In the UK alone, there are over 2,000 registered funds to choose from. The market is in a constant state of flux, with new funds being launched and funds merging or closing to new business. Furthermore, Fund Managers change funds and are notorious for moving around the Investment Houses either because they are Head Hunted or because they are sacked. As such, keeping track on who is managing a fund can be problematic. Fund managers need to be selected and monitored to ensure they remain at the top of their game – and replaced when they do not.
Multi-manager funds offer investors access to a wide range of fund managers, together with dedicated experts to select and monitor them on behalf of the investor. They give access to multiple funds through a single fund; as a result multi manager funds can increase the potential for diversification and hence reduce the overall risk. Multi managers have expert knowledge of fund managers and they select the appropriate funds in each asset class and region with the aim of further reducing risk. The multi-manager will keep track of all fund changes and adjust the asset allocation of the fund accordingly.
There are two distinct categories of multi-manager: “fund of funds” and “manager of managers”. A “fund of funds” blends a choice of funds and may be either “fettered”, which means they only invest in funds from the same Fund Group, or “unfettered”. Unfettered funds have wider investment powers and can invest in funds provided by other groups. The “fund of funds” manager cannot specify investment decisions made by the underlying funds. A “manager of managers” will appoint the underlying fund managers who buy assets directly. A “segregated mandate”, which is an instruction setting out the parameters in which the money is to be invested, is issued to each of the appointed managers. These mandates cover issues such as the amount of risk to be taken or on the general investment style. If a fund manager is not performing satisfactorily against their mandate, they can be replaced.