FTAdviser.com

Advertising

Plotting a course three years into the future, Investment Adviser asked multi-managers whether there was an audacity of hope on the horizon or if investors faced the old "known knowns, known unknowns and unknown unknowns" scenario.

Will the chaotic events of the past few months, which have ransacked investor confidence, raided the banks and taken a hatchet to the equity markets, be a blessing or a barb for multi-managers?

Is confidence on the up as investors aim to shun complex investment products and pass over stock and manager selection to the professionals? And will it become cheaper to invest in these products?

The by-word for the future of multi-manager funds is diversity. John Long, relationship manager at Stenham Client Services, says multi-manager funds that invest across a broad range of asset classes will continue to increase in popularity among UK financial planners and advisers.

“In three years' time, multi-manager investment funds recommended by UK financial planners will include a much higher exposure to hedge funds and alternative asset classes."

Michelle Grade, chief investment officer at Investment Solutions, says manager of manager funds will be more innovative and will use a wider range of investment styles and approaches.

Ms Grade says multi-managers will use asset allocation more actively and products will have varying objectives, “rather than slavishly following regional benchmarks such as the FTSE All-Share”.

However, the industry is more divided over how investors ceding responsibility of complex investment decisions will affect multi-manager take-up.

David Thomas, business development director at Midas Capital, says the multi-manager funds that invest in just one asset class will not benefit, as the adviser is still bearing the responsibility of fund selection.

“However, multi-asset funds will benefit from the outsourcing trend because multi-asset funds combine fund and manager selection with managing the overall strategy of a portfolio on an ongoing basis."

Caspar Rock, deputy chief financial officer at Architas Multi-Manager, says the implications of TCF and RDR will only drive this trend "faster and further”.

The more complex investment strategies become, he adds, "the more investors need to outsource".

The current market calamity will only serve to boost popularity in multi-manager funds further, argues Mr Thomas.

“All the opportunities and risks brought about by the credit crunch can be managed through exposure to multi-asset funds, without putting the onus on the adviser to undertake the tactical changes that will be required in portfolios as markets recover."

Stuart Ratcliff, chief investment officer at Matrix Money Management’s fund of funds business, says tremendous opportunities will open up for hedge funds in the coming years.

“Retail investors simply do not have the capital, time or expertise to construct such a multi-manager fund, and, therefore, the need for fund of hedge fund managers has never been greater."

However, there is conflict over what the cost of these products will be for investors in the future.

Ms Grade says multi-manager funds will become more expensive as the underlying managers that survive the downturn will charge accordingly, while performance fees will become popular.

However, Mr Rock says rising popularity will help managers to “produce more cost-effective solutions”.

Whatever the next few years hold for multi-manager funds, there are certainly a multitude of opportunities and pitfalls ahead for managers, advisers and their customers.