Institutional Asset Manager 23.06.23

Multi-manager strategies face greater scrutiny

Millions of pounds are paid out by asset mangers each year for failing to manage conflicts of interest. Just last year GAM International received a GBP9.1 million penalty for having inadequate systems in place to manage conflict, while an individual within the firm was hit with a GBP230,000 personal charge for ignoring internal processes.
But what of asset managers’ investment consultant counterparts?
A 2018 Competition & Markets Authority investigation into investments consultants and fiduciary management found that firms which provide both services "have an incumbency advantage". The CMA subsequently introduced mandatory tendering for fiduciary services and demanded that consultants unbundle the services.
Yet the CMA shied away from exploring investment consultants’ increasing propensity to offer multi-manager strategies, which also gives them an "incumbency advantage".
This is much to the dismay of fund managers – and indeed consultants that remain pure advisory firms – with Schroders Chief Executive Peter Harrison telling the FT there should be greater regulation of the sector.
This week we bring you a report from consultancy bfinance which revives the calls for greater oversight of investment advisers offering multi-manager strategies.
Kathryn Saklatvala, Senior Director and Head of Investment Content at bfinance and co-author of the consultancy’s June report Rise of the Allocators: Multi-manager Strategies for Alternative Investing, tells us that there is a risk of advisers recommending strategies that are particular to its own organisation, driving the investor to make a decision which is in the consultant’s interest rather than their own.
Saklatvala says: "Questions should be asked when a consultant manages any part of the portfolio, no matter even if it’s only in private markets or illiquid alternatives. There should be the same level of scrutiny."
In other news, research shows retail investors are climbing abord the alternative asset bandwagon in a bid to beat rising inflation and outpace traditional stock market returns.
A survey from Managing Partners Group finds individuals account for around 5 per cent of assets in the alternative sector, but a combination of regulatory changes plus advances in investor education and technology is "lowering the barriers to investing in alternative assets", meaning retail could account for 9 per cent of AUM by the end of the decade.
Jeremy Leach, Chief Executive Officer of Managing Partners Group, says the attraction of alternative assets is "exactly the same" for HNWs and retail investors as it is for institutional investors in that there is no correlation with equities and bonds but previously regulation and a lack of technology "have held them back".
The critical point here is education. Alternative assets are not mainstream for a reason, and investors need to know what they are getting into. We’ll just have to hope they – and their advisers - have done their homework.
Gill Wadsworth, Editor
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