Two points on this: firstly, many of the more interesting idiosyncratic areas of the investment market are also open to fund-of-funds and, in some cases, they are used.
Secondly, it is a fact that some of the newer asset types or classes have just not turned out to be the pots of gold at the end of the rainbow that perhaps managers originally indicated they were, and the ability to be so precise about certain parts of the market at any one point in time is debatable in an uncertain investment world.
Transparency
One final point in this debate centres on how many multi-asset fund managers today were originally fund-of-fund managers but have either chosen, or indeed been forced, to be multi-asset managers due to cost pressures. We face no such pressure.
I suppose one of the general observations about multi-asset over multi-manager – although, as always, detailed analysis is required by the researcher – is that many are large, as they were built for scale and more than a few multi-asset solutions can appear quite complex.
Fund-of-funds, again generalising, are perhaps a little more transparent and simpler to understand and this is important.
To conclude that one is better than the other is frankly a little naïve, to say the least. In a rapidly growing outsourced solutions market there is clearly room for both approaches. But like other areas it is incumbent on the purchaser to do their homework, make sure they understand where the outsourced manager skill sets reside and test the long-term pedigree of the investment team managing the solution.
Above all, investors should judge results and the ability of their fund manager to deliver durable long-term performance and risk-adjusted returns.
Gary Potter is co-head of multi-manager at BMO Global Asset Management
