Multi-Manager – Much more than Manager of Manager

19 April 2016

Mike Turner, Research Manager

The term ‘Multi-Manager’ is often used to refer to funds where the fund manager has outsourced investment mandates to external managers (Manager of Manager) however ‘Multi-Manager’ is much more than ‘Manager of Manager’. In this stats article we’ll identify the different subcategories of ‘Multi-Manager’, explore how the Multi-Manager market is segmented and examine cost.

Manager of Managers

Manager of managers (MoM) – the fund manager outsources segregated investment mandates to external managers specialising in those mandates. The multi-manager can then, for example, choose their own benchmark for the underlying manager and/or set a specific outperformance target if they wish.

Manager of managers represent a relatively small segment of the Multi-Manager market, accounting for just 14% of the Multi-Manager market. When compared to the entire Authorised Investment Funds (AIF) universe, MoM represents just 1%.

Fund of Funds

An alternative approach to MoM is Fund of Funds (FoF), like MoM, the Fund Manager is still outsourcing specialisms to other fund managers, however instead of outsourcing segregated mandates to external fund managers, the Multi-Manager buys units in other funds and therefore there isn’t a need to be contractually bound as would be the case with MoM. 

The common thought is FoF offers more flexibility for the Multi-Manager, for example, if an underlying fund isn’t performing, the Multi-Manager can exit the fund. The reality is that MoM can also change underlying managers relatively easily however the new manager inherits prior performance history. 

FoF is broken down into two sub categories, ‘Unfettered’ and ‘Fettered’, the difference being that Unfettered invests in funds of external fund providers, whereas Fettered invests in funds belonging to the same fund provider. Unfettered is the more common of the two representing 74% of the Multi-Manager market. Fettered represents 12% of the Multi-Manager market. 

Charges

It’s argued that one of the benefits of a Fettered approach when compared with Unfettered is that charges should be lower as the underlying funds are internal. 

The table below shows the average OCFs across each Multi-Manager approach: 

Approach

Average OCF %

Unfettered FoF

1.55

MoM

1.15

Fettered FoF

1.08

We can see from the above figures that the fettered approach has the lowest average OCF followed closely by MoM. 

 

The below table shows the average cumulative performance net of charges:

Approach

1yr

3yr

5yr

Unfettered FoF

-3.12

3.63

4.05

MoM

-3.27

5.07

6.00

Fettered FoF

-2.01

4.82

5.29

The below table shows the average volatility:

Approach

1yr

3yr

5yr

Unfettered FoF

7.03

6.27

7.07

MoM

11.75

10.38

11.51

Fettered FoF

7.85

6.81

8.06

To conclude, there is more flexibility offered by an Unfettered approach but this comes at a cost when compared to other Multi-Manager subcategories. Furthermore the Unfettered approach hasn’t performed as well as the other subcategories over the last five years. The MoM approach has been the best performing Multi-Manager subcategory over the last five years, however only delivering marginally better performance than Fettered FoF but experiencing significantly higher volatility than Fettered and Unfettered FoF. Out of the three Multi-Manager subcategories, we’ve seen that Fettered FoF has experienced the least volatility and currently incurs the lowest average OCFs.

 

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