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Multi-manager Education Guide

 

Manager of managers

What is meant by manager of managers (MoM) and how are they made up?
Manager of manager funds operate along the lines of institutional investments such as pension funds, foundations and charities. Rather than investing in funds, MoM funds select different investment managers and gives each a mandate to make investment decisions. These are known as ‘segregated mandates’.

Each manager is responsible for working to the instructions provided by the MoM. Usually the managers will be responsible for a specific asset class, which ensures that the overall fund draws on the expertise of specialists in each field. The segregated mandates are built specifically for the MoM fund and are, therefore, tailored to their precise requirements.

In addition to selecting the manager responsible for each ‘segregated mandate’, the role of the MoM includes monitoring the overall portfolios at a stock-by-stock, manager-by-manager level.

By having a number of specialists, instead of one manager investing the fund’s capital, the assumption underpinning MoM is that diversification and outperformance should be more readily achieved.

What are the benefits of investing in a MoM?
Direct Control
One significant benefits to investing in MoM funds is the fact that the multi-manager has direct control over the assets and who is responsible for managing them.

This level of control can be extremely important should it be necessary to change one of the underlying investment managers. In such a case, the contents of the segregated account is simply passed to a different manager, avoiding the costs that would be incurred had the investments needed to be cashed in.

Quick Transitions
The additional benefit of the multi-manager having direct control is that the transition to a new manager is done quickly and efficiently, a difference which should ensure minimal disruption to the performance of the segregated mandate and, therefore, overall fund.

Low Costs
Due to the scale of investments, managers are able to negotiate lower charges meaning that MoM funds often have low ongoing charges. However, individuals who want to invest in a MoM scheme will have to place a large initial investment – a barrier to entry for the average private investor.

 Fund of FundsManager of Managers
Underlying InvestmentsFunds: usually unit trusts or OEICs, sometimes investment trusts.Segregated Mandates: individual external managers are responsible for an asset class.
ControlThe manager selects the funds within his portfolio but has no control over the activity at each underlying fund.The overall manager has direct control over the other investment managers and monitors all activity.
Minimum InvestmentLowHigh
Ongoing CostsHighLow
AvailabilityReadily available, with lots of choiceFewer options are available in the MoM sector
 
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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.

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