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Independent view – Nicholas Conyers

The surge in tickets for the Lotto due for a triple rollover shows that with an attractive prospect in view there is no shortage of available funds.

This can be compared with investor psychology where human nature is always looking for the maximum return for the minimum outlay and, of course, there should be no risk attached to any decision.

Back in the real world, no investor can escape the reality of establishing the correct asset allocation for their portfolio and this is always going to comprise the basics, which is going to be some balance between equity, fixed interest, property and cash.

The volatility that we have seen in recent years has led to an acceleration in turnover of stock in an endeavour to achieve added value for investors. We have seen an increase in product innovation, some of which has a genuine role for investors and others being cynical marketing.

What is for sure is that depolarisation is going to happen and this will prove to be more evolutionary for product design rather than revolutionary, remembering that for some the “new” open architecture style of contract is actually almost 25 years behind Skandia&#39s original offering.

We are entering unchartered territory with the increasing fashion for multi-manager funds where there are arguments for and against the concept. There is not yet a hard and fast conclusion with regard to levels of performance offsetting the impact of double-charging that applies in most cases. Consistency of time in post for the fund management team would be a help in this respect as too many investors have been shuffled among the various teams.

What is becoming more noticeable is the move by multi-managers into some of the smaller fund management groups dealing perhaps in a particular niche area and at the same time some of the bigger names allowing very significant percentages of their fund to be acquired by the same people.

This causes me concern for those advisers who used to undertake the task of asset allocation for their clients who may well want to use the same type of fund and who have perhaps been instrumental in the establishment of the fund in the first place.

The issue is one of future liquidity. Management groups are delighted to take on cash but what happens when the group suddenly falls out of favour and is faced with a hefty redemption request?

I think we can see the future with the recent announcement concerning the Insight Dynamic Fund where the individual investor cannot act with the same speed as a block holding.

Liquidity is not an issue for the large-cap shares but the more specialist a fund manager selection, the more problematic could be the situation when trying to sell out of these shares.

Remember, for example, how difficult it was dealing in small company stocks at the time of the 1987 crash and a more recent example is trying to deal in the better-quality split-capital zeros when the sector was out of favour.

One can also look at the experience of broker funds in the late 1980s and early 1990s and the abuse that occurred there before the chickens finally came home to roost. There were some funds that did particularly well and were run diligently and, at the other extreme, there were those who were block dealing, often at yesterday&#39s or last week&#39s price, if that was seen to be more beneficial for the broker fund adviser. Within the funds, using an individual life companies&#39 internal managed funds, the loser was the genuine long-term investor who was being treated unfairly.

Clearly controls are, or should be, much better today but we are looking at a market where there is likely to be a significant increase of the multi-tie multi-manager/open architecture style of investment and the possibilities for diluting the interests of the long-term investor seem to be an increasing prospect.

This potential dilution is something for those involved with asset allocation to take on board particularly when using the more specialist funds, often the source of added value.

I believe that it is increasingly necessary to discriminate positively against those managers and groups who are on the multi-managers&#39 radar and may be tempted to allow them to build up too large a stake in an individual fund.

Nicholas Conyers is a director of Pearson Jones


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