at ARIA Capital Management is to achieve a 7 – 8% growth in the capital while providing absolute returns on the client’s investments over a full market cycle, regardless of the market conditions.

Major Characteristics – 

Investments are made based on the Absolute Return Investment Philosophy.

Multi-Strategy and Multi-Asset Class along with the alternate investment strategies.

A lower amount of similarity or correlation to the stock markets.

Risk Target – Operate in a way such that the risk target has similar volatility to that of high-quality corporate bonds.

AMC – 1.5%

Benchmark – Base Rate of Bank of England + 2%

Legal Structure – Recognized by the FSA and is a Non-UCITS (Undertakings for Collective Investment in Transferable Securities) Retail Fund.

Domicile – UK

Currency – Sterling

Share Classes – Institutional and Retail Share Classes are made available with various minimum investment amounts as well as annual management fees.

Performance Fee – 20% of the overall returns above the benchmark and subjected to watermark.

Pricing – on a daily basis.

ACD – Way Fund managers Limited.

Overall Review:

Although personal services are offered from ARIA Capital Management, they still suggest working along with the financial advisers. 

ARIA Capital Management uses building block funds (funds that provide one part of a broader portfolio) instead of buying certain distinct equities. They state that by doing so, they are to maintain lower costs for all portfolio sizes i.e., brokerage fees. Anyhow, the costs of the underlying funds may be still significant when compared to the alternatives.

At ARIA Capital Management, the experts recommend, based on their philosophy in Absolute Return Investing, the usage of alternative investment assets such as hedge funds and structured products while creating a portfolio. 

ARIA Capital Management uses its own funds (about which we have discussed earlier in the term sheet for fund specifics) as a part of the Building Blocks strategy, in which some assets are alternative investments assets such as commodities or structured products, whereas some are traditional assets.

Concerning the ARIA’s implementation of alternative investment strategy, they state that they try to find the investments that are not wholly dependent on the stock markets rising in order to generate profits. This means ARIA Capital Management believes that they can be able to analyze and determine the undervalued geographies and asset classes and they can be able to make alternative investments (not linked to the standard assets such as S&P 500 or FTSE 100).

Other risks in alternative investment assets are also not fully mentioned in the company’s description. Anyhow, the safer investment portfolios at ARIA Capital Management contain ETFs, which are known to be cost-efficient and boost up the returns in the long run if managed in a proper way.

ARIA Capital Management asserts to follow Modern Portfolio Theory (MPT), which seeks diversification of asset classes within a fund.

Fees and Charges – Annual Management Fees at ARIA’s Discretionary Fund Management services are 1% annually. However, this is based on the type of service chosen, which means that the fees and charges can actually fluctuate.

Additional charges are levied on the clients, for example, fees charged by the financial advisers when asked for an independent review on their performance.

Fees levied upon the underlying funds within the portfolio (consisting of a portion of fees that are paid to ARIA by that respective fund), which are expected to be around 1.5%.

Every time an investment is purchased or sold, dealing charges are also applicable. These dealing charges are around 1% or £ 50 (whichever is lower).

The overall fees and charges applicable to the clients at ARIA Capital Management can be expected to be around 2.5% to 3.5% annually.

Advantages:

  • Based in the UK
  • Ability to understand and perform well in the international marketplace.

Disadvantages:

  • Small business when compared to many other rivals in this field.
  • History is chequered, meaning they have not been constantly efficient.
  • The active methodology at ARIA Capital Management is questionable.

Overall Verdict – ARIA Capital Management is a famous service provider and grant access to a wide range of international actively managed Discretionary Fund Management solutions, However, there are some others in this field that are proven to be more efficient and involve lower costs.

Bottom Line:

ARIA Capital Management is a good provider for services such as Wealth Management as well as Discretionary Fund management. Many people have been known to gain a lot of profits with the help of services provided by ARIA Capital Management. However, to the downside of it, many people often complain about ARIA, as the firm that often charges a lot of money from the clients on the services they offer.

If you are an individual investor or an institutional client and looking for a wealth management firm that offers absolute returns on your investments, then ARIA Capital Management might be a perfect solution for you.

However, you would have to consider the fees, types of portfolios built by them and other important factors before taking any sort of quick decisions. It is highly recommended to take the help of an efficient financial adviser (like us) and discuss your specific requirements and financial goals, in order to attain more profits.

If you are a person with multiple businesses and have lesser time in involve in such matters or if you an investor with very less amount of knowledge or no knowledge on topics related to Investing, you can make use of the financial services and advice from us by contacting us.

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