Multi-Manager: Advance advocates managing risk well

Supporters of a multi-manager strategy argue it diversifies the risk of a single manager looking after a portfolio.

But when all fund managers are under pressure to deliver benchmark performance or better, can the multi-manager strategy work better in these times?

This year’s winner in the Multi-Manager category, Advance Asset Management, has been a long-term multi-manager protagonist and its head of investment solutions Patrick Farrell argues managing the risks is the key.

“We spend a lot of time looking at the top-down picture with our managers,” he said.

“Which means we are seeking managers who can outperform with an implementation strategy that will be well done.”

Farrell believes this approach will manage the multi-manager risk better and deliver value for the fund.

“I consider our team of 14 as risk managers,” he said.

He added that there was appeal in managing the risk and seeing how it will play out.

“[It] will give us the opportunity of taking advantage of opportunities in the downside.” he said. Lonsec reported that Advance’s investment philosophy focused on “insightful, high conviction and uncomplicated strategies that maintain high levels of underlying transparency, liquidity and risk management”.

“A key strength of the Advance model is that the Investment Solutions team is not accountable for profit and loss of the business,” the research house said.

“This model allows the team to focus solely on investment management and the performance of the funds rather than profitability issues.”

Farrell said Advance selects managers that have strong convictions and allowed them some flexibility when managing the mandate.

“We are not about controlling the manager, but we want them to recognise opportunities and we allow them to take advantage of those situations when they arise,” he said.

“It is taking advantage of the manager’s abilities while still controlling the risk.” Research is the foundation of managing managers, Mercer chief investment officer Russell Clarke said.

“A good research team is extremely important,” he said.

“We think research is only done better when you are looking at the philosophical strategy of managers.” Without in-depth research, Clarke said, a multi-manager can end up with too many individual managers and that will just replicate the index.

“We are trying to balance managers rather than just have everybody in the portfolio,” he said.

The current market conditions are testing all managers and Russell Investment Management believes this is the time when the good can be distinguished from the bad.

Russell managing director of Australia and New Zealand Chris Corneil said almost all managers can deliver performance in a rising market.

“When the tide rises, it disguises the capabilities of some managers,” he said.

“But this is the perfect environment to test managers who will see through the crisis.” A global search for managers is key to the selection process and Corneil argues a large international organisation is ideal for the task.