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Defaqto urges advisers to check seed capital in smaller funds

Defaqto has advised IFAs who invest in smaller multi-manager funds to check how much of the funds under management is new money and how much is seed capital.

In the 12th issue of its multi-manager guide Blending Talents, Defaqto points to last month’s closure of the Ignis Maia joint venture as an example of what can happen if the amount of seed capital exceeds new money in a fund.

It says the demise of the Ignis Maia vanture was down to a failure to attract new funds under management. Only £10m of the £104m combined assets under management of the three Maia funds was new money, while the rest was internal seed capital which Ignis provided at launch.

Defaqto says many advisers have a minimum size in mind when recommending a multi-manager fund, usually between £10m and £25m. It says that 25 per cent of the funds it features in Blending Talents are valued at under £10m, with a further 20 per cent valued at under £25m. Many of these funds are relatively new and Defaqto believes advisers should be asking how much of their assets is seed capital.

Blending Talents, principal consultant, investments, Fraser Donaldson says in the guide: “If the fund has been around for a while and there is very little new money coming in, its longevity has to be called into question. What happened to the Maia funds was perhaps one of the cleaner outcomes, with the funds simply being moved to the stable of the other partner, Ignis.”

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