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Multi-manager funds have undergone a fierce propaganda battle in recent years. On one side, proponents of the multi-manager principle claim these funds can offer superior performance with a reduced level of risk. On the other, critics argue the nature of multi-manager means performance is necessarily diluted and these funds offer poor value for money.

While manager of manager funds are more expensive for investment houses to set up, funds of funds are easy to establish and maintain. Many tap into the research processes and quantitative analysis already used by the firm and then simply hire a shrewd manager to create a balanced portfolio of underlying funds.

For both manager of managers and funds of funds, once established, it is relatively easy to reposition the portfolio to make the most of changing market conditions. They certainly offer a nimbler and more flexible solution to portfolio construction than a single investor having to create a portfolio of single-manager funds, for whom buying and selling funds has real cost implications.

For advisers too, multi-manager products provide a way to outsource the fund selection process, reducing the regulatory burden and passing on their clients’ expectations for performance to a third party. For many, the prospect of keeping on top of the burgeoning number of retail funds is too daunting, and they would rather pass the task on to a manager who is dedicated to doing just that.

While the number of multi-manager funds has increased dramatically over the past two or three years - particularly in the IMA Cautious and Balanced Managed sectors - this picture could change as market conditions continue to get tougher. While it has been relatively easy to generate steady returns up to now, we can expect to see funds struggle and some closures over the upcoming months.