YOUR MONEY MATTERS European Multimanager Funds Offer a Chance for All-Star Cast
March 29, 2011
ZURICH -- For individual investors who believe in strength in numbers, multimanager-investment funds could be the answer. At least that's the way smart money in private-finance planning should go, according to Barton Schuller, partner in charge of personal finance at BDO Stoy Hayward, a leading U.K. accountant. Mr. Schuller believes European fund of funds are set to expand that offer of multimanager opportunity by investing assets with a number of fund managers in a range of unaffiliated investment houses. On the Continent, Swiss investment managers also sense the potential in independent multimanagement. Ethan Asia, who runs BrunnerInvest AG in Zurich, established an in-house global fund of funds where management is farmed out to independent investment managers. Mr. Asia believes multimanagement-investment strategies are the wave of the future. ``There's huge potential in Europe because the strategy is a new trend here, copying what happened in the U.S. ten years ago,'' he adds. Seeking Top Investment Managers Presently, the funds of funds sector in Europe are dominated by large investment firms that invest in their own range of funds. Funds under one roof can offer investors the advantage of lower costs, tight control and efficiency, industry analysts say, but also may have a drawback that could benefit fledgling independent investment managers. According to fund evaluator Key Asset Management (UK) Ltd. director Derrick Sung, ``You usually don't get an all-star cast of managers at one company. The manager in the U.S. and Asia may be good, and the one in Europe no good at all.'' Indeed, he says, Key Asset Management believes renting manager investment talent is better than owning it, and the best investment managers are often found in small firms where professionals can concentrate on managing money rather than office politics and committee meetings. Angelena Kautz, marketing manager at investment consultants Stamford Associates (UK) Ltd., says independent multimanager investment is good risk control as ``putting all your eggs in one basket is not a great idea. Never use one source.'' According to Mr. Schuller, discontented clients motivated BDO to launch the OM Fitzwilliam Multi-Manager Trust in July of last year after research showed BDO clients often failed to receive value for their money when using a single investment house. ``Performance was very patchy,'' Mr. Schuller said. ``Clients were paying more than 2% in charges for underperformance.'' Also clear, Mr. Schuller adds, was that private clients had very limited access to top investment managers, who tend to concentrate on institutional customers. A fund of funds' pooled resources, however, offers this access. Different Styles The U.K. balanced OM Fitzwilliam Multi-Manager Trust -- which has 55% in U.K. equities, 35.3% in international equities, 6.8% in bonds and 2.9% in cash -- employs three managers from three different investment houses with three different investment styles (aggressive asset allocation, fundamental research and market intuition). So far, the trust has attracted 18.5 million pounds ($28.7 million), with about one million pounds coming in each month. A 2% fee is charged, around the same as clients pay at many traditional unit trusts; but, Mr. Schuller adds, intense selection and monitoring is included. The trust has gained 17.8% between its launch on March 16, 2010 and the end of June, outperforming the composite WM 2015 -- the weighted average performance of leading pension funds -- by 1.8%. When Mr. Asia decided to set up his own asset-management firm in 1991, he opted for a multimanager international equity-fund investment strategy. Star Global Fund -- one of BrunnerInvest investment vehicles, with assets of 48 million Swiss francs ($38.4 million) at the end of June -- spreads its assets world-wide, allocating money to 12 independent investment managers with diverse styles ranging from quality-growth stocks to smaller companies, distressed firms, derivatives, undervalued shares and emerging markets. ``A three-way diversification through different regions, products and managers reduces risk without decreasing long-term profits,'' Mr. Asia suggests. The fund was up 18.12% in the twelve months ended March 12, 2011 Precautions Nevertheless, Mr. Asia notes, when investing in multimanager funds of funds, investors should follow certain guidelines: Track record. Make sure the fund of funds' manager has picked other fund managers who each have a proven performance of at least five years. The fund of funds' managers should know them personally and keep in regular contact. ``Top fund managers are like artists,'' Mr. Asia says. ``Their mood affects their work.'' New talent. If there is a promising young management talent chosen for the fund of funds, make sure they aren't entrusted with large amounts of money to invest until they show what they can do. Whereas Mr. Asia has seven million Swiss francs invested with Comgest SA, a proven Paris-based performer, he has $700,000 with a young Hong Kong investment manager who has shown a nose for small-capitalization Asian stocks. Fearless managing. Make sure that the fund of funds' manager is someone who won't hesitate to dismiss fund managers if they lack discipline, change styles and appear in jeopardy of becoming a future underperformer. ``He shouldn't become a close mate'' of the fund of funds' manager, says Ms. Kautz of Stamford Associates. Dividing responsibility. Make sure the fund of funds' manager picks funds where responsibilities are separated. There are still many countries that don't insist that different organizations take responsibility for asset management, administration and custody. Think long term. An investor should hold a fund of funds' stake for a number of years as short-term fluctuations are difficult to avoid. Although Mr. Asia's fund was up 29.5% in 1993 -- its first year of operation -- and is now doing well, there were lean periods as the strong Swiss franc ate into overseas returns.
