a lack of comparative information is making it hard for advisers to assess the true value of services on offer from private asset managers
Inability to compare services from private asset managers makes it difficult to determine which are truly adding value. This comes at a time when the industry is facing increased competition from multi-manager and fund of funds offerings.
The publication late last month of the digest of Private Asset Managers, many of whom distribute services to intermediaries, solicitor IFAs and legal practices, serves to underline the continuing difficulties of determining which are actually adding value to their clients.
While the performance and charges are transparent on fund of funds offerings and can easily be compared against each other via IMA sector rankings and performance, the same cannot be said of private client asset management.
In the private client industry, every client has different needs and objectives, which can include growth or income mandates as well as a stipulation not to lose money.
It is not an industry in which benchmarking is either expected or in many cases possible, certainly not for comparative purposes in choosing between firms. This makes it difficult to judge the value each is adding other than through the quality of their service.
Costs are also far from commoditised as in the fund of funds business, where investors would expect to see little difference between the costs they incur for choosing, for example, a Hendersons product over a Rothschild fund.
Unlike the funds industry, there is no Standard & Poor's or Forsyth Partners/Old Broad Street to rate groups. The only active comparison done is by specialist consultants such as Larissa Wilson at Ernst & Young Investment Consulting, but the research is only available for a fee to clients such as pension fund trustees.
Despite this apparent lack of clarity, which is to a large extent created by the nature of private client asset management, a great deal more comparative information is now available than 10 years ago. A decade ago private client managers could choose to be regulated by any of a number of bodies including the PIA and Imro.
Today Apcims, the Association of Private Client Investment Managers, offers a free database and search engine on its website at www.apcims.com.
It allows users, intermediaries or private clients themselves, to create a shortlist of firms based on such criteria as location, minimum portfolio sizes, costs, use of collectives and so forth.
Similar information is available from the PAM directory. The directory lists around 140 private client managers from the largest, Gerrards and Goldman Sachs International both with assets under management in excess of £17bn at the start of the year, down to those such as JO Hambro, Lazard Asset Management and Deutsche Bank Private Banking, with assets under management of less than £2bn.
For each firm the directory lists the amount of assets under management, key personnel, charges and fees, asset classes invested in as well as relevant contact numbers.
Like the Apcims website it offers no guide to the abilities, investment process and success or corporate stability which would enable introducers of business to distinguish between groups. Unlike the Apcims site the PAM directory does contain hints as to the strengths of the firms it includes. PAM directory editor in chief, James Anderson said the group is using its website to construct a ranking process of sorts.
Each year a panel of independent consultants, including Wilson of Ernst & Young and Allenbridge's Anthony Yadgaroff judge PAM's awards which are conducted by detailed a questionnaire including issues such as investment performance and process. The nominations and winners form a picture of those achieving success in the industry. Though in its early days, it does, Anderson said, create a picture of those businesses achieving success. Wilson warned, however, that as an assessment tool, the awards and the rate at which a business is growing can be deceptive. She points out the groups that did well in the 2002 awards included GAM. Part of its success was based on its hedge fund capacity, which gives it a powerful tool in seeking absolute returns. That does not necessarily mean that others without such a capacity do not compare favourably or would not provide a service better tailored to an individual client.
Assessing private asset managers for investment process and repeatability of past performance also favoured such awards to certain categories of private managers.
A further point clear from the directory itself is that of the 140 firms listed only 106 responded to the survey, meaning it is not exhaustive.
Anderson said research done by PAM when it launched four years ago showed little shopping around by intermediaries, which in general simply continued existing historical relationships with private asset managers. He said that more than 80% of intermediaries polled did not know of other private asset managers.
The directory also shows which are the fastest growing groups, a guide to those that are trading on a strong reputation. Again though marketing power is not a good guide to which firms offer good value to clients, the list could throw up leads for intermediary groups to follow up.
Unsurprisingly, Man Group was the fastest growing group in the year to the end of 2001, again like GAM a group strong in the hedge funds arena. Others making headway in the £267bn industry were NCL Investments, Royal Bank of Canada, Singer & Freidlander, which has seen exceptional growth in managing assets for sportsmen, and Coutts & Co.
Brian Mairs, head of information at Apcims, said due to the nature of private client work intermediaries were left with no alternative but to create shortlists of managers based on the services they offer and their price and location. After that, old fashioned due diligence must follow.
Mairs said, however, that with the rapid expansion of high net worth and wealthy individuals in the UK, groups were beginning to up their marketing, and the greater the assets at stake the more likely that greater information would become available to intermediary groups.
Performance visibility low
Hedge capacity distinguishes GAM.
Man Group fastest growing.
M&A activity increasing.
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