The multi-manager or manager of manager concept is beginning to gather momentum in the UK market as institutional investors tentatively hand over their assets. Leading the field are Frank Russell and Northern Trust Global Investors but SEI, the US-based manager of managers, is making inroads into the market, having set up in 1999. Both newcomers Attica and Escher trace their origins back to consultants William M Mercer and launched into the marketplace within the past year.
“We’re benefiting ultimately from the failure of balanced management,” says Jon Bailie, managing director of institutional investment services at Frank Russell. According to Bailie, the approach has resonance because investors are finding it increasingly hard to believe that one firm can provide decent returns in every asset class. Although there is no official estimate of the market size, combining the assets under management for the main providers still leaves the European market at less than €20bn.
Frank Russell offers 28 funds run by a total of 45 managers and has already had 11 new appointments this year worth a total €1.4bn. Typical mandates tend to be tens rather than hundreds of millions but in March it had a great success when the trustees of the £500m (€800m) scheme at catering group Compass appointed it sole manager and provider of strategic advice and transition management services.
Northern Trust, with eight funds and 20 managers, has announced six new mandates this year taking its total multi manager assets to £1bn. Tony Earnshaw, managing director of multi manager products, confirms that they are fairly typical multi asset class mandates coming from small to medium sized pension schemes.
SEI has its roots in the US but entered the South African market in the mid 1990s when exchange controls were abolished. This, suggests UK managing director Patrick Disney, is evidence the manager of manager concept flourishes when there is change afoot. The same applies when the existing model begins to falter. SEI considered entering the UK market five years ago but gave up on the idea as it appeared too closed. Three years on and the balanced managers were beginning to disappoint, hence the decision to set up in 1999.
Eighteen months ago, SEI was anything but a familiar name in the UK yet it announced its first mandate at the beginning of the year when trustees at electrical company AES Drax Power gave them a £20m mandate. It has since gone on to win £18m from pharmaceutical company Meconic and a mandate of up to £50m from MAN B&W Diesel.
Attica Asset Management launched a range of multi-manager funds in January and has since won a £15m Japan and Far East ex-Japan from the construction firm Alfred McAlpine and more mandates are on the way.
Both Bailie and Disney agree that the Myners report has helped their cause. “Myners has hastened the progress and made people think about the concept whereas it might have taken us another two or three years to have got these sorts of questions about effective decision-making and accountability of advice out into the open,” says Disney.
Critics of the multi-manager concept cite cost as being prohibitively expensive. While it is far more expensive that hiring a single balanced manager, Bailie maintains it is a lot cheaper than finding, hiring and monitoring the same managers yourself. For smaller funds looking to put tens of millions into specific categories, the manager of manager approach overcomes the problem of minimum account sizes.
Frank Russell and Northern Trust undoubtedly lead the market while SEI is the newcomer, albeit one with a formidable reputation and backing in the US. Bailie appears unfazed by the new competition, seeing it rather as a validation. “The fact that other people are interested in the market suggests that everyone is recognising that this is a legitimate strategy. One of the problems we had two years ago was that people were saying to us ‘if this is such a good idea, why is nobody else doing it?’” More and more are.