The latest Investment Management Association annual survey made interesting reading over the last few days and a couple of key findings caught my eye. First, the survey identified that investors are demanding more tailored investment solutions to meet their needs. A perfectly reasonable requirement. Second, our industry recognised that trust from our clients needs to be improved.
Imagine my surprise further on in the survey when I read that once again the number of registered funds has increased to a staggering number of almost 2,600. Viewing this with the findings above strikes me as a serious misalignment.
To put this another way, there are too many funds doing a very poor job for investors. Simply by definition, half of this vast number of funds will be in the third or fourth quartile at any one point in time and it does not take too much digging to find a huge number of funds that are serial underperformers. Is it any wonder that clients do not have full trust in our industry when so much of their hard earned money sits in funds that consistently underperform?
It would be easy for the fund management industry to respond by saying investors have a choice and can always take their money elsewhere. But this misses the point. Fund management companies should be actively managing their fund ranges to ensure the funds on offer meet the needs of investors.
At Skandia Investment Group, our chief investment officer James Millard took a conscious decision over two years ago to undertake a root and branch review of our multi-manager fund range. It had become unwieldy and was not offering our investors the type of investment solutions they were demanding and we were not using all of the skill sets we had in the investment team. The easy decision would have been to leave these funds open and let them languish in the hope that performance turns round and they start selling again but that would have been the wrong decision for our investors.
Winding the clock forward, SIG has moved from offering 17 multi-manager funds in 2009 to 10 funds today. More important, our investors have benefited from a more focused range, lower total expense ratios and generally better performance.
Unfortunately, vast swathes of the fund management industry have decided to take a different approach and leave their uncompetitive fund ranges alone. The result is a myriad of funds that have no hope of growing to meaningful scale, overinflated TERs and fund performance that will forever be mediocre at best. This is not specifically a multi-manager issue but is endemic across the whole fund management industry.
If our industry really wants to regain the trust of our clients and start delivering the type of tailored solutions that they are demanding, the starting point is not to launch even more funds. Start by recognising that many of the existing funds on offer are not good enough and recognise it is better to be honest with investors and close funds that are not fit for purpose. Only then will investors start to believe that our industry has their best interests at heart.
Ryan Hughes is senior fund manager at Skandia Investment Group