In part one of our multi-asset series, Louise Farrand explores what multi-asset investing really means in 2015
The curse of the multi-asset sector is its disparity. “Multi-asset funds” are a wide-ranging and diverse set of investment strategies. They encompass some well-known fund “brands” including diversified growth funds and risk parity funds.
“It’s fair to say the term ‘multiasset’ is a slippery one, encompassing as it does everything from relatively straightforward long-only funds to more sophisticated strategies using derivatives to hedge against losses,” says Paul Flood, portfolio manager of the Newton Multi-Asset Diversified Return Fund and the Newton Multi-Asset Income fund.
What do they have in common? Such funds provide pension schemes with a single point of entry to a wide range of investments.
“There is a wide variety of approaches to the management of multi-asset funds, but most invest in equities, bonds and alternative assets in varying proportions. The concept is that diversification and active management dampens volatility and smooths out returns over time,” explains John Harrison, director of multi-asset at Henderson Global Investors.
Their broad-brush definition has not halted multi-asset’s seemingly unstoppable quest for world domination. In August 2015 alone, fund managers Aberdeen Asset Management, HSBC Global Asset Management and Baring Asset Management expanded their range of multi-asset funds. Multi-asset managers are in demand; Pictet Asset Management made headlines last autumn when it snapped up a trio of multi-asset specialists from Barings and launched its own multi-asset offering.
Moreover, these funds – and the managers behind them – are gearing up for the future. Andrew Cole is one of the trio who moved from Barings to Pictet last autumn. He says his move was, “in recognition of the pressures that are coming upon the UK pension fund industry and the asset managers in terms of fees. Certainly when one starts to think about DC and the fee cap, one needs to be able to create more of the product in house. Pictet has a passive capability and a wider, deeper, broader-based investment platform available to us than was the case at Barings.
“We think that will provide us with the competitive edge that we need on top of our usual skill base to add value and meet the requirements of clients going forward… We want to build a business that is geared up for the next 15 years, not the last 15.”
Multi-asset was around long before 2008, but it has grown inexorably in the aftermath of the financial crisis.
Whether marketing to small or large pension schemes, defined benefit (DB) or defined contribution (DC), these funds have a compelling story to tell.
Multi-asset funds are a cost-effective way for small to medium schemes to access esoteric asset classes. In fact, they could almost be seen as a discrete governance solution. “Going into a multi-asset fund, you pick one manager and you monitor that one manager, so it’s a lower cost, simpler solution but you get access to a greater number of asset classes without having researched those asset classes yourselves and having not been able to access those on an individual basis,” says Nick Ridgway, head of manager research at Buck Consultants.
They can also work as a diversifier for larger schemes, which could invest in several multi-asset funds to diversify even further.
Additionally, such funds appeal to DC schemes, says Ridgway. “They’ve become default funds for DC schemes wanting equity-like returns with less risk. Or [DC schemes] might offer them on a self-select basis.”