The Association for Multi-Manager Investing was set up in January to promote the approach to a sceptical European market. Its chairman, Tony Earnshaw, spoke to Dickon Reid
Tony Earnshaw, a managing director at Northern Trust and chairman of the recently formed Association for Multi Manager Investing (AMMI), has a job on his hands. Critics of the approach dismiss it as an overpriced gimmick and in continental Europe and the UK, it lags the US market. The association was founded in January to set the record straight and its goal is as ambitious as it is straightforward. “We’re working towards the point where a consultant wouldn’t put together a beauty parade without at least considering a multi-manager option,” says Earnshaw.
AMMI members are GAM, Northern Trust, SEI, Stamford Associates and William Mercer. To qualify for membership, an institution has to run institutional money (though not exclusively) and the focus has to be European as opposed to American or Pacific. According to Earnshaw, beyond that there are few restrictions to membership. “We may constrain it more as time goes on but initially we wanted to set up some fairly simple guidelines to get people who are interested in multi management together so we can boost the approach.”
The association is a loose organisation and essentially a talking shop. At the second meeting the five institutions agreed an agenda (see box), but the means to that end are undecided. “What we wanted to do was to get a meeting of minds, so we know the things we have to build on. We’re letting it grow fairly informally this year and next year we may start with a more formal constitution,” he says. Yet the association is already attracting further interest. Rothschild Asset Management sat in on the second meeting and Skandia is attending the next one in May. “I’d always seen Skandia as more of a fund link operation but my understanding is that they’ve been moving away from that towards a more multi-manager approach,” he says.
Despite the association’s loose structure and the constituents’ differing approaches to multi-management, there is a consensus. “We all have this belief that this is an approach that has a lot to offer the market place. We all believe it’s an approach whose time has come,” he says. Four or five years ago the multi-manager sector was tiny. At the time Earnshaw was a consultant and an advocate of the multi-manager approach, yet he was unable to convince trustees. He says this is changing. “The UK pension scheme market is terribly conservative and trustees have been increasingly more rather than less conservative, for all the right reasons. Historically consultants have viewed multi managers with suspicion. There’s been a feeling that it was competition, which I don’t think it is,” he says. A pitching towards small and medium-sized companies has alleviated consultant’s fears. “I thing they consultants have come to the view that more and more there’s a role for multi-managers; but it’s taken quite a while.”
Earnshaw says the association will promote the attributes of the multi-manager approach, many of which emerge during the interview. With a mixture of managers and management styles, you’re able to control the downside. Then there’s the risk trustees appoint a manager who has performed well but who then under-performs, a surprisingly common symptom. A multi- manager monitors the managers within the portfolio and is actually very hands on, thereby offsetting the problem.
The multi-manager approach is marginally more flexible than fund of funds. Under the latter, a manager is restricted to the funds that others have already built. “He has to find what he wants and he’s stuck to some extent with the charges of these funds. If you go for a manager of managers and each manager is running a segregated portfolio which you’re pulling together into a fund, then under these circumstances, the manager of managers can set the investment brief and agree it with the underlying managers. He sort of sets the agenda – the guidelines, the restrictions and the fees,” says Earnshaw.
With the multi-manager approach, costs are more transparent. A client will typically know they are paying 60 or 70 basis points, all included. In a fund of funds you might pay X or Y basis points to the fund manager, then there are other costs for the underlying funds which, according to Earnshaw, confuses the overall cost.
Despite the attributes of the approach the take up in continental Europe has been slow. “Europe is somewhat behind the UK in terms of equity investment. With one or two exceptions, the equity culture hasn’t been dominant… One of the big opportunities for everyone, whether or not they are multi-managers is the way that’s breaking down and equity is becoming more the prevailing culture,” says Earnshaw. As the investment industry in Europe starts to change more towards the Anglo-Saxon model, one of the association’s jobs is to educate potential users about the multi- manager approach. The association is considering running conferences and a newsletter, though neither have been finalised.
Earnshaw hopes the multi-manager system will eventually leapfrog some of the other investment models but says predicting which countries will host most of the business is premature. At present, the organisations he talks with are targeting countries where they have existing links and contacts and there isn’t a particular country geared for success.
Whichever countries embrace the approach, the association is determined to maintain standards of institutions offering multi-management. “As more and more people come into the market, we want to make sure standards don’t get diluted, the idea of multi-managers doesn’t get tarnished,” says Earnshaw. The association will also lobby politicians to ease the path for multi-managers. As the emphasis shifts to continental Europe, so there’s the need to monitor European law. Earnshaw says the reorientation means more funds require UCITS, or the European badge of accreditation. European law is relatively harsh on fund of funds but he is confident that this will be relaxed by the European parliament when it ratifies UCITS 2. Predicting dates for European law has never been an exact science but Earnshaw says it will be next year at the earliest.
According to Earnshaw the members of the association are either attempting to build or are continuing to build their multi- management business. “The more multi- management is seen as established, the more people will understand what it is,” he says.
So much so that if he has his way, in three years time every beauty parade will consider the multi-manager structure. Given the sector’s stature in the mid 1990s this will be some achievement.
Plan of action
At its second meeting in March, the AMMI agreed to:
q Promote the concept of multi-manager investing and increase the understanding of the benefit to trustees and others in a fiduciary capacity, and to the beneficiaries, of multi-manager approaches to institutional investing in Europe.
q Educate the market place as to the meaning of the terms multi manager, manager of managers, and, specifically, to differentiate active manager of manager programmes from passive, set-up and leave alone approaches and to differentiate between manager of managers and fund of fund approaches.
q Consider the introduction and monitoring of good practice standards
q Facilitate understanding of the concept and uses of multi-manager approaches among the consultant and investment management communities where needed
q Establish contacts within the legislative and executive branches of government to ensure the interests of multi manager investing are safeguarded.