Simon Ellis, head of AXA Multimanager, is pleased with the introduction of Ucits III which has allowed multi-managers to adopt a hybrid approach
The last three years have seen rapid acceleration in multi-manager investing. According to a survey carried out by Cerulli in June, retail multimanager assets under management in Britain have grown from £12bn in 2001 to £27.5bn in June 2004.
As more multimanager funds are launched in the UK, the debate about whether a fund of funds or a manager of managers is best, seems to have taken centre stage - there is little point in having this debate, and that providers should instead focus on building portfolios that deliver the outcomes that clients expect. Providers should use the full range of assets available to them, in the most appropriate vehicle for each asset, rather than be constrained by a philosophical view over funds or mandates.
It is probably fair to say that the fund of funds versus manager of managers debate was inevitable given that these are the two distinct approaches that multi-managers have historically adopted in the UK. In an increasingly competitive retail environment, fund of fund managers have argued that their approach, although traditionally more expensive, delivers better performance. Providers of manager of manager funds argue that their solution is cheaper and offers better transparency when managing against a benchmark.
So which should advisers choose? The most appropriate answer would surely be, why should they have to choose? It has taken a while to convince advisers that they should adopt multi-manager, and yet they continue to be faced with a debate that can only serve to cloud the choices they face when deciding whether to "outsource" fund selection.
The benefits of outsourcing fund selection to a multi-manager provider are clear, but when making a specific recommendation to a client it would surely be far better for the adviser to have a selection of funds that had clear objectives, risk tolerances and consistently delivered the outcomes that they are about to 'promise.'
Clients want to know not only what to expect at the end of the investment period, but also to understand what we might call, "the shape of the journey." What happens if markets shift strongly, and how that will affect the prospects for an investment are more important issues than fund structure.
When insurance and fund companies created with-profits, managed and balanced funds in the 1970s and beyond, the funds were designed to deliver good returns for all long-term clients. As has been shown in recent years though, these funds have struggled to deliver the outcomes that clients were expecting, and the journey has proved too rocky for them to carry on through. This is partly because the typical funds were structured around a fairly standard equity/bond mix, an issue that will be addressed shortly.
It is also fair to say that the managers of these funds have not proven to be experts at managing all assets, a phenomenon known as single manager risk. Multi-managers aim to select the best managers in the market for each different asset class, and to combine them to deliver outperformance. The logic of using multi-manager is so strong that virtually all life offices have adopted a multi-manager solution as a key part of their life and pensions products.
Perhaps the most recent significant development for providers of multi-manager investments is the advent of UCITS III legislation, which allows multi-managers to use a much broader range of asset classes in their portfolios. The old standard 'balanced' mix of equity and bonds created too much volatility - and therefore client stress. The new rules create opportunities to improve diversification, and therefore to improve the prospect of higher returns without necessarily increasing risk.
The new variety also means providers will start designing portfolios around the most typical risk and reward characteristics required by a range of clients. Faced with this opportunity there seems little point continuing to debate whether fund of funds or manager of managers is the best approach, when the real question will be, who will be best at engineering multi-manager products to fit each type of client need.
Achieving the right outcomes for clients is central to the AXA Multimanager philosophy, and so the AXA Multimanager team have embraced new UCITS III legislation. AXA Multimanager has adopted a new hybrid approach, not restricted to just funds or mandates, and is able to blend a broader range of asset classes, which is expected to add more sources of value, and ensure that the funds deliver the outcomes that advisers and clients have agreed upon.
AXA Multimanager recently completed a strategic review of its fund range in the UK following lengthy consultation with advisers and customers. The result is a new range of five funds available to the UK retail market, both on a stand-alone basis, as well as being available through Pep/Isa wrappers and unit-linked products from AXA Life.
These five funds have all been designed to match the needs of clients identified in the research, giving a range of investment solutions with differing levels of risk and reward. The five funds from AXA Multimanager are Cautious Income, Income, Balanced, Dynamic and Growth.
In an industry where asset managers are becoming increasingly detached from the end client, having a range of funds that are designed to achieve specific outcomes, with the 'shape of the journey' made clear, would seem to be the sensible way forward.
Multi-asset funds using multiple managers where the fund manager aims to identify and deliver what advisers and clients expect should be the future model for the industry. The best providers therefore cease to be those that are cheapest or the top dog on a given day in an irrelevant or outdated sector classification, but those who understand what is wanted and are best able to achieve it.
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