Consistency considerations
However, the rise of risk-profiling tools in recent years from the likes of Distribution Technology and FinaMetrica has made it easier to determining consistency; something vitally important to advisers looking to outsource.
“It is very difficult to massively outperform in the funds of funds space because you are tending to try and produce a product which fits a particular type of risk profile or a range,” comments Rayner.
“You tend to bring in a range of funds which cover different risk profiles – low, medium, high risk – and you don’t have a huge capacity to be very contrarian or active in how you operate, because you have to work to a structure.
“Many of these solutions are trying to deliver to these risk-profiling tools and steadily banded risk solutions where they know there is going to be at least a level of consistency in performance. This means there are a number of things working together at the same time to restrict the ability of a new entrant or individual multi-manager to massively outperform the typical risk range you’re in.”
Worth the risk
However, not all portfolio managers themselves would agree with this assessment, particularly in such a competitive space.
Standard Life Investments has grown rapidly to become one of the largest in the space by assets under management (£7.2bn as the firm celebrated its five-year track record at the end of September last year) with its MyFolio range. The firm caters for different prices points with low-cost (its five-strong Market range, a fund of trackers) and medium-cost (10 Managed funds which mainly invest in in-house SLI funds) options.
Its 10 higher-cost Multi-Manager portfolios have, according to head of fund of funds Bambos Hambi, a very competitive price point of around 1% on wrap platform.
“We have a risk budget for every single fund; it’s a forecast volatility budget and my role with my colleagues is to try and get the best performance within that risk budget/forecast. And we have exceeded expectations,” he says.
“You always have to be on your toes. There is greater competition now. When you go back to when I first started, there were probably only four or five multi-managers out there.
“However, it is not just other multi-managers that we have to compete with now but multi-asset products and managed portfolio services from wealth managers. It is about meeting different adviser and client needs and, very importantly, the big change over the past five to 10 years is that more and more advisers have been looking for an outsourced solution.”
