Multi management is a term used freely to describe manager of managers, multi-management and multi style products, each with their own distinct attributes and characteristics. As with any asset management product coming into vogue, there is often a metamorphosis of relatively similar products already in existence and multi management is no exception. Many financial outfits traditionally renown as a fund of funds provider or a fund supermarket now falsely claim to be multi managers.
So, in its simplest form, multi management is a system whereby there are two or more investment managers running the assets of a pension scheme. This can vary between a couple of balanced managers all the way to a scheme employing a dozen or more managers. Any core-satellite scheme, as commonly recommended by William Mercer or Watson Wyatt, whereby the bulk is indexed specialist managers take on more exotic mandates is strictly speaking a multi management scheme.
Manager of manager schemes, commonly known by the acronym MoM, take the approach one step further. Under a multi manager system, responsibility for the pension fund assets remains with the trustee. Under a MoM scheme, the trustee effectively passes responsibility for both the investment management and implementation down to the manager of managers. Obviously the manager has to adhere to the pension scheme’s statement of investment principles and the trustees have a responsibility to ensure this is done but essentially the MoM is left to research, hire, fire and monitor the managers.
One of the major differences is that under a multi manager agreement, although it is the consultant that researches the managers in the first place, the trustees have the final say as to who manages the assets. They have a direct agreement with the asset managers while under a MoM scheme, the same agreement is between the trustee and the MoM provider. This MoM approach, whereby responsibility is delegated, has come under scrutiny both in terms of what the trustees’ legal obligations are and in terms of a conflict of interest in that under certain circumstances the MoM, is in effect, offering investment consulting and asset management (see below).
Although the manager of manager approach is less common in the UK than in the US, there are progressively more financial groups setting up and willing to offer the service. Nevertheless, trustees are not fully comfortable with delegating responsibility to the manager of managers. According to Steve Delo, UK marketing director at Escher, the idea appeals to trustees although many are a little apprehensive. “If they could delegate responsibility to an organisation that had been doing this for 25 years then they would. The fact that it is all a little new has created a bit of lethargy in the uptake,” he says.
One further aspect of multi management is the issue of multi-style, a system designed to counter style bias. A simple MoM employs one manager per asset class while a multi-style MoM obviously employs two or more. Providers claim that appointing two or more managers per asset class and whose styles are complimentary can reduce style-specific risk and short term volatility.
Latching on the popularity of the multi management concept, some fund of funds providers are masquerading as multi managers. Steve Delo at Escher says in reality most of this is about buying and selling units in other pooled funds and that there is no one taking a central decision over the managers of the portfolio. “When you treat fund managers as stocks, or units in funds as stocks, that’s a fund of funds operation. When you treat funds as individual and discrete and you can chop and change the manager without moving the assets – that’s a manager of managers or a multi manager,” he says.
One of the advantages of multi management is that it gives smaller schemes access to specialist managers, albeit at a price. For most smaller schemes, a core satellite approach is prohibitively expensive. Traditionally smaller European pension fund schemes have been overlooked by the consultants when offering multi manager products. With this lack of multi management, most of the small and medium sized funds have had to make do with either balanced managers or an insured arrangement. As is well publicised, many pension funds feel disappointed by their balanced managers and are therefore looking for alternative strategies. Most multi manager providers argue that a pooled manager of manager approach is a viable alternative to a single balanced manager.
Multi manager providers say a more sophisticated approach to asset management can reduce volatility and the time trustees have to spend on asset management strategy. Perhaps most important is the fluidity of the asset management structure. It’s a well known paradox about trustees taking too long to replace poorly performing managers and, when finally doing so, installing one who performs equally badly or worse. Multi management providers argue that their monitoring and replacement of asset managers is more efficient and, as the survey demonstrates, most providers monitor performance closely and have a list of reserve managers.
According to Delo, the concept of multi management appeals to many of the smaller funds as they have been denied access to specialist managers, be it due to a prohibitive minimum fund size or fee structure. In addition, most specialist management is done on a segregated rather than pooled basis. Smaller schemes naturally lack the infrastructure for managing specialist mandates themselves and he estimates the multi manager approach is particularly suited to schemes of up to £100m (E158m) although the upper limit is likely to be around £250m. Any larger than that and the scheme is likely to be able to do it itself.
Evidence from the last year suggests this analysis is fairly accurate. Northern Trust has over £1bn in multi manager assets and Tony Earnshaw, managing director of multi management products, says that its recent mandates are typically multi asset class mandates originating from small and medium-sized pension funds. Similarly, Frank Russell has had a number of new appointments this year and Jon Bailie, managing director of institutional investment services says most of the mandates are in tens rather than hundreds of millions. (However, in March, it celebrated when the £500m scheme at catering group Compass appointed it sole manager and provider of strategic advice and transition management services.)
The scheme’s are not without controversy though. In the US, the notion is firmly rooted, while in the UK, multi manager is viewed by some as often espousing a conflict of interest. Multi management essentially combines two practices – investment consultancy and asset management – that were traditionally assumed discrete. Most of the multi managers originate from consultants. Both Attica and Escher can trace their roots back to Mercers while SEI and Stamford were initially consultants but have both since sold their consulting business in order to overcome the conflict of interest.
But Frank Russell’s appointment as consultant and multi manager to Smith & Nephew’s pension scheme and the announcement by AON Investment consulting to launch a manager of managers product next to its investment consulting branch has refuelled the debate. Both Bailie, and AON’s Chris Erwin, dispute there is a conflict of interest if the process is completely transparent. “We will tell people that we have the two services available. Trustees are quite able to decide for themselves what they want. To suggest that there is a conflict of interest is frankly insulting their intelligence. It’s entirely up to them,” says Erwin.
Delo disagrees saying that if you’re selling your own funds then essentially you’re a tied agent. “If you’re an investment consultant then you are providing independent financial advice across a whole spectrum of products and those two things don’t marry up very neatly. The compliance issues are no different from a fund manager buying a consultancy and then the consultancy trying to put all its business with that fund manager. The principle is exactly the same,” he says.
Be that as it may, many schemes are happy they are not being hoodwinked by the multi managers. Whether a fan or a critic of multi management, there is evidence of growing popularity. And after all, Frank Russell need only cite its numerous wins in the last 18 months as a watertight endorsement of this approach.

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