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By Bill Blevins, Financial Correspondent
Around five years ago not many individual investors had heard the term
“multi manager”. Today it is a familiar expression. In fact, multi
manager funds now comprise one of the investment industry’s fastest
growing sectors. Research by the US firm Cerulli Associates claims that
at the end of 2002 the sector held assets of $463 billion worldwide. It
predicts this will rise by $770 billion by the end of 2007 – a growth
of 10% a year.
This is not surprising. Multi manager investments offer an all in one
investment solution that combines diversification, active management
and risk control in a simple tax efficient, cost effective vehicle.
The term “multi manager” describes the process where an investment
adviser allocates appropriate parts (or all) of a portfolio to
carefully selected, well researched specialist managers while taking
responsibility for asset allocation and fund manager monitoring. Multi
manager funds bring together the expertise of various asset managers
within one individual’s portfolio.
Managing risk
In the 1950’s Harry Markowitz proposed what became the foundation of
modern portfolio theory (MPT). The central tenet is simple: with
diversification the same result can be achieved with less risk. Today
it is widely accepted that a portfolio should be diversified among
asset classes and investment styles. A third level of diversification
is becoming increasingly important: diversification across managers.
This is where multi manager provides that essential final element.
In the past, most investors placed all their investments with just one
investment manager. As the importance of diversification become more
understood, they began spreading their investments over two or more
managers. Today, we have come to realise that no matter how talented
they may be, different investment managers adopt different styles of
investing. Some styles perform well in certain market and economic
conditions but won’t perform as well in others. No single investment
management style will deliver superior performance across all phases of
the market cycle.
As the market moves to favour one style over another, investment
returns are affected either positively or negatively. Therefore
investors need to ideally diversify across a range of managers (instead
of just two or three) who use different investment styles. Using a
multi manager approach means that no matter which asset or style is in
favour at any given time, the complimentary blending of managers can
reduce your risk and help provide more consistent returns through all
kinds of market environments.
Fund selection
Besides diversification, the complexity of fund selection has also
helped make multi manager investment popular. Selecting the right mix
of funds to achieve your goals is no easy task. For a start it involves
a lot of research (a vast number of funds are available in the global
market place) and you need to trust yourself (or be very lucky!) to
make the right decisions. The abundance of managers, investment styles
and asset classes makes investment decisions increasingly complex and
harder to make informed, appropriate choices. If you are unsure which
funds to choose, multi manager funds can be the ideal solution. It’s an
excellent way of spreading your investment risk without the confusing
and time consuming task of individual fund and manager selection.
Benefits
More and more investors are beginning to appreciate the benefits of multi manager funds. The benefits include:
In depth diversification
Your investments are spread across a wide range of funds. By
simultaneously owning various funds under one roof, you effectively
have your hands in many pockets at the same time, which reduces risk.
Risk management
The spread of investment talents helps
reduce risk further. Multi management is a risk-aware investment
programme, one that is built for long-term consistency.
Simplicity
Multi manger funds are designed to make the
investor’s life easier. Teams of specialist investment managers are
packaged together in one fund. It would be very difficult to get the
same exposure to such a range of styles and expertise by yourself.
High calibre investment management
You will have access to the world’s leading fund managers on an
actively managed basis. The aim of any good multi manager provider is
to seek out the best investment management talent from around the
world, to monitor them and continually reassess their ability to
produce the best results for investors.
Peace of mind
The multi manager process gives you
confidence to invest long term. It avoids the temptation of speculative
investment and performance chasing, which are high risk strategies.
Consolidated reporting
Another aspect that makes your life simpler. You will receive one
regular report (usually every six months) instead of multiple reports
from different managers and/or companies.
Tax efficiency
In today’s world, where the taxman is after
every penny he can get, having a tax efficient investment vehicle is
obviously attractive. Funds held in a multi-manager investment can be
bought and sold without incurring any capital gains tax (which you
would have to pay if you bought and sold funds individually). You can
also place these investments within a Personal Portfolio Bond, which
acts as a “tax wrapper”, making your investments even more tax
efficient.
Categories
There are two main multi manager categories. Fund of funds, which tend
to invest in retail funds with pre-set objectives and usually with
higher charges than the alternative of a manager of managers approach,
which invest in equities or bonds through individually appointed
investment managers. The manager of manager approach is the most
efficient form for individual investors.
Conclusion
The recent growth in the multi manager sector is testament to the fact
that they offer a viable practical solution, especially in today’s
complex investment climate. They offer diversification and access to
expertise, professional knowledge and analysis.
The multi manager principle offers an easier entry into the world of
equity investing for anyone who thinks it’s time to move on from
savings accounts but is wary about taking on too much risk. However,
this process is also suitable for more experienced investors looking to
improve their portfolio construction and reduce risk without reducing
the potential of returns.
If you would like to invest and consistently enjoy utilising the best
selection and monitoring of investment managers, I strongly recommend
that you discuss the multi manager process with your adviser.
© Bill Blevins
Blevins Franks International Limited
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Finance and Banking 
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