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Subversive idea

My itinerant chairman’s “have gavel will travel” lifestyle last week took me to the easternmost edge of the City and the offices of Henderson to chair the London Multi-Manager Forum. Also on the bill were Cazenove, Gartmore and Skandia, conveniently completing a quartet that represents a sizeable chunk of the retail multi-manager market – as indeed they will do if and when they become a trio.

The event was particularly timely, I thought, coming as it did so soon after the Investment Management Association’s statistics for 2010 confirmed the apparently boundless appetite among UK investors and their advisers’ for funds of funds. In case you missed it, last year saw funds of funds clock up record net retail sales of £6.8bn while, in gross sales terms, £1 in every £8 invested in funds went into the sector. Funds of funds now account for 10 per cent of funds under management, which is another record.

Furthermore, as this column noted last month, it has never been more important for investors to be sure of their precise exposure to different investments – emerging markets being a pertinent example – and thus exactly what their multi-managers are investing in themselves.

As my regular reader will know, bless him, the importance of this idea of “caveat advisor” was neatly illustrated at another event I chaired recently, when the presenter showed a scatter graph of IMA balanced managed sector funds positioned by perfor-mance and volatility over three years. In this time, a handful of funds made positive returns at around the volatility of gilts but many – some in positive territory, some not – had offered the risk of a 100 per cent UK equity strategy, which did seem on the brave side.

More disturbing still, the presenter had sneakily included in his chart three cautious managed funds – all in negative territory and one having dropped 10 per cent over the three years with the volatility of the MSCI emerging markets index. This is, of course, a fairly unusual interpretation of the word “cautious” – and by a manager from whom, I would suggest, you should never accept the offer of a lift home or indeed any holiday that might involve “a bit of exercise – nothing too strenuous”.

As I recounted the scatter graph story last week, it occ-urred to me I should probably have checked whether any of the afternoon’s four presenters featured on it and, if so, where. Still, I was not aware of any nasty looks and certainly not from Cazenove’s multi-manager co-head Robin McDonald, whose own scatter graph had him in the good quarter of the performance/volatility axis and who went on to stress the importance of preservation of capital if an income port-folio is to stand any chance of keeping up with inflation.

Absolute return was the not totally unsurprising focus of Tony Lanning, head of the multi-manager team at Gartmore and one of the managers already signed up should the group’s proposed acquisition by Henderson get the go-ahead, and he had an interesting take on the review of the absolute return sector – base qualification on volatility rather than return. I am sure the idea has already occurred to the IMA but I thought I would pass on the message.

Chris Forgan, a fund mana-ger in the Henderson multi-manager team, concentrated on the importance of active fund management while Skandia chief investment officer James Millard made the case for segregated mandates and flagging up the attractions of using a global benchmark weighted by a nation’s GDP, not its stockmarket.

From all four presentations, I most liked the line that a fundamental part of a multi-manager’s job is to interview managers to identify “evidence of any skill”. Since this subver-sive idea did seem to have been somewhat glossed over in the presentation itself, I felt duty-bound to bring it up again at the end, when I asked what percentage of fund managers interviewed by the multi-mana- ger had been found to display the requisite evidence.

“A bit more than half,” came the answer from the manager, whom you will have noticed I have not named – and now you know why. Anyway, if those really are the odds on offer, perhaps it is little wonder investors are turning to the multi-manager sector.

Julian Marr is editorial director of and


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