Multi-managerJul 8 2016

RDR still the biggest hurdle of the past 20 years

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RDR still the biggest hurdle of the past 20 years

The biggest regulatory shake up over the past two decades has been the introduction of the Retail Distribution Review in 2012, the co-heads of the F&C multi-manager team have claimed.

The duo of Gary Potter and Robert Burdett, who have worked together in various firms for 20 years, told FTAdviser they have faced many challenges over the past two decades, not least regulation.

Mr Potter said: “The biggest change we face today and looking back is still the retail distribution review (RDR). The regulatory scrutiny it applied to markets, asset managers and indeed financial advisers has been immense and it ultimately has affected clients.

“That monumental change is reshaping the industry. Costs are an ever-increasing burden. So when we think about funds and what we do, we have got to look at funds that can really produce outstanding investment returns, because that is what clients really want.

“If we manage this sensibly, we can certainly more than overcome the hurdle of costs. RDR is the biggest impact I think which has happened over the past 20 years.”

Mr Burdett agreed with this, adding there have been other regulatory changes such as Ucits, which has given fund managers more complicated products but also greater flexibility.

The Ucits regulation first came into force 10 years ago, driven by the European Union’s desire to passport funds across the EU and provide more investment flexibility for managers.

Mr Burdett commented: “On a granular level, things such as Ucits regulations, which may be in balance now (given Brexit), have given hugely increased powers to fund managers over the past few years, allowing managers to go long-short, and introducing more complicated products such as derivatives.

“The ability to use such products within funds has been a valuable tool in portfolios, especially at times like these.”

The pair first worked at Rothschild Asset Management until 2001, when they were recruited by Credit Suisse Asset Management to run the firm’s multi-manager funds.

In 2007, the duo joined to run a multi-manager boutique as part of Thames River, until it was bought by F&C in 2010. F&C has been owned by Canadian asset manager BMO since 2014.

The team now has nine members and they have regular discussions as to weightings in funds and sectors to make sure the portfolios are positioned in the best possible way.

Mr Burdett said: “The latest market shake-up is a little different, based around the uncertainty and the unknown of the future, rather than a specific event, such as the overvaluation of tech shares or the collapse of certain banks.

I am not sure it makes it any easier to deal with but it certainly makes it different.

Mr Potter commented: “Historically there will always be events that disrupt normality and in that sense this is just another issue for us to contend with.”

“As Rob says, we have been through a number of crises before and we will go through more of these in the future. It is how you adapt to those conditions and how you adapt the portfolio to reflect the new normal that is important.

“But it is also important to remember this is about long-term investing and despite the fact we have had a number of crises over the past 20 years, equities are still up 250 per cent and have outperformed bonds, so you have to stay the course.”

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Post-Brexit, the team has been keeping an eye on positions across the range of portfolios but is not making rash decisions, Mr Potter said.

He explained: “Holding fire is not what we have done, but equally we have not been making dramatic changes.

“We own about 100 positions in different funds across our range of portfolios and all of these have been carefully selected from well over 7000 funds in the available universe and we are happy with those funds.

“However when you have something like Brexit you have to reconsider and we do use futures to increase or decrease our weightings at a moment of time and we have done a little bit of this since Friday 24 June but we need to wait for the dust to settle.

“We do have some ideas about certain increases or decreases we would like to make in the portfolio and we are not sitting on our hands. But what we have learned over the years is not to panic, not to over-react because it is dangerous to react too quickly.”

Currency is also a concern post-Brexit but investors in the F&C multi-manager portfolios should not be concerned, Mr Burdett said. He explained: “The currency markets are the deepest, widest markets in the world and they are also the most rigged.

“They are used by central banks to control their economies and this can be dangerous for investors. Very few of the underlying managers we look at would say it is a primary source of their returns.

“Having said that, we are neutral the UK at the moment. The day Boris Johnson entered the fray before the vote, Sterling fell 5 per cent and on those days we were adding to the UK. We were expecting, like many people, a Remain vote, but the positioning was mild so we have been less affected so far by the drop in Sterling.

“We have an international overweight anyway in the portfolios so we are happy where we are at the moment.”

simoney.kyriakou@ft.com