The last few years of stockmarket volatility will have been a compelling reinforcement to investme...
The last few years of stockmarket volatility will have been a compelling reinforcement to investment advisors that markets continue to have a potential sting in their tail. Many investors will have had their fingers burned and will take some convincing that equities still offer good potential for long-term growth.
In an effort to give investors a balanced and diversified investment solution – especially in light of the industry's continued disenfranchisement with with-profits funds – multi-manager can offer a key asset in meeting client investment needs. It may be fast becoming the industry buzzword of 2003, but when you consider the potential benefits, it is obvious that multi-manager is here to stay.
Broadly speaking, multi-manager offers access to a range of specialist investment managers and management styles through a single investment fund. There are two approaches, 'Manager of Managers' and 'Fund of Funds'. Manager of Managers has become a popular approach in the institutional market, typically offering a range of asset classes likely to be required by investors such as institutional pension funds.
Each asset class will be represented by a number of sub-funds within an overall multi-manager structure and each sub-fund manager will run a segregated portfolio with investment objectives, guidelines and restrictions set by the multi-manager. Fund managers are chosen because they are believed to be amongst the best in their field and because their individual skills and investment styles will work together to achieve the fund's objectives.
The second approach to multi-manager is Fund of Funds, which differs from Manager of Managers by giving investors access to the entire universe of some 2,700 established pooled investment funds, rather than hiring a roster of specialist managers to run segregated portfolios. Good Fund of Funds research processes is rigorous and the portfolio construction process can be more sophisticated than the underlying funds in which they invest. Fund of Funds are able to blend style factors such as value versus growth, market cap bias, etc., as well as statistical factors such as predictive tracking error, information ratios, alpha, beta, and Sharpe ratios.
AIG Life's Fund of Fund model adds value in a number of key ways whilst remaining both style and capitalisation neutral. Utilising our existing best of breed Active Access fund range, we already know which funds in each sector offer the best opportunities for outperformance. In structuring each of our four Fund of Funds portfolios we identify those managers who can add greatest value over time, whilst still diversifying manager style.
Ensuring the appropriate Asset Allocation, both geographically and by asset type, can also have a significant impact upon performance, so we place considerable emphasis upon getting this right. Our asset allocation model is based on the regular research and analysis of AIG's global asset allocation committee, together with that of six specialist independent investment houses.
The final benefit to investors comes through our charging structure. Not only are we able to negotiate some of the lowest management charges available on the underlying funds, but our performance based multi-manager charge is unique. By benchmarking peers we only charge for delivering above average performance. With top-quartile performance comes a 0.25% charge or 0.10% for 2nd quartile. If the fund underperforms 0.25% will be rebated back into the fund each month for 4th quartile performance. Third quartile performance will qualify for a 0.10% rebate. This gives investors reassurance that they will only pay the construction and management of their Fund of Funds portfolio if it proves to offer extra value.
Not only does multi-manager provide a real opportunity to satisfy an investors demand for an appropriately balanced and diversified investment portfolio, but with AIG Life's Fund of Funds model, IFAs and their clients get access to the resources and expertise of the world's leading AAA rated financial services group.
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