A report from Boston-based Cerulli Associates revealed that the percentage increase in global multi-manager products exceeded the 28 per cent expansion in fund-of-funds last year. Cerulli said this endorsed its view that multimanager products “may slowly replace fund of funds in the retail space”.
Net new inflows into multi-manager products were $50bn last year, which contrasted with $9bn witnessed in 2002. While fund of funds saw a further $90bn in new net inflow, some 50 per cent of this was derived from the US.
Adrian Jackson, managing director and deputy head, Institutional Investment Services, at Russell Investment Group in London, said: “Multi-managers try to help investors pick the best managers out there and combine them cleverly.”
“With institutional investors having come to the conclusion that picking managers is not a stroll in the park, they have two choices; it could make sense to go passive and achieve an index-like return. But in this period of lower capital market returns, investors want the alpha - the excess returns - that hiring good specialist active managers can given them.
“By carefully selecting the best specialists and hiring multiple managers you gain the alpha you want, a level of diversification and a much smoother return pattern than having one or two managers. Multi-managers can allow you to have your cake and eat it.”
The US accounted for the majority of multimanager assets - representing over $300bn of multimanager assets and $156bn of fund of funds money. Elsewhere, Japan’s multi-manager assets surged 144 per cent albeit from a smaller base, and in larger UK multi-manager marketplace growth was 64 per cent in 2004.
Globally, assets under management by segments comprising retail and institutional multimanager products and fund of funds stood at $738bn in 2003, and the institutional segment witnessed a 38 per cent growth ($43bn) between 2003 and 2004.
Growth in funds of funds will level off, according to Cerulli, as more assemblers become sufficiently large enough to launch multi-manager products, and regulators exert greater pressure on fund of funds’ fee structures.
RA
