There is an African proverb which says, ‘it takes a village to raise a child’, reminding us that for a child to grow into a well-balanced and successful adult, the whole community is required to play a role in her development. A parent cannot realistically be all things to a child, and much of a child’s upbringing is influenced by grandparents, aunts and uncles, siblings, family friends, spiritual and community leaders, and role models.
So it is, too, in the realm of financial planning that a financial planner cannot be all things to his clients. A financial planner plays an important role in mentoring and guiding a client on their journey to financial independence, supported by many other key industry role players – one of these being the multi-manager. Also known as a discretionary fund manager or portfolio manager, a multi-manager brings a unique set of skills and expertise to the financial planning process.
A key function of a multi-manager is to research and analyse the funds offered by various asset managers, and to build a portfolio from these funds in line with a specific investment objective. An investment mandate may be in respect of a pre-determined set of investment returns required by the client in order to achieve their goals, or may take the form of a bespoke portfolio design compiled in accordance with the client’s asset and investment holdings. A multi-manager therefore does not directly handle invested funds, but rather strategically allocates a client’s capital to carefully-selected funds in line with the agreed investment mandate.
In the absence of an appointed multi-manager, an advisor and client would meet to select the underlying funds and agree on asset allocation, with the selected investment portfolio being reviewed on an annual basis. The danger of this approach is that the fund selection and asset allocation may become inappropriate as and when influenced by international politics and global economies. International politics, such as Trump’s trade wars with China, may make exposure to certain geographical locations less desirable. Similarly, union strikes can play havoc in certain market segments. Natural disasters, such as the recent drought in the Western and Eastern Capes, can also result in negative yields.
One of the benefits of a multi-manager approach is that they can counter the effects of these short-term market volatilities by moving assets between various funds as and when appropriate.
This re-calibration of the investment portfolio ensures an element of investment flexibility while adhering to the client’s investment mandate. Much like any sports team, each asset manager has a culture and identity which can make it stronger or weaker depending on market sectors and conditions.
A multi-manager is able to move between funds as and when markets fluctuate so as to take advantage of prevailing conditions. This dynamic approach to investing allows decisive and timeous action to be taken in a client’s investment portfolio in line with a given mandate.
A cautionary word: not all multi-managers are equal. The multi-manager approach has often been slated as being expensive in that an additional level of fees is added to the client’s investments. However, there are a number of very reputable multi-managers who, by using their bulk purchasing power, are able to negotiate reduced fees with the underlying funds managers, with these discounts being passed back to the investor.
As a rule of thumb, investing through a multi-manager – including the investment fees of the underlying asset manager – should cost no more than if you were to invest directly with the asset manager. Investment flexibility, competitive costs and the ability to respond to market volatility makes the multi-manager approach to investing well-worth exploring.