FTAdviser.com

Advertising

Peter Fitzgerald, portfolio manager, said Nurs did not permit Insinger de Beaufort to make large allocations to open-ended funds of hedge funds or funds that are not FSA-recognised.

Offshore jurisdictions allowed it a greater range of investments, he said.

"We believe in the preservation of client capital, and the current restrictions in the UK don't necessarily make this easy."

The firm's frustration led to the sale of its three remaining onshore funds of funds in September. The Income, Balanced Growth and Global Equity portfolios collectively managed around £85m.

Arch Financial Products started running the vehicles in September, and Cru Investment Management began handling their UK distribution. Since then, the portfolios have maintained top decile performance.

The £34.3m CF Arch Cru Income fund was second out of 72 in the Cautious Managed sector over three years to 14 July, with returns of 20.9 per cent against an average of 7.4 per cent.

The £23m CF Arch Cru Balanced fund was fifth out of 103 in Balanced Managed over the same period, with gains of 32 per cent compared with 15.1 per cent for the peer group.

The £3m CF Arch Cru Global Growth fund was 15th out of 147 in Global Growth, rising 33 per cent as opposed to an 18.1 per cent sector mean.

Although Nurs does not allow funds to hold more than 20 per cent in open-ended alternatives or direct assets, some fund of funds managers defended the structure.

Andrew Yeadon, head of multi-manager at Schroder Investment Management, said the company's onshore funds of funds had committed to Nurs, as it provided enough flexibility for a retail client base.

"I wouldn't want to have more than 20 per cent in less liquid asset classes through open-ended funds anyway."

And while Nurs put limitations on certain asset classes, he said, it gave him room for a greater range of positions than Ucits III.

"Ucits III does not allow life settlements, funds of loans, open-ended property funds or hedge funds. We had been using investment trusts for alternatives, but we wanted to have flexibility where it made sense to use open-ended wraps.

"If you want to get an asset class, and it's trading at a massive premium, it's nice to be able to go into open-ended funds."

He said the share prices of closed-end vehicles were often more volatile than their NAVs, which sometimes made open-ended equivalents more attractive.