Market News: Multi-Managers: Times Are Changing

Selwyn Pillay, head of multi-management at Sanlam Investments, takes a look back at the journey of the multi-manager over the past  decades – and a look forward at what is next for this specialist discipline of investment management…

Before the 1980s:

• The world was characterised by investment managers who discretionally selected stocks and securities from their own research.  Performance measurement was pretty ad hoc and investors measured results on simple growth statistics.
• We called this the “Wild Wild West” environment where investment management was in the domain of a relatively few individuals.

During the 1980s:

• The concept of index investing grew in popularity, with large global passive investment providers promoting the concept.
• The case for passive investing related to the measurement of the average investment managers’ returns and argued that, after fees, the average manager underperformed the market capitalisation indices.
• The passive solution provided investors an opportunity to achieve superior returns to the average manager at a cost that was much lower than the typical fees already been charged.
• This active versus passive management debate rages on to this day with each camp having equally valid arguments.

Then in the 1990s:

• The theme that dominated was the multi-manager proposition.
• The multi-manager proposed that, while the active manager may at times be an inferior selection as compared with the passive alternative, exceptionally skilful managers that consistently and significantly outperform their benchmarks do exist.
• However, it would have been hard for the individual investors to choose these skilful managers on their own. But multi-managers had the edge to research all managers and group the really exceptional ones  into solutions.

In the 2000s:

• We found ourselves dominated by the theme of core-satellite investing.  This concept should be fairly familiar and it represents a blend of arguments from both the previous two decades’ themes.
• Using passive allocations as the core of the portfolio, the investor used aggressive active management solutions as satellite components.
• The blend between these core and satellite solutions allowed the investor to be more flexible in fund design, as well as fee tolerances.

Now in the 2010s:

• We have yet to confirm the theme of this current decade however there are several major shifts on the go.
• The events of the 2008 Global Financial Crisis reminded investors of the need to be absolute in mindset and to avoid capital losses.  As a result, they ask their fund managers to be as unconstrained as possible in delivering returns when risk is rewarded but to avoid losses when risk is being penalised.
• The resurgence of multi-asset investing over the last few years confirms this investor demand, driven not just by the market, but by legislative changes as well.

How can the multi-manager add value in the current environment? By offering solutions which allow financial advisers to present clients with the best possible combination of funds and fund managers. The depth of multi-manager research is unrivalled in the industry.

Multi-managers add value to both the financial adviser and the end client by allowing them to expose themselves to the best of the best in the fund management industry and by packaging solutions to meet their individual needs. They offer this via off the shelf managed solutions or consultative solutions, where they assist intermediaries in designing an investment process tailored to their client base. So all in all, it’s a very exciting time to be a multi-manager.