Spotlight on...Multi-manager – Standard Life Savings & Investment Ezine

Standard Life's Savings & Investment newsletter for advisers

Issue 2: Dec 2006

Spotlight on...Multi-manager

Past performance is not a guide to the future. The value of investments can fall as well as rise. The views expressed in this article are those of the author and do not necessarily represent the views of Standard Life. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of this content.

The multi-manager market is growing, and is continuously creating new opportunities, for a variety of investors. It is also becoming a talking point among advisers who are debating the benefits and drawbacks of this approach. Multi-manager strategies have potential benefits for all kinds of investors, but these benefits need to be considered against the perceived drawbacks of multi-manager investing.

Investors today are exposed to a proliferation of funds and can rely on the professional resources of multi-managers to guide them through the maze. They are increasingly looking for "best in class" solutions and are able to rely on multi-managers to fulfil all or part of their investment objectives.

Some believe that advisers who use multi-manager solutions are lazy, but this misses the point of comparative advantage. Advisers who decide to invest in multi-manager fluids see the value of specialists, and are more able to add their value through tax planning, relationship building, and spending more time understanding their clients' objectives and financial needs, rather than continually rebalancing the portfolios and assessing new managers.

Even investment planners who have kept up to speed with market developments know the investment universe is expanding and bringing new opportunities and more complexity. This forces advisers into lengthy decision making.

Multi-manager funds are more expensive than single manager funds, and this is a big concern for some advisers. But it should be noted that performance is net of fees, and if a multi-manager fund is capable of outperforming with the additional fees, then the cost should not be a concern for the client.

A multi-manager fund also provides greater tax efficiency when allocating among the underlying investments

Turnover occurs for many reasons in a multi-manager fund - for a client to replicate the switches that a multi-manager does on an annual basis would be more expensive than the additional cost of a multi-manager fund, when considering both tax and front end fees.

Administrative efficiency is also a key concern. To run efficiently, a portfolio should be monitored, reviewed and adjusted on an ongoing basis. The majority of investors, however large or small, may not have the time or the expertise to stay on top of the day-to-day administration of their investment programs.

A successful multi-manager, on the other hand, will place great emphasis on this as a matter of course. Many advisers welcome the ease of monitoring a few multi-manager funds, which is much more manageable than a varied portfolio of funds for each client.

Multi-manager investment could be seen as inflexible. Three years ago this was a larger problem than today, because the diversity of multi-manager funds has been increasing every quarter. There are now multi-manager funds which, for example, pay a monthly income, target absolute returns or invest in alternative asset classes, and this continues to expand as the demand is clearly there.

Many firms have a clear focus on building their multi-manager propositions, and this should continue to improve the strength and depth of the multi-manager arena.

Where once an investor's choice was limited to traditional bonds and equities, today's multi-manager portfolios can include a range of asset classes and investment vehicles such as commodities, structured products, derivative overlays, property and absolute return oriented funds.

As the investment universe becomes more complex and diverse, there is an increasing need to outsource to full time experts in these varied fields.