Hargreaves Lansdown is following in the footsteps of some of its largest competitors by swapping to segregated mandates for its £10bn multi-manager range.
The FTSE 100 retail platform provider confirmed on Monday that it would be gradually rolling out these changes, with Columbia Threadneedle and Jupiter Asset Management already on board to create bespoke mandates.
Starting from 5 November Columbia Threadneedle will run a portion of its £3.3bn Multi-Manager Income & Growth Trust, replacing Richard Colwell’s Threadneedle UK Equity Alpha Income fund. Colwell’s fund made up 10.6% of the trust as at 31 August.
The unfettered fund-of-fund’s joint largest holding, Jupiter Income Trust, is also due to be replaced by a segregated Jupiter mandate by 7 January 2019. The Ben Whitmore-led trust makes up 16.42% of the portfolio, the same weighting as the Artemis Income fund. It will also be replaced in the Hargreaves Lansdown Multi-Manager Equity & Bond Trust where it also features in the 10 largest holdings (5.42%).
Danny Cox (pictured), head of communications at Hargreaves Lansdown, said the decision to switch to segregated mandates was about having more control over investments and sector exposure in the portfolio and reducing costs.
“In some cases, we like the manager, but we don’t want exposure in the retail fund in exactly the way they’re doing it.”
Not perfect
But some commentators, including Ryan Hughes, head of fund selection at AJ Bell, have argued that it is more difficult to ditch managers in a segregated structure should performance of the fund start to lag.
“It should be remembered that the segregated approach is not perfect with changing managers being more difficult due to the size and complexity of structures,” he said.
“While all will tell you this is easy, I speak from experience that in some market conditions, particularly with more illiquid markets, this can be particularly difficult.”
Less flexible
Jason Hollands, managing director at Tilney, agreed that while the segregated model is attractive from a cost perspective, this comes at a price of having less flexibility to change and chop managers.
He said: “On the one hand, fund management groups will cut a keener deal on fees for a large institutional mandate, the terms of which are not going to be visible to other clients and this can help reduce overall OCFs for clients of the multi-manager. But, on the flip side, as an investment manager you also lose some flexibility in the ability to switch from one management group to another as there will be notice periods involved, not just a couple of dealing points.”
Cox said that both the fund-of-funds and segregated models have their own set of challenges adding “we don’t see that as a reason not to do it”.
“We’re looking to stick with fund managers and fund management teams that are there for the long term,” he added.
Lower fees
Cox said another reason for switching to segregated mandates was because of the cost saving benefits for clients.
He anticipates the swap should reduce costs for clients between 10 and 15 basis points but said the firm does not expect to see savings for at least a year.
The switch to segregated mandates will initially affect the multi-manager range but Hargreaves Lansdown has suggested this structure could be implemented across other funds, starting with its UK vehicles.
The group said it is not commenting on any other upcoming segregated mandates at this stage.
