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Alan Thein and Tim Gardner, fund managers at L&G, said clients get "ripped off" by many multi-managers' 1.5 per cent AMCs. Their own AMCs are 1 per cent, with a performance fee for any outperformance of the sector.

But by putting more money in fewer positions, they said managers could benefit from economies of scale and negotiate better fees with the funds they are investing in.

As of the end of July, for instance, the managers held just 24 funds across their three portfolios. Normally, they would keep 15-25 in the range and weight them in individual vehicles according to their risk.

"There's a lot of overlap between all three," Gardner said.

With a long-term philosophy and a commitment to invest for substantial periods, these discounts can increase, he added.

Thein said his and Gardner's experience at investment consultants Mercer had taught them how to use their investment style to reduce costs.

"We've worked on the institutional side and seen the fees if you play a longer-term game. Every penny we save feeds right through to our performance."

But he said it was vital to select holdings based on their investment quality and proceed to fee negotiations from there, rather than buying into funds simply because they look cheap.

Gardner said large long-term holdings can give returns a noticeable lift.

"We very much have a longer-term focus on investing," he said. "We don't believe in trading in and out. If you have too many managers, you have smaller positions that don't impact on performance."

To incentivise returns while keeping basic costs low, L&G favours performance fees for its multi-manager funds, Gardner said. These come to 20 per cent of outperformance of the sector up to a high-water mark of 1 per cent of assets under management.

L&G can therefore charge the funds' clients no more than 2 per cent of AUM in a single year, excluding the initial charge.

Alongside many other factors, performance fees can keep multi-managers from moving to funds of hedge funds, Gardner added.

According to the Morningstar figures for the three L&G multi-manager funds from 1 May until 1 August this year, none of them is yet on track to collect a performance fee since they launched in late April.

The £2.7m L&G Multi-Manager Balanced trust came closest, with a 7.4 per cent loss against 7.1 per cent for the Balanced Managed peer group.

The £131.3m L&G Income and £235.9m L&G Multi-Manager Growth trusts also lagged the Cautious Managed and Active Managed sectors, respectively.