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From Adviser Guide: Multi-Manager

Q: What are the charges like?

Underlying charges and costs will typically be made up of three distinct elements.

By Emma Ann Hughes | Published Jun 06, 2012 | comments

Charges and costs are made up of the overall management fee (AMC), additional costs related to the maintenance of the vehicle (accounting, dealing, etc) and the underlying expenses of the funds held within the portfolio.

In the case of multi-manager funds, Tom Caddick, head of fund management for global multi-manager at Santander Asset Management UK, said the charges and costs should be transparent with a clear methodology for calculating the TER (total expense ratio) to ensure all of the above are captured.

The final cost will be impacted by a combination of factors such as fund size and efficiency, level of negotiated terms with underlying funds and of course the base management charge on the fund.

Underlying vehicles that generate a performance fee can often also be a skewing factor, Mr Caddick warned.

He said: “TER’s will vary greatly across the industry but at Santander for example, the whole of our multi-manager range are below TER’s of 1.95 per cent.”

Gary Collins, head of UK retail sales at Threadneedle, said the total expense ratio (TER) for multi-manager funds is typically 0.5 per cent to 1.5 per cent more than single strategy funds.

Mr Collins said this was because the multi-manager fund also pays management fees to the underlying funds, however these are on a much reduced cost to those paid by retail investors.

He said: “Fettered funds can offer a more cost effective solution, although they do have the drawback that they have a reduced universe of funds available to them for investment.”

However Caspar Rock, chief investment officer of Architas, said multi-manager funds generally do have the same or lower annual management charge (AMC) as single asset class funds.

But Mr Rock said the total expense ratio (TER – the operational, legal and administrative charges associated with the management of the fund) of multi-manager funds is generally more due to the aggregate costs of the underlying funds.

However, Mr Rock said the greater TER was more than recompensed by the monitoring and rebalancing of funds offered, as well as the access to a diverse portfolio of investments that are often only accessible to institutional investors, or those clients who are able to commit large sums of money by buying in large quantities.

He said multi-managers can often acquire funds at significant discounts.

Mr Rock said: “The cost of investing is of paramount importance to us and our implementation process is dedicated to keeping portfolio management costs as low as possible.

“Nevertheless, we do not automatically shy away from investing in underlying funds that charge higher fees or performance fees.”

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