How multi-managers can solve the investment conundrum

Fund of funds experienced record net retail sales figures last year. Gary Potter, co-head of Thames River Multi-Capital, explains why...

Multi-manager products are a phenomenal growth market and have proved themselves to be far from fad or fashion in the last ten years.

Data from the IMA has revealed that as at Q3 2010, fund of funds products had experienced their highest net retail sales figures on record and accounted for nearly 10% of all funds under management, also a record high.

As market volatility and concerns over the health of the international economy persist, the knock-on effect is a surprising lack of consistency from single managed funds in the UK retail space. Looking at fund data over three years to the end of 2010, the persistency of top quartile performing funds is in fact very rare.

Why is that? In simple terms, funds, managers and markets are in constant motion; add unprecedented market and economic conditions and you can see why it is difficult to unearth the holy grail of retail funds – consistent long-term performance and low volatility.

Consistent performance

Consequently, one of the biggest drivers of the increased popularity of multi-manager products is the growing appeal of outsourced investment solutions for both private investors and advisers, be it through traditional multi-manager products or the newer ‘lifestyle’ funds.

As multi-managers have been able to deliver greater consistency of performance, they are increasingly being viewed as an appropriate way in which to invest over the long-term by an ever increasing supporters club.

Most multi-manager products have phenomenal resources and expertise at their core.

The essential investment tools, such as systems and technology, and resources needed in today’s investment market are ever-increasing, not least because of the sheer array of funds now available when taking into consideration UCITS III and the greater monitoring requirements needed to understand these funds.

To give an example, at Thames River we now have an eight-strong team with over 110 years investment experience and, more importantly, over 70 years collectively in manager selection.

The broader view

Quite often, we hear from advisers that while they still enjoy the process of picking funds for investors, they simply do not have the time to execute the necessary research, due diligence and monitoring.

IFAs could almost be likened to general practitioners – and like GPs, IFAs can provide the broader view.

For specialist knowledge, however, this is usually passed from GP to consultant or specialist, with multi-managers playing the part of the experienced consultant when it comes to selecting funds.

IFAs are of course just as capable of such selection. However, to a certain degree it appears they are beginning to realise that outsourcing investment solutions for at least part of their business is now more appropriate as investment is only one part of their increasingly multi-faceted remit covering pensions, mortgages and tax planning amongst other things.