This week Sophie Huang, Senior Researcher at Platforum (@theplatforum) looks at where fund flows will come from as fund-of-funds asset growth starts to plateau.
One of the challenges in doing research on multi-manager funds is that everyone seems to have a different definition of what they are. For the purpose of this missive, we mean those fund managers who are free to choose anybody else’s funds and charge a management fee on top of the one charged by the funds they choose to invest in. These are referred to most often as “unfettered” or “invested externally” funds-of-funds.
Our research shows that multi-managers are truly a resilient bunch. Despite facing strong headwinds on several fronts – pricing pressures, challenging investment environments and new entrants into the retail marketplace, they continue to claim more than half of net new sales of total funds-of-funds sales (i.e. including “fettered” or “invested internally”). In fact, our research reveals that growth in funds-of-funds assets (fettered and unfettered) has consistently outstripped that of industry total FUM for the past ten years. However, our research also suggests that growth has stalled.
To get a better sense of these overall trends, we spoke to financial advisers, platform providers and heads of sales at fund groups known for their multi-manager offering. It appears that storm clouds are indeed gathering in the adviser segment of the multi-managers world with growth in assets stalling. Further evidence of slowing multi-manager sales was JP Morgan’s recent decision to close its Fusion Fund range.
Just about every adviser we spoke with said high fees are to blame for the decreased use of multi-manager funds. They use these products for lower value clients but are increasingly turning to model portfolios for those with over £75,000 to invest.
But in the D2C segment – Hargreaves Lansdown in particular – the outlook seems brighter for home grown products, rather than those offered by the fund groups. Hargreaves Lansdown has reported in June that 10% of their FUM sits in their multi-manager products. We suspect most D2C investors are not aware of the layering of fees in multi-manager products and are therefore probably less sensitive to the higher charges to which advisers are acutely sensitive. Solutions that narrow choice can also be appealing to this DIY segment.
To be sure, the challenges are here to stay. So far, multi-managers have been quite creative and innovative in implementing measures to improve the marketability of their funds. But alas, to find out more, you’ll need to wait for our report – out next week.