According to the Cerulli Quantitative Update: Global Multimanager Products 2008, global retail multimanager AUM represented 12.9% of long-term mutual fund assets in 2007,more than double the proportion recorded just four years ago (6.4%).
Yet this is not exclusively a U.S. phenomenon. Retail multimanager products outpace both on a relative and absolute basis. Outside of the U.S. retail multimanager assets represented 18.2% of long-term mutual fund assets as of year-end 2007.
The demand for retail multimanager products across the globe has been fueled in large part by the appeal of embedded-advice applications-those products with features such as manager selection and asset allocation (whether tactical, strategic, or in the form of rebalancing) already baked into the product. Mass-market clients are looking for simple, low-cost software which will deliver both diversification and a reasonable promise of actionable, open architecture.
Cerulli defines the term multimanager to describe assets invested in long-only traditional investments (this excludes private equity and hedge funds) and held in one of two types of vehicles: manager-of-managers products or funds of funds. Manager-of-managers products describe vehicles managed by multiple underlying sub advisors administering their portfolios as separate mandates.
Funds-of-fund products describe collective investment schemes that in turn invest in shares of other publicly offered collective investment schemes. The term ‘retail multimanager products’ refers to funds of funds and retail manager-of-managers products collectively.
“The relative uptake of multimanager products in individual markets has been very broad-based,” says says Benjamin Poor, director and author of this report. “With the lone exception of Spain, retail multimanager products increased their share relative to long-term mutual funds in every region Cerulli covers. This vindicates the value proposition for embedded advice, and shows that market performance is only one factor behind the growth of multimanager products.”
“Providers of investment advice, such as independent financial advisors (known as RIAs in the U.S.), are looking to add more value for clients through estate and financial planning strategies, rather than by building bespoke portfolios of securities or conducting due diligence on investment managers,” continues Benjamin Poor.
“Wide-open platforms offering access to hundreds and thousands of global managers have actually proven unwieldy. Thus, guided architecture-whereby the distributor delivers a limited set of high-pedigree managers, chosen by FOF or MOM professionals-is becoming the more compelling bargain.”
L.D.