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Multi-manager view – Ian Chimes

Credit Suisse Asset Management’s acquisition of Artemis’ fund of funds business has attracted more press coverage than we ever imagined.

Not only has the transaction itself created a lot of interest but there has also been plenty of debate about whether this heralds the start of a longer-term consolidation of the multi-manager fund of fund industry.

In our view, we expect more of these deals to follow throughout this year and 2006 and CSAM will be at the forefront of groups looking to grow by acquisition.

The rapid growth of the FoF market has been one of the financial services major trends over the last three years. This has been driven by two key factors:

The trend for outsourcing. A few years ago, intermediaries used FoFs for part of their investment product recommendations but intermediaries also in many cases maintained a buy list of funds and did proprietary research. In the markets that have followed the correction of March 2000, more and more intermediary firms have given up individual fund recommendations and want to outsource their clients to a strong and committed partner.

Fund manager turnover. Industry research tells us that two-thirds of all mutual funds have changed their manager over the last three years. Keeping up to date with these fund manager changes is a full-time job and quick decisions need to be made.

It is our view that, with so many new entrants in to the FoFs arena, there is simply not enough new business to go around to keep every business model and every new business projection on track. It is all very well for investment teams to create a good performance track record but it is quite another to attract assets and ensure that intermediaries understand the investment philosophy and the risks involved. It is our view that fund management groups need to have a different servicing and sales model when talking to intermediaries about FoFs than for vanilla unit trusts/Oeics.

For us, our sales team need to get from our intermediary clients the answer to one very simple question about their business strategy: “Do you, as an intermediary firm, make your own fund management decisions or do you outsource?” The answer to this question drives the service model that we then use – mutual funds or FoFs.

This year’s Isa season shows little sign of being a blockbuster. Investors remain becalmed and the rises in stockmarkets have not led to increased new sales. For one fund management group to gain some assets, someone else needs to lose them as, in a flat market, replacement sales are the only route to organic growth.

The alternative is for fund management groups to review their strategies and focus very clearly on their strengths and grow by acquisition, assuming the price is right. Over the next two years, more deals will be announced as the absence of new money drives consolidation. For new entrants, it will get tougher to attract talent and to get the balance between investment performance and asset gathering correct. CSAM aims to be very involved in this consolidation.

Ian Chimes is managing director of Credit Suisee Asset Management

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