In our view appointing two or more asset managers in an uncoordinated fashion is not multi management as understood today and may lead to undesirable results.
Investors will often appoint asset managers on balanced mandates where the managers control asset allocation within their portion. This can lead to managers making disconnected asset allocation calls which can undermine the combined portfolio. This imbalance can also arise with asset selection say where one manager may be selling a share while the other manager is buying the same share. After trading, all that changes is an increase in costs for the portfolio. This interplay between what managers do individually and the resulting combined effect is essentially the value of using a multi-manager as the coach of a team of asset manager players.
Economic performance around the world
|REGION||GDP Growth rate||Inflation||Interest Rates|
|Botswana||8.4% (Sep-21)||8.7% (Dec-21)||3.75% (Dec-21)|
|USA||6.9% (Dec-21)||7.0% (Dec-21)||0.25% (Jan-22)|
|Eurozone||4.6% (Dec-21)||5.1% (Jan-22)||0.0% (Dec-21)|
|UK||6.8% (Sep-21)||5.4% (Dec-21)||0.25% (Jan-22)|
|China||4.0% (Dec-21)||1.5% (Dec-21)||3.7% (Jan-22)|
So, what does a multi- manager do? A multi manager evaluates, selects, appoints and manages a number of asset managers put together into one team to look after the investor’s money. A multi manager will evaluate asset managers on the following criteria and then combine the best available choices to make one effective team.
- Asset managers tend to apply a particular investment style or philosophy like Value or Growth which influences their investing decisions. Some of these styles are more successful than others at different times. A multi manager can diversify an investor’s portfolio by blending styles to reduce portfolio volatility and risk over time.
- Some asset managers are better and more successful than others at different times. A multi manager will try to assemble a team of good players with room to improve and avoid poor or troubled managers or those on the decline.
- Some asset managers are good with particular asset classes. Manager A is great with Equities, Manager B is great with Bonds. The multi manager will use “best of breed” asset managers in their best positions (specialist mandate) and not expect them to manage all the asset classes (balanced mandate) at the same time.
How have financial markets performed over the last 12 months to December 2021?
|1 Year Botswana Local shares (TR)||1 Year Botswana Local Bond Performance (Fleming Bond Index)||1 Year money market (BWP) (Overnight Call rate +2%)||1 Year MSCI ACWI (BWP)||1 Year MSCI Emerging Markets||1 Year change Botswana Pula vs US$|
Strategic asset allocation (the agreed percentage allocation of the portfolio to each asset class) is a key factor influencing risk and return over time. Multi managers are able to adjust cash flows to and from asset managers within their team which means that allocation to each asset class can be adjusted and rebalanced regularly within the original agreed levels. This is harder to do with asset managers using balanced mandates where control of asset allocation lies with each asset manager.
Generally, multi manager portfolios have less volatility and risk over time because the team has been selected for excellence and on diversification principles. Practically this means that the range of returns is narrower than for single asset managers. This means that over time, the yield becomes more stable and predictable and generally these portfolios will tend to outperform single asset managers in the same market. For this reason, multi management is ideal for long term institutional investors.
A multi manager will most often create a platform or pooled structure to house the asset manager team. This layer of investment administration means that the complexity of multiple returns and accounting is well reconciled within the portfolio to one unitized price, which greatly simplifies member accounting and investment reporting for both ns and administrators. Because multi manager structures are developed from the ground up, it is easier to assess, evaluate and attribute all aspects of asset manager performance on an ongoing basis. This enables investors to have greater insight and understanding of what is happening in their portfolio.
In summary, a multi manager will assess and rank the universe of available managers for each asset class on an ongoing basis. Construct multi asset portfolios using best of breed asset managers for each asset class. Ensure risk and return diversification by using asset managers with differing and uncorrelated investment styles. Apply ongoing portfolio and asset manager assessment to ensure that intended outcomes are being achieved. Check to see that asset managers are doing what they said they would. Where manager issues arise, a multi manager can control remediation including replacing an asset manager when indicated.
It is useful to note that while asset managers remain accountable for their asset performance, as coach the multi manager also now carries responsibility for the overall combined performance.
The Botswana Retirement Fund Column sponsored by Strategic Wealth
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DISCLAIMER: While every effort is taken to ensure the accuracy of the information used in this column, Strategic Wealth accepts no liability for errors or omissions. Information is provided for general educational purposes and is not to be treated as financial advice. Investors should consult professional advisors before taking any action. Not all statements necessarily reflect the views of Strategic Wealth.