IFAs warned over Arch Cru type ‘alternatives’
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Architas chief investment officer Caspar Rock has urged advisers to analyse alternative investments within their favoured multi-asset and multi-manager products – saying that IFAs risk missing another Arch Cru if they do not do their homework.
The chief investment officer of Axa Wealth’s multi-manager arm analysed the 477 funds which make up the IMA’s four mixed asset sectors – Flexible Investment and Mixed Investment 0-35 per cent Shares, 20-60 per cent Shares and 40-85 per cent Shares – and found two thirds were collective funds such as multi-manager. Within those two thirds of funds, 19.25 per cent of their assets are classed as “alternative” – relative to 12 per cent total assets across the mixed asset sectors.
Mr Rock said the most prevalent sub-sectors within the alternatives investments in the mixed asset sectors are hedge funds, with 20 per cent of alternative assets, absolute return funds at 17 per cent, property at 14 per cent and private equity at 8 per cent.
“If advisers have a client who says they don’t want commodity investments or private equity, advisers need to know if any of these asset classes are in the fund of funds they are recommending,” he said.
“When I go to see IFAs or multi-manager selection teams they always talk about the weightings towards things like Europe and how that is constructed but they never ask about alternatives. It is the orphan child left at the end.”
The manager added that problems in the investment industry tend to revolve around liquidity and that alternative sectors have been in the spotlight recently for related issues. Property, private equity investments such as those held by Arch Cru and life settlements are the highest-profile examples, he said.
Jonathan Fry, director at Jonathan Fry & Company, said funds of funds had been increasing their exposure to alternative investments because it has been “so difficult” to obtain positive returns from long-only investments. “Portfolios are increasingly including absolute return or risk-controlled strategies which has put greater pressure on advisers to find out what these strategies are.”
“If advisers don’t take a careful look as to what the holdings are they are laying themselves open to potential claims from investors in the future,” he said.
Simon Webster, managing director at Facts & Figures Financial Planners, said advisers should understand the “nuts and bolts” of what a multi-manager fund invests in. “Funds of funds might be appropriate but advisers will have to know what is in the fund and how risk is allocated within the holdings.”