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Thursday, 25th April 2024 |
| How to access a multitude of managers through one fund |
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| Multi-manager funds are growing in popularity amongst institutional investors, as they allow easy access to a diverse range of specialist fund managers under a single fund structure. Now retail investors can also access such funds, through the AIB Multi-manager Managed Fund. James Leen outlines the features and benefits of the fund. |
Any investor seeking to build a portfolio encompassing equity, bond and property investments knows that there is an ever-increasing range of options and providers. However, greater choice means greater complexity, as more time and resources are required to grapple with the issues that arise. Choosing suitable funds is only the beginning of a process, and once a commitment is made, the investor must ensure that the investments continue to perform relative to peers.
Recognising these difficulties investment management companies such as AIB Investment Managers (AIBIM) have begun to offer multi-manager strategies to clients. Such strategies bring together the expertise of a diverse range of specialist fund managers under a single fund structure. This allows investors to achieve a level of diversification and specialisation that may otherwise be difficult to attain. It also removes from investors the burden of selecting and monitoring a group of fund managers.
There are two main types of multi-manager funds: ‘fund of funds’ and ‘manager of manager’ funds. With a fund of funds approach the portfolio is created using other investment company funds as the building blocks. Generally speaking, this approach offers a greater degree of flexibility and liquidity to move quickly between investment managers. With the manager of managers approach, a firm appoints underlying managers directly. This approach generally gives a greater level of control over the firms appointed as they are hired specifically to manage assets for a particular region. An investment management contract is drawn up and conditions are laid down as to how the assets are managed. However, with this approach, it can be costly and time consuming to change from manager to manager.
AIBIM’s preference is for the fund of funds approach, as it allows us to move quickly, at a relatively low cost, in and out of funds as circumstances dictate.
AIBIM has over six years of experience in managing multi-manager investments. We have recently opened the strategy to the public as the Multimanager–Managed Fund. In common with other managed funds, the Multimanager–Managed Fund invests in a portfolio of global equities, bonds, property and cash. What distinguishes the Multimanager – Managed Fund from our in-house funds is that external expertise is employed to handle investments. In this respect, the fund gives investors access to ‘best in class’ investment managers from across the globe. Ensuring a truly a third party offering, the fund’s allocation to each asset class and geographic region is fixed at the average allocation maintained by Irish pension managers.
The investment objective of the Multimanager Managed Fund is to achieve risk controlled, capital appreciation through investing in this diverse portfolio of unit funds. The fund is now open to all Irish resident investors and operates as an authorised unit trust. Since its inception in December 2003, the fund has grown to over €170 million.
AIB Investment Managers’ role as investment advisor is to source funds managed by these ‘best-in-class’ investment managers. AIBIM is also responsible for the ongoing monitoring of funds and where necessary, replacing those that do not meet requirements.
A disciplined research and monitoring process underpins the fund’s success. AIBIM begins by analysing over 12,000 funds, which our proprietary screening systems then withers down to a more manageable group. To be considered, a fund must be outperforming its respective benchmark (eg. FTSE 100, S&P 500) net of fees and rank in the top half of a peer universe over a three-year period. We understand that good performance is the culmination of a diverse range of factors, and it is in analysing these underlying factors that AIBIM believes it can add value through making a determination as to whether strong performance will continue into the future.
Key to our analysis is whether a fund manager has a clear investment philosophy that is consistently applied. We also undertake a detailed investigation of the resources devoted to a fund’s management as well as the tenure and experience of the investment team. We are extremely sensitive to any changes in team members and any departure of key personnel will immediately lead to a fund’s termination.
AIBIM employs a comprehensive range of tools to analyse funds right down to the individual stock holdings. These tools provide a detailed understanding of how a fund is constructed and the degree of risk being taken. More importantly, this analysis provides a foundation upon which we can discuss the fund with its managers during the selection process.
Before investing, we always engage with the senior team members and this dialogue continues throughout the relationship.
Aside from reviewing the actual fund, we also carefully vet each investment company under consideration. The investment house chosen must be of significant stature, have a demonstrated commitment to the fund and most importantly, be regulated by a recognised body, such as the U.S. Securities Exchange Commission, the U.K. Financial Services Authority or the Irish Financial Regulator. These characteristics are easily recognisable amongst the companies that are currently held in the Multimanager-Managed Fund: Schroder Investment Management Limited, Invesco Asset Management Limited, Legg Mason Investments, Lazard Asset Management, HSBC Asset Management Limited, Merrill Lynch Investment Managers and New Star Asset Management.
The final fund selection decision lies with AIBIM’s Multimanager Committee. This Committee is comprised of seasoned professionals from various investment disciplines. Committee members are actively involved in the research process and thoroughly review all information before arriving at a decision. Decisions are not made in isolation and any fund selected must complement other funds within the portfolio.
All funds within the Multimanager – Managed Fund are monitored on a day-to-day basis. Numerous information sources assist in this, not least our personal contacts in the investment management company. This ongoing monitoring allows us to react quickly to changing performance trends: if appropriate we can change our allocation to individual managers to maximise performance potential.
Besides the Multimanager – Managed Fund’s strong track record, we believe that the fund’s popularity can be attributed to its transparent nature. AIBIM provides a comprehensive breakdown of the underlying third party fund charges. Wherever AIBIM secures fee rebates from management companies, they are fully re-invested in the Fund to the benefit of the investor; AIBIM does not share in these rebates. The overall management fee charged in the Fund is very competitive, and we believe it to be significantly lower than that offered by our peers in the fund-of-funds arena.
As an authorised unit fund, investors are not subject to Irish tax until they realise their holding. At that stage gains are taxed at the standard rate of income tax plus three per cent (currently 23 per cent). More importantly, any gains the fund makes from its sales of underlying funds are re-invested gross, as the fund does not incur any tax liability. Unlike an individual investor, the Multimanager–Managed Fund does not pay any initial or exit charges when investing. Finally, given the fund’s structure, it can invest across a diverse range of third party funds, many of which cannot be accessed by individual Irish investors.
Since opening the fund we have seen a strong public interest. Most recently, AIB Private Banking included the fund within its Select Investment Portfolio.
The Select Investment Portfolio is a specialist fund range, where investors have tax efficient access to the Multimanager–Managed Fund as well as a range of other investment opportunities, including a yield focus and a fixed interest strategy. |
James Leen is a manager with the Multimanager Third Party Strategy Group of AIB Investment Managers.
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| Article appeared in the February 2006 issue.
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