UK- Pension consultancy Gissings has attacked the practice of multi management accusing it of lacking transparency and the ability to provide tactical asset allocation as well as being straightforward consultancy but in a different guise.
Brendan Reville, investment director at Gissings, says that trustees should not assess investment consultants simply on the basis of manager selection. “Manager selection is far less of a determinant of return and solvency for a pension fund than the asset allocation. Multi managers don’t do tactical asset allocation,” he says.
Derrick Dunne, joint CEO of multi manager Attica AM, agrees that asset allocation is the predominant determinant of return. “However,” he says, “there is a big difference between strategic and tactical asset allocation and there’s a wealth of empirical evidence that tactical asset allocation doesn’t add value over time.”
Another criticism Gissings levels at multi managers is that, since they are not actuarial advisors, they run the risk of giving inappropriate asset allocation advice. Reville also maintains multi managers managers' selection skills are no superior to consultants'.
Dunne says that consultants and multi managers come at selection from different perspectives. “Manager research for a multi manager has a single purpose and that is in choosing those that will outperform in the future. Manager research in a consultancy firm can be to keep clients informed.
“Consultants will cover managers that they do not necessarily expect to outperform because they have to discuss them with their clients. With multi managers you’re just focusing on outperformance. When you’re advising somebody you need to cover the entire universe.”
Reville also criticises the practice of a lack of transparency and suggests multi managers fail to provide full details of performance of the managers within the funds.
“The fees are not transparent. The basis points charge provides considerable scope for provision of ‘free’ services such as asset allocation advice that trustees should source elsewhere,” he says.
Says Dunne: “our job is not to divorce our clients from the underlying managers. But what the client is buying is the fund so we inform them as to how our managers are doing.”
He agrees that clients do not get tables of the underlying managers but they do get an explanation of who added or detracted value.
“The client is buying the mix of managers, they are delegating the selection of the underlying managers but it’s wholly untrue that its not transparent.” He adds that there is very unusual for clients to ask for these details.
Gissings only concession it that multi managers are often able to time the dismissal of managers better than trustees, traditionally one of the latter’s weak points.