There have been many developments in the multi-manager fund space recently as investment houses adapt their ranges.
In January this year, Schroders announced it was rebranding the Cazenove multi-manager funds following its acquisition of Cazenove last year. It was confirmed that Schroders’ own multi-manager funds will be merged into the Cazenove range in the second quarter of 2014, with four funds to be merged away.
Fidelity’s multi-manager funds also underwent a rebranding as reported in February to become Multi-Asset Open and tweaked the objectives to ensure consistency with their multi-asset products.
Comments made by Robin Stoakley, managing director of UK intermediary at Schroders, at the time of the announcement indicate where the demand for multi-manager is likely to come from, having observed there are a number of multi-managers now operating in the adviser space.
“A number of advisers in the UK are now outsourcing a significant proportion of portfolio management responsibility. It is a growing trend and one I would expect to see continue, with multi-manager as an integral part of it,” he says.
So advisers, it would seem, are considering the multi-manager approach now more than ever. To demonstrate the growth of the sector Gary Potter, co-head of the multi-manager team at F&C Asset Management, explains that retail fund of funds were just 3.3 per cent of the UK funds industry by size in 1996, growing to roughly 11.5-12 per cent today. He forecasts that the sector will grow to 15 per cent of the UK funds industry and even 20 per cent in the next 10 years.
As he points out, the industry has become more sophisticated and competitive over the period. Mr Potter explains: “The use of multi-manager has definitely increased over a number of years and the number of providers has ballooned. Within multi-manager the RDR initiative is a key development which has brought to bear a set of conditions faced by financial advisers in terms of transparency, and picking funds. If they do pick funds they have to justify why it is appropriate and it has brought forward the increased demand for outsourced solutions.”
He highlights that outsourcing solutions have taken the form of discretionary fund managers (DFMs), private client wealth managers, fund of funds and multi-asset products. “But they are all doing the same thing, all trying to provide a diversified, sensible solution based on a set of circumstances or objectives that match the client’s requirements,” he suggests.
“There are clearly many more investment firms and advisers who are turning to outsourcing, and the options at their fingertips are greater. But multi-manager remains a dominant one and will become even more dominant.”
Mr Potter points out that historically advisers chose funds based on performance but that the focus has since shifted to risk and risk-targeted solutions.
Aviva Investors’ head of multi-manager research Ian Aylward agrees that an increasing number of multi-manager offerings are risk-rated. So rather than beating a peer group, he says multi-manager funds will seek to achieve a level of volatility instead. “Again, that sits neatly with the regulatory pressures and the desires of advisers to be able to understand what their clients want, what their risk tolerance is and then have the solution provided by a multi-manager that says it will maintain a risk level of ‘x’ over time,” he adds.
Mr Aylward has also seen the use of more alternative strategies in multi-manager investing in a bid to seek superior levels of outperformance
“A desire to differentiate oneself from the peer group, to look to add extra returns and outperformance compared to competitors does lead one into, on occasion, more sophisticated products – perhaps boutiques, or managers who are less well known or less commonly held.”
Finally, multi-manager products have recently developed to target income as an objective. The latest in a series of evolutionary changes in the industry appears to be demand-led.
“It used to be all growth products,” recalls Mr Potter. “The change in demand from clients means many more products are seeking and striving to produce that income, and multi-managers are responding to that from a multi-asset perspective.”
Investors may take comfort from knowing that advisers and multi-managers are increasingly obliged to meet their investment outcomes and that multi-manager funds could form part of this. Meanwhile, the ability of multi-manager solutions to adapt to both the needs of investors and advisers is likely to result in the continued growth of the market.
