The rise and rise of multi-manager products

Ten years ago only a handful of institutions offered multi-manager products. The rest were still focused on ‘protecting their own turf’, which meant that their sole offerings were their in-house managed products.

Today, all of the leading institutions offer multi-manager products, and the bulk of superannuation monies are invested in them.

Over the next five years, we expect multi-manager products to continue to dominate and to become even more widely accepted by the financial planning community.

Multi-manager landscape

Most Australians, through their superannuation, are invested in a multi-manager product.

Table 1 (Money Management, July 26, Page 22) shows the break-up of the Australian superannuation industry at March 2007 and our estimates of the percentage of monies invested in multi-manager products.

We estimate that about 80 per cent of Australians’ superannuation savings (excluding those in small funds and annuities) are invested in multi-manager products.

In terms of numbers of Australians, the percentage would be greater due to the number of multiple accounts held, particularly in industry funds.

All of Australia’s leading institutions (and their aligned financial planning businesses) now offer multi-manager products.

Table 2 (Money Management, July 26, Page 22) shows the progression of institutions offering these products since the pioneer, MLC, launched its initial products in 1986.

The majority of multi-manager products (both super and non-super) are supported by advice and/or research from an asset consultant.

Those consultants are relatively few in number, and some of them also offer multi-manager products in their own right (often referred to as implemented consulting products).

Three Australian states have set up separate investment organisations to manage their public service superannuation monies — Queensland (QIC), Victoria (VCFM) and South Australia (Funds SA).

In addition, TCorp manages non-superannuation monies in NSW. All of these organisations follow the multi-manager approach to investing.

Table 3 (Money Management, July 26, Page 22) lists the main consulting firms/investment organisations operating in Australia and their funds under advice/management at March 2007. With the exception of van Eyk, the consultants’ advisory clients are wholesale in nature. Van Eyk’s advisory clients are mainly retail.

Assessing multi-manager products

At Chant West, assessing multi-manager products is a core element of our business.

When we assess superannuation funds, we assign a weighting of 40 per cent to the range and quality of the multi-manager investment options offered. In assessing these investment options, we are primarily interested in:

> the underlying asset consultant’s resources;

> any internal investment resources;

> the fund’s governance regime; and

> the investment portfolios.

Investment beliefs and processes, and the quality and integrity of the people involved, are far more important to us than past performance. In fact, past performance counts for only about 4 per cent of our overall assessment.

In essence, what we’re assessing is the fund’s ability to select superior fund managers and their ability to combine those managers into portfolios that are likely to achieve their stated risk/return objectives.

Assessing the quality of the underlying asset consultant is a key component of our assessment of a multi-manager product. Much of the information we have on consultants comes from regularly managing tenders for organisations seeking to appoint a traditional asset consultant or implemented consultant.

We research consultants in much the same way that they research fund managers.

Our database of information on consultants is similar to theirs on fund managers. And just as they have clients who have invested with fund managers, we have clients who have engaged/invested with consultants, and we similarly monitor their performance on a regular basis.

In November 2006, we also began to rate multi-manager products.

The intention here is to provide insights to professionals, including financial advisers, on the detail and fine differences between the leading products they may want to consider for their clients.

We currently rate 12 leading product providers, which include industry funds, institutions and implemented consultants. Through these ratings, we cover most of the asset consultants listed in Table 3 (Money Management, July 26, Page 22).

Specific evaluation criteria

Our ratings of multi-manager investment products take into account three main criteria: organisational strengths (20 per cent), manager and capital markets research (40 per cent) and portfolio management (40 per cent).

We determine a score for each of these criteria and then weight them to provide an overall rating.

For each of the main criteria, we have a further sub-set of detailed criteria.

Table 4 (Money Management, July 26, Page 22) summarises the criteria we use.

Warren Chant is director of Chant West Financial Services.